If you’ve been approached with the opportunity to invest in a restaurant there are many facets of the business to consider. From disheartening statistics to never-ending costs, there are plenty of reasons to avoid a restaurant investment. On the other side of the coin, there are numerous benefits to be gleaned from a successful restaurant venture.
Take the following into consideration before pledging your money and time to a restaurant idea:
Understand the Realities of the Industry
Restaurants are a dime a dozen, and it’s not rare to see a new restaurant closing its doors mere months after opening. According to the National Restaurant Association, an average of 60,000 new restaurants are opened each year, and an average of 50,000 restaurants close. A restaurant venture isn’t for the faint of heart, as around 60 percent of new restaurants fail within the first year, and almost 80 percent are closed before they’ve reached five years of business. It’s important to understand these realities before dipping your financial toe into the water.
Are You Well-Versed in the Industry?
Do you have a background in the restaurant industry? Unless you’ve been involved in the restaurant business, have grown up in and around restaurant businesses, or have run a successful restaurant yourself, don’t ever invest your capital into an individual that doesn’t have proven success in this sector.
With failure so common, you’ll need to be assured that the restauranteur you’re backing has the abilities and business acumen to handle the job, especially if you’re planning on being a passive investor that reaps the benefits but deals with few of the day to day responsibilities. You’ll want your business partner to have previous experience with every sector of the restaurant practices, from cooking and business deals to décor and permit regulations.
Understand the Costs
If you’re going to be investing in a restaurant, it’s essential to understand just how costly this venture can be. We’ll run through just a few of the costs associated with opening a restaurant:
Lease Issues
Location can be the make or break factor in a restaurant’s success, so it’s generally best to pick a location that sees plenty of customers and foot traffic. However, it’s a double-edged sword—if this restaurant is going to be a populous area, prepare to pay an arm and a leg for a lease that may rise each year. Search commercial property listings in your area at CityFeet.com.
Sourcing Food and Alcohol
You’ll need to find reputable vendors that provide quality ingredients if you want to offer a great dining experience. While food costs range depending on your location and desired ingredients, you can prepare for this to take up a considerable portion of your budget.
Alcohol is also an important facet of restaurant success, as a bulk of restaurant profits are due to the sale of alcoholic beverages, and guests have come to expect beer, wine, and spirits on the menu. However, serving alcohol is anything but inexpensive. You’ll need to acquire the right permits, including a liquor license, which is probably much more expensive than you assume. License Locators, Inc. says the average liquor license can cost thousands upon thousands of dollars, with some alcohol permits going for hundreds of thousands of dollars in certain cities.
Marketing Campaigns
You can’t simply open your doors and expect guests to start flooding in. You’ll need to put a large amount of money into advertisements, social media campaigns, and publicity to attract patrons to your restaurant. You may elect to go with a restaurant marketing company like Flok to streamline your processes and simplify your own responsibilities, and these services do not come cheap.
These expenditures are merely the tip of the iceberg, and beyond money, running a restaurant can be rife with responsibilities and unforeseen stresses. Costly in terms of time and money, a restaurant investment requires much of its investor. Consider the facets of this industry and take your time before making the decision to invest your hard earned money into a restauranteur hopeful.