Start & Run a Restaurant Business. Brian Cooper
customer as an evening’s entertainment.
4.2 The family, mid-size, casual restaurant (also known as the bistro or grill)
These restaurants lend themselves to owner operation and will rely on the local population for support. There has been a growth in the number of this kind of restaurant, as people eat out more frequently due to longer working hours, dual-career families, and higher incomes. Providing food and service at a family restaurant doesn’t require as much of a performance on the part of you and your staff as the fine-dining experience would, but you will want to get to know your customers personally and make them feel at home.
Family restaurants share characteristics with both the quick-service restaurant (discussed below) and the fine-dining restaurant (discussed above). You will need to design a menu that aids the customers in quickly making choices from a list of profitable items, assisted by a friendly and helpful server, who again is a commissioned salesperson. Usually you want to encourage adults to order alcoholic beverages and family members to order highly profitable desserts. At the same time, you do not want to make your guests so comfortable that they will stay so long as to prevent you from re-using the table for enthusiastic waiting guests.
Your challenge is to find ways to distinguish your concept from the similar operations in your marketplace. Here is where the design, ambiance, and quality of both food and service can be used to do just that. The owner’s personality can be an important factor in making this difference.
4.3 The quick-service or fast-food restaurant
This style of restaurant usually features paper napkins and little or no service. The food is often purchased frozen and fully prepared so that the menu items can be quickly cooked and served. The skill level of the cooks will be minimal, and therefore the labor costs can be kept down. The average checks are much lower than in other types of restaurants, and revenue must be generated by high turnover. The style of service is minimal so that a fast turnover of customers will be possible. Most quick-service restaurants feature take-out and/or delivery.
Here, location is key to success. Locating even a donut or bagel shop on the wrong side of the street or highway can doom an otherwise excellent concept.
Specialization in a quick-service restaurant is important. You want to present a small, targeted menu that encourages customers to make up their minds, eat, and vacate the premises as quickly as possible, making way for new, eagerly waiting clients. Many fast-service restaurants fail because of the addition of unneeded and unprofitable items that are not compatible with the original concept.
4.4 Social and contract caterers
Although not dealt with specifically in this book, social and contract caterers are a major part of the restaurant industry. Whether located in a small or large hotel, a school, a hospital, or a retirement home, they form part of a fast-growing industry. Many family, quick-service, and fine-dining restaurants find that adding home, wedding, or business catering allows them finally to be profitable. In the slow periods between breakfast, lunch, and dinner, highly skilled and expensive employees are underused. Preparing for a large catering contract provides additional, much-needed revenue, and also provides management and staff with variety in their daily routine.
One of Brian Cooper’s most successful restaurant friends had a business located in a large office tower. He found that catering to office parties and boardrooms became the most successful and profitable part of his business. Another friend found that preparing specialty (take-home) meals and featuring them in a local supermarket became so successful that a separate facility was needed to produce sufficient take-home items. In a situation like this one, however, you must always take care that the supermarket doesn’t decide that it can open its own deli and cut you out.
2
The Structure Of Your Business
Before you proceed to developing your business plan as described in the next chapter, you should decide whether you wish to operate your restaurant as a sole proprietorship, a partnership, or a corporation. Each structure has distinct characteristics, so take care in deciding which one will serve you best. We strongly recommend that you consult your lawyer, accountant, and a financial planner for assistance in choosing. Below is a brief overview of each structure.
1. The Sole Proprietorship
By far the simplest of the business structures mentioned above is the sole proprietorship: a business owned and run by one person. As a sole proprietor you are responsible only to yourself and, of course, the financial institution with which you will be dealing.
1.1 Advantages
There are a number of advantages to operating your business as a sole proprietor:
• Quick start. You can begin doing business immediately as a sole proprietor. Documentation is minimal; all you really need to obtain is a business license, and no complicated partnership agreements need to be written.
• Low cost. Apart from obtaining a business license, no legal measures need be taken to set up as a sole proprietor; therefore, no legal fees are involved.
• Possession of profits and assets. All earnings and assets of the business are regarded as the personal income and personal property of the sole proprietor, and may be disposed of as the proprietor wishes.
• Potential tax benefits. As mentioned above, the earnings of the business are regarded as the personal income of the proprietor, and must be declared as such on all tax forms. However, should a sole proprietorship incur a loss, that loss can be used to decrease the proprietor’s personal income tax.
• Quick wind down or sale. A business operated as a sole proprietorship can be closed or sold according to the proprietor’s wishes. (Note, however, that legal responsibilities to employees and creditors must nonetheless be fulfilled.)
1.2 Disadvantages
Some disadvantages of operating as a sole proprietor include the following:
• Possession of debts. Any debts incurred by the business are regarded as the personal debts of the sole proprietor.
• Liability. As a sole proprietor, your liability for the debts and obligations of your business is unlimited. Furthermore, an unsatisfied business creditor can resort to your personal assets if you cannot pay your business debts.
• Potential tax problems. A sole proprietorship is not eligible for certain tax breaks available to corporations. This is likely to become an issue as your restaurant becomes more and more profitable.
• Limited financing options. Banks and other lending institutions may be less enthusiastic about providing loans to sole proprietors than to partnerships and corporations. You will be required to put up personal assets worth almost equal to the value of the loan, as well as personally guarantee any amount borrowed.
Due to the volatility of the restaurant industry, it is difficult to operate a restaurant as a sole proprietorship unless you have a large inheritance or have recently won a lottery. Nonetheless, once you have prepared your financial plan (see Chapter 4, “The Financial Plan”) and carefully researched your personal capacity to operate without partners, you may be able to operate at least at the start as a sole proprietor. We highly recommend it.
Often, individuals believe that franchise opportunities are similar to sole proprietorships. However, as you will see in section 4., they can be looked on more truly as a partnership, with all the challenges that go along with that business structure.
2. The Partnership
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