Starting, Owning and Marketing A Restaurant Blog|Starting and Owning a Restaurant - Construction, Planning, Marketing, Opening and Managing a New Restaurant

The first draft of the lease sent to me was typical of any commercial lease. It was a one-sided document favoring the landlord that no tenant would sign; even with the assurance of the leasing agent it was “standard” and used for properties all across the country. There is no such thing as a standard lease. If you want more on this subject visit here on examples of clauses that can put you out of business.

I reviewed the first draft along with my legal counsel and together we came up with about eighteen necessary changes. The attorney’s letter was sent to the leasing agent to be forwarded to the strip center owner. The good news was that apparently they were not involving legal counsel on their end; at least not yet.

Some of our requested changes, we anticipate being rejected. This is part of negotiating; asking for things you know you aren’t going to get. This allows the other party to maintain a form of control and not feeling like they are giving away too much.

The real estate agent contacted me about four days later. They were willing to meet most of my basic terms except for one. The landlord was only willing to contribute $55,000 to the construction costs. These funds would be placed in escrow and disbursed as the contractor submitted the bills and the leasing agent confirmed the work was done.

We essentially were within $5000 of having a deal (subject to the formal lease terms). I knew in my mind that construction was going to take four to six months. That meant they were giving me free rent for that period of time. That was $12,000 to $18,000, depending on time. I wondered if they recognized that. I quickly went back over the terms with the agent. She confirmed all of the terms. I stated we probably have a deal, deciding not to push my luck.

I reminded the leasing agent she was supposed to have gotten a copy of their standard lease to my attorney. She had forgotten and agreed to get that done and work on modifying the lease to fit the terms we had agreed upon.

Over the years, contractors have consistently been a source of frustration from my experience. They seem to bid jobs by offering time frames they can’t meet or expertise they don’t have. The result has been lost time and turmoil. I was again going to try to make sure this job was going to be different. I had a set of conditions that I wanted the contractor to know and understand.

Here are my standards:

• If you, the contractor, bid and get the job, we will jointly set the target completion date. Both of us must be reasonable.
• You will get 20% of the estimated amount to do the job on the first full start day. After that you will get 10% of the estimate as 10% of the job is completed, until 80% of the job is done. The final 20% will be withheld until a certificate of occupancy is issued and all your inspections are complete
• During the project, all change orders must be done in writing and I must initial any changes that will increase the overall cost. Otherwise, I will assume the price is not affected by the change.
• You must carry your own insurance coverage for the project and I need a copy of the policy.
• Anything you install, build, and modify, as well as any part of your estimate that gets completed, shall carry a 60 day warranty after the completion of the project.

These conditions are fair to both parties and the goal is to finish the project with smiles on both of our faces.

The architect is critical to complying with and building components that must be installed to meet state, local and ADA federal guidelines. He is important during the planning process as the experience and useful previous plans come into the layout and fitting in of features, equipment, ideas of a function restaurant.

The meeting with the contractor and architect went reasonably well. I gave them my ideas and drawings and asked for their estimates. They knew that the grease trap and hood system for exhaust were expensive and critical for this space. Both were going to pay particular attention to these two areas of concern. The architect was going to refer a hood builder to me. I had another hood builder I had worked with in the past that I also was calling for an estimate and ideas for location and duct work that we perceived as a potential problem.

We all agreed the restrooms to be constructed needed to take up as little floor space as possible. The architect was going to look at codes and ADA specs.

The project required demolishing exist walls, build new walls, ceiling, flooring, two restrooms, a grease trap, hood/make up air system and all cosmetics. Extras, such as decorative features and additional cosmetics beyond paint would be added after the initial estimates.

The evening after the meeting was spent beginning the planning process. I immediately started a cost list to get a handle on the cash required to open a breakfast/lunch operation at this location. The expenses were relatively easy to put together, since I was almost duplicating an existing concept. I knew the prices on much of the equipment from recent purchases, catalogs and online resources. I always use full retail, but knowing there may be a bargain or two with used equipment and supplier deals. Using retail makes up for any surprises that are inevitable.

The next step was to prepare a business plan from a form I had developed and used in the past. Since this was an operation I was copying, the numbers from the existing concept would be helpful. However, there would be more seats in this location and a lot more usable square footage not within the walls of the space covered by the lease (outdoor seating and rear space for walk-in and storage) if they agreed to my terms.

The biggest single cost that I would need help on is the construction costs. It was time to contact a general contractor and create an initial drawing of the space as I envisioned it. The architect would need to be familiar with local building codes and restaurant layout.

When selecting a contractor, you want to work with someone who has the background of building and/or remodeling restaurants. The regulatory issues are varied and several authorities may be involved such as the state, local and county building and health departments. After talking with several contractors I knew, I chose one who had recently completed a job nearby and had good recommendations from the owner. He was also able to recommend an architect he worked with on the previous job. We scheduled a meeting at the prospective location.

As anticipated the leasing agent called me Monday morning. We decided to meet late that afternoon at the premises. I knew I still wasn’t totally committed to making this deal. I had to do some planning and research to confirm the numbers I had floating in my head.

My goal was to stretch their offer even more and give me time to mentally commit to the transaction based on good business planning. I needed time.

At the meeting, I pointed out many problems with the space. There would have to be a grease trap installed, electric upgrade to code, ADA compliant bathrooms installed and the HVAC system must accommodate the needs of a restaurant. The exterior was a little rough and the landlord would have to do some cosmetics. Of course, I already knew these things months ago. However, my sob story of costs was making an impact on the leasing agent. My argument was that the landlord would have to do many of these things for any tenant, not just me.

