Connections for Success

 

03.07.11

Your Table is Waiting!
Michael Desko

If you are considering opening a restaurant, there are many ways to leverage the current economic climate and its repercussions on the marketplace to work to your advantage.  Allow me to share with you some of the advantages there are and then a couple of important things to consider.

Leveraging the Marketplace

  • Commercial Real Estate
    With commercial real estate vacancies approaching 30 percent, landlords are aggressively granting tenant concessions.  Lower rents, free months, and allowances for improvements are all available for the asking. Additionally, there are quality restaurant-ready locations available.  Since build-out costs start at $150 per square foot and also take a considerable amount of the owner’s time and energy, this represents a tremendous bargain.
  • State Cooperation
    Because they are funded by sales tax and the economic downturn has taken a substantial toll on local budgets, Illinois municipalities have never been more accommodating.   There are a lot of failed retail businesses like Borders and Circuit City that are not coming back.  The state, therefore, is a bit more willing to work with you to grant a business or a liquor license to see a new business come into the market and additional revenue in their pocket.
  • Employees
    The economy has given employers a very deep talent pool.  But if your staff cannot deliver consistent service, atmosphere and cuisine, a cool concept and delectable recipes will fall flat.  The key is to choose a combination of quality and experience in your future staff; good people with strong restaurant or hospitality experience.

Important Considerations

  • Financing
    The idea that banks will not lend to restaurants is an urban myth.  Restaurants are the number one funded type of business through the Small Business Association’s (SBA) loan program.  The key is to work with a lender who has proven SBA experience.  Community banks have many strengths but SBA lending is typically not one of them.  The key to a successful loan application is to meet with the bank in advance and define the underwriting guidelines, such as down payment, collateral, industry experience, outside income, etc.  Then set up your partnership to meet these guidelines. Interestingly enough, based on the most recent data available, only 14 percent of restaurant loans through the SBA program have failed.  This fact also debunks the myth that 90 percent of all restaurants fail.
  • Investors
    The key with investors is to set realistic expectations and define an exit strategy.  The profit margin on restaurants will be 10 to 15 percent of sales, so don’t promise exponential returns.  If the plan is to buy out your investors over time, it will save much time, energy and money to define the buyout terms upfront.  For long-term investors, clearly define key performance indicators and a reporting schedule.  Folks want to know how their investment is doing.  No one is ever “passive” when it involves their money.
  • Municipalities
    Reach out to your local municipality.  The municipality’s economic development point person is a great place to start.  While villages are looking to cooperate, you’ll still need to learn their processes and timelines.  Please remember that a lack of preparation on your part will not create an emergency on their part.  Focus on items such as signage, variances, liquor license and building inspections.
  • Niche
    Last but not least, clearly define your market niche and make sure that it differentiates you from the local competition.  Restaurants work well in clusters.  This holds true as long as each member of the cluster brings something different to the party.

So yes, your table is waiting and the time has never been better to leverage the marketplace in opening your dream restaurant.  Just remember, there are many moving parts that come into play with a restaurant.  Do not let all the concessions deter you from your due diligence.

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