Want to Open a Restaurant?

I started this post in February of 2017 and for some reason I decided to finish it today. I guess it was just one of those things that has been silently hanging around in the back of my head and today it decided to come out.

So if you're reading this then you may have been thinking that you'd like to quit your corporate job and do something completely different. I get it. I've thought about that many, many times and I still think about it every day. Maybe you love to cook and entertain and think about how great it would be if you could just do that all the time and make a living doing it. Or maybe you've been sitting in a crowded restaurant and thought about how much money the place is going to take in when all those people pay for the food and drinks they're consuming. I've done that too. Or maybe you worked as a cook or server when you were in high school and you remember how much fun that was. Wouldn't it be great to do something that was really fun again and rake in a ton of money in the process?

These are all reasons why people decide to go into the restaurant business. After all, how hard could it be to open a place and serve food and booze and have people throw money at you all day? Sounds like a great business idea and a great way to work until you're ready to retire, doesn't it? Well, I'm going to tell you the cold, hard truth and you can decide for yourself whether it sounds right for you.

First of all, everything I'm going to tell you was learned through my experiences in restaurant ownership. I didn't learn this in restaurant school or from a book. I've owned and operated two restaurants and I'm out of that business now, but every day I still think about opening another one. Once you've done it you'll find it's very hard to get it out of your head.

The first place I owned was one that was operating when I bought it. I had been thinking about quitting my corporate job and doing a restaurant for several years when this opportunity came along. To make sure I was really ready to do it I had gotten a part time job working with a well known local chef and was already spending time in the kitchen and loving every second of it. 

I felt certain that I wanted to make this change so I bought the place at a price that was way more than it was worth. It was a neighborhood Italian restaurant that had been in business for over 50 years and was well established. For several years it had been struggling due to the owner's cocaine habit and extreme burnout. The transaction was pretty easy.  I handed over a huge amount of money and he quickly scurried away as fast as he could. This should have been a red flag, but I was crazy happy at the thought of now owning a restaurant so I didn't pay any attention to it. All of the vendors, banks, utility companies, and the landlord were eager to set up terms with someone who was actually going to pay them so it took only a day or two to get all that finalized.

The problems started to surface almost immediately. I had agreed to retain all of the employees and I quickly found out that they were stealing liquor, food, and cash as fast as they could get their hands on it. They had apparently been doing this for some time and figured it was a benefit of their employment because they didn't seem too concerned when I caught them red handed. I fired a few and a few others quit and were quickly replaced.

About 2 weeks into this adventure I had a meeting with the accountant. He had been doing the books for years and I was trying to decide whether I wanted to keep using him or find a new one. When I questioned him on the previous owner's Profit and Loss Statements and Balance Sheet for the last year he told me that he had never seen those numbers before and they didn't come from him. The P&L showed  monthly profits between $3,000 and $4,000 for the previous 12 months, but the reality was that the business was losing about $5,000 per month.  The previous owner had falsified the numbers to make the restaurant look better to potential buyers.

Then came the invoices from the previous month before I bought the place. The terms on everything were Net 30, so the previous owner spent like a drunken sailor right before the sale so the condition of the business would look better and then stuck me with all the bills for it. Perfect. The stage was now set.

Over the next three years we managed to quadruple sales and show a decent profit on paper, but the theft problems continued and costs began to go up on food and liquor.  On paper we looked great, but the bank account never seemed to get better. There was plenty of resistance as I slowly edged prices up to try and keep up with rising costs and I actually had threats of physical violence when I raised the price of a meal-sized bowl of spaghetti and meatballs to $7.00.  Think about that for a second.  A whopper at the Burger King drive through was over $5, but customers were upset at the thought of paying $7.00 for a bowl of spaghetti large enough to feed two people and having it served to them at a table with all the bread and butter they wanted, plus free refills on beverages.

The theft continued.  Bartenders would start a tab for a customer and serve them a dozen drinks.  When it was time to settle the $80 tab, the bartender would tell them the total was $20 and the customer, thinking the bartender was doing them a favor, would leave a $40 tip that went right to the bartender. Only $20 went into the register instead of $80.  They would do this when they knew I was working in the kitchen and wouldn't be around to watch them.  Putting up cameras helped quite a bit until they realized that I couldn't review 15 hours of video every day.  On top of that there were the free drinks to friends and friends of friends, employees and friends of employees.

The servers also had their bag of dirty tricks.  The best one was the ticket voiding process.  Our point of sale was very old and the ticket void password couldn't be changed.  Servers would ring up everything correctly, but if the table happened to pay in cash then they would simply void the ticket and pocket the cash.  When I saw that a server had $1200 in sales and $300 in voids I would challenge them and get some fabricated excuse that was then confirmed by another server.  I later learned that a relative of mine (by marriage) who was working in the restaurant had regularly employed this method of theft and had actually taught every new employee how to do it for themselves.  She later became an attorney where she no doubt currently uses the skills she perfected at my restaurant.  Go figure.