I held my ground and stated it would have to be a $60,000 contribution to construction costs from the landlord, plus:

• A non-conforming sign for the premises that was different from their conventional awning signs. I wanted a 5’ X 10‘ lighted sign.
• Sign space on the main center sign.
• Confirmation by a mechanical engineer that the HVAC system was sufficient to heat and cool a restaurant environment.
• · An out clause in any lease that if for any reason codes prevented me from operating as a restaurant, the lease would be null and void.
• I would want no rent to start until I got my permit to operate from the county (which meant after construction).
• No personal guaranties would be offered due to the inability to convert to other type of restaurant if breakfast/lunch concept didn’t work (referring to the non- compete in the anchor tenant’s lease).
• Exclusive ability to serve breakfast and lunch. No future tenants can compete.

I asked the agent to send me a copy of their standard lease for my attorney.

All of this was a way to buy additional time for me to put together a business plan and make a final decision to commit to the deal. The agent agreed to get back to me after discussing these additional requests.

The landlord had a problem. His strip center was dominated by an extremely popular seafood restaurant that consumed about 10,000 square feet. The rest of the shops were non-competing businesses other than a small pizza shop. There was the normal mixture of businesses from a real estate office to a hair dresser.

The problem was an Italian deli that went out of business and the vacancy it created in 1800 square feet. The location was set up for a restaurant. The problem? A non-compete clause in the seafood restaurant’s lease that prohibited any new tenants serving dinner. So who stumbles into a yearlong string of communications with the landlord? They knew I had, as one of my restaurants, a breakfast and lunch operation a few miles away. We talked, but didn’t reach much of an accord, since I wasn’t interested in another restaurant.

The short version of how we got to today is that the landlord stayed in touch by occasionally throwing numbers at me to generate my interest. I always thanked them, but said no, at least for almost a year. Then, about six weeks ago, the owner’s agent contacted me and said give us a number. “What is it going to take to get you in the location?”, was the question I probably should not have answered. Quickly, since I had several months to hear their proposals, I rattled off:

• $19 a square foot
• $60,000 construction allowance for the owner’s contribution to upgrade the space to code
• The walk-in cooler that remained at the location
• The right to use the frontage for additional outdoor seating
• The right to use the rear of the building for the walk-in and other uses to be fenced in.

Now, I assumed, they would leave me alone and I could put this out of my mind. Every time I drove by the location I came up with another idea, menu item or design thought. My “dreamer’s” mentality wouldn’t let a new challenge die for a couple of weeks until I was getting pretty sure they were going to reject my aggressive terms and leave me alone. And then, I got a voice mail message on my cell from the leasing agent. I waited a full day to return the call. Knowing the games were probably over, I had to know how I was going to handle the return call. I knew the agent was calling to check on my fishing exploits or just to pass the time! What was I going to say if they met my terms?

Finally I made the call. I had made up my mind, that I hadn’t made up my mind! Whatever happened on the call, I was going to force another meeting at the location. I called and they met my conditions except for the $60,000. They offered $50,000. That is smart negotiations. I said we would get together at the location to discuss it further in a day or two. Since the weekend was coming I asked the agent to call me on Monday for a meeting time.

It was a long weekend. Do I want to enter the restaurant development mindset again? Why do I want to do this? How am I going to approach the meeting? I knew there was still more they were able to give and I didn’t want to leave anything on the table. This is what gets you in trouble – the game is afoot as Sherlock would say. Negotiating a deal is half the fun! Well maybe, one more restaurant. Besides, my oldest son had expressed some interest in the business, I had a strong staff at the other two and more time since I sold the third one a year or so ago. Terrible rationalization!

Should I see a doctor? Maybe a head doctor? No, it has to be an addiction or sickness. I got it, I’ll see both!

The job I am considering has a few multi-tasking responsibilities such as

• Washing dishes
• Cleaning dirty floors
• Construction
• Accounting
• Data processing
• Scrubbing bathrooms
• Training
• Creating delicious food
• Emptying garbage
• Working with unreasonable customers
• Marketing
• Investing $300,000 for the above privileges!

That’s right, I am considering another restaurant. Do I need it? No. Have I said I wasn’t going to do this again? Yes. Why am I doing this? Let’s go back to the beginning of the page…. Should I see a …..

Why people open restaurants today is beyond my comprehension as a rational, normal human being. Right in the middle of a recession, food costs rising faster than they have in the last 30 years and gas prices over $4.00 a gallon.

The story begins a year ago. A customer of one of my restaurants asks me to do a favor and talk to a restaurant owner about four miles away. The owner is desperate. His operation is failing. My customer asks if I could I see if there was anything I would recommend to salvage the dying Italian deli. Maybe I would want to buy the business or at least the equipment. I told the customer, I wasn’t opening any more restaurants and I had just sold one that I have had for ten years to have more fishing time.

As a favor, I agreed. A visit and review of poorly kept financial statements told the quick story. The owner had waited too long and focused on the wrong things. My honest opinion was that he had too much debt and too little time to salvage anything. A year ago, maybe I could have helped him survive, but it was too late. Sad, but brutally truthful advice.

A few weeks later the owner closed his restaurant with a string of creditors, including a very patient landlord who was due about six months rent.

About two months later I made the mistake of asking my customer how his restaurant owner friend had resolved his situation. The customer said he had closed, but had some equipment for sale. I recalled a relatively new walk-in refrigerator/freezer and told the guest to have the owner contact me if it was available. The owner called a couple of days later and offered the walk-in to me for less than half its value. Since I was aware of the circumstances, a quick check on this “bargain” determined the landlord had a lien on it. That lead to contacting the landlord which precipitated a year’s worth of communication that landed me in this mind boggling idiocy of a fourth restaurant.

So as you see, Day One is really not day one at all. If there ever was a “Day One”, it was when I got in this highly addictive business too many years ago!