The real kicker was my partner.  She considered the restaurant as her personal playground and anything she wanted was free to her.  It would start with a few bottles of premium wine with friends in the afternoon, progress through dinner with those friends, and wind up with cocktails in the bar.  Her tab was routinely over $300, which would cost the business roughly about $125.  That doesn't seem like a lot until you realize that it happened 3 or 4 nights each week.  A well run restaurant has a profit margin of only about 4%, so the sales needed to finance her playground would come to upwards of $40,000 per month.  And that's not including all the free events for local non-profits and political candidates that we hosted at no charge.  It was out of hand, but she continued to spend money faster than I could make it.

So you get the picture. The place was a shit show and I couldn't get control of everything to get it stabilized.  I had a ton of restaurant experience, but non of it was in the business side of the business, so failure was inevitable and I just didn't know how to turn it around or how to get help to turn it around. The final nail in the coffin was when a friend of the landlord decided that he didn't want to be a lawyer anymore and wanted a restaurant. They decided to push me out so he could have the location and they wouldn't renew my lease. By that time I was behind on rent so we just closed down.  I spent the next few years getting divorced and paying off debts.

You would think that living a nightmare like that place would have made me want to avoid opening my own restaurant forever, but it didn't.  A small restaurant near our home became available after the previous tenant passed away.  The landlord was eager to have another restaurant in the building and worked with me to prepare it for a small Italian place which I opened on a shoestring budget in less than a month.

By applying everything I learned at the first place and not making the same stupid mistakes, we did very well.  We made money from the very first week.  We had a very small staff and they became like family.  There were a few rotten apples, but we got rid of them right away.  Customers loved the place and we were having a lot of fun, but working about 100 hours per week.  There were some slow times where cash flow was tough, but they were offset by periods of extraordinary sales.  The best part of this was that I didn't have to take on any new debt and we were able to stay current with suppliers and the landlord.

After a year we were at a place where we just couldn't increase our sales any more. We were making enough money to survive, but just barely.  The only way I could see to increase sales would be to either re-tool the restaurant to serve a higher end clientele or move the restaurant to a part of town that was nearer our customer base.  Our location was in a very old part of town and the perception of our customers was that it was in a dangerous neighborhood.  Our customer base was primarily from West Omaha and we were in extreme East Omaha so it was a long drive, especially in winter months when the snow was deep and the roads were slippery.  

After a little over a year we decided that it just wasn't worth keeping the place open because our standard of living really wasn't very good for the time and effort we were putting in each week.  We closed with only a few outstanding vendor obligations which we paid off over the next few months.

So that's my story.  Of course there's a lot more to it.  There's no way to put 5 years in a reasonably short blog post because a lot more happened.  Some of it was  great and some of it wasn't so great.  Would I do it again?  You bet I would, but I wouldn't make those same mistakes.

All that being said, you might ask "Should I open a restaurant?"  My answer would be yes, but only if you have already managed one and know the front of the house, the kitchen, and the business office like the back of your hand.  If you don't know how these areas function (in great detail) and how they relate to each other then you would be wasting your time and throwing away your money.  You might as well build a bonfire in your back yard and go shovel your money into it.  The odds of succeeding are probably less than 1 in 1,000.

If you can honestly say that you are already an expert in these three areas, then before you commit to it go find a restaurant veteran in a market where you won't be competing and have them review your business plan with you.  Develop a business model and an operating plan for your finances and have them do a sanity check on it.  Your numbers might look great, but if your sales projections are inflated just to make your business model work then you are making a grave mistake.  Be realistic and plan for the worst case, not the best.  If you can operate with limited sales and still make money then you might be on the right track.

If you can't honestly say that you have real expertise in these three areas, then find a partner who does.  Not an employee or a consultant.  Find a real partner so he/she has some skin in the game and won't walk away leaving you high and dry.  You can quickly become an expert if you partner with someone who already is.

If you can't find a good partner with restaurant experience and you are tempted to do it alone and learn as you go, then my advice would be for you to walk away and find something else to do.  You may have expertise in another type of business, but restaurants are different animals altogether and almost nothing you learned in another business is going to help you.  Just don't do it.  Step back and regroup.

There are tons of other things you should think about, but there are too many to list here.  If you are seriously thinking about doing a restaurant and have questions that I may be able to answer, then send me an email at jccamp60@gmail.com and I'll either tell you what I know or I'll try to point you to someone who knows.  Failure has been a good teacher and I'll be glad to share what it taught me so you don't have to experience it for yourself.