As the new year begins and a new decade is born, the question about the costs to start a restaurant will survive and be repeated another million times in the next ten years. In hundreds of emails, countless meetings and numerous uninformed writers querying me, I know I’ll hear it. And yet, it’s difficult to explain to the questioner why it’s the wrong question to be asking.
Obviously, each restaurant is different. The size, type, location, demographic and owner choices cannot be factored in a brief encounter. What can be determined are the things that cause financial pain and hardship for most restaurants who’s new owners don’t ask the important question - ”What are the costs to start a restaurant that I won’t be able calculate without experience?” That is the question. It is easy to calculate and add up equipment costs, food inventory, salaries and fixed costs, but what about the things you didn’t think of?
Below is just a partial list of costs generally forgotten or not factored into those starting restaurant budgets;
- Deposits - While these may not be carried on your financial statement as a cost (or expense), they are a cash outlay that be in many thousands of dollars. There are lease security deposits, utility deposits, bank deposits for starting cash and even possible retainer deposits for professionals like attorneys and accountants. Collectively, these could total $5000 to well over $10,000.
- Licenses - The cost to start a restaurant has grown significantly in the last few years as local, state and federal agencies have turned licenses into a method of taxation. Examples include licenses for occupancy (from $200 to $1000), cafe permits for operating on sidewalks or streets, liquor license fees for inspections, forms and filing fees, franchise fees for registering your business, fees for state and identification numbers and fees for federal filings and tax ID numbers. These fees can total thousands of dollars depending on your location.
- Professional Fees - No one should start a business today without competent advice from both an attorney and an accountant. While their fees can total as much as $250 per hour, they can save you tens of thousands of dollars in taxes and problems as your business grows.
- Impact Fees - Many communities now charge start-up “impact Fees” that are supposed to be the cost of your usage of community services such as gas lines, water lines, streets and infrastructure built by the local government. In the last restaurant we opened, I had a $10,000 surprise during construction!
- Cash Flow Requirements - Of all the cash needs, this one can put you out of business in a hurry. Without getting into a whole accounting class on cash flow, let it suffice to state that a profitable restaurant can go bankrupt profitably (with negative cash flow) just as easy as a slow to develop restaurant can run out of cash. If you do not have the cash to survive for six months in a worst case scenario you and your accountant calculate, don’t open a new restaurant until you can.
These are the things that are commonly missed on restaurant business plans. These items can turn a great concept into locked doors very quickly. Food and service are still the biggest factors in buiding your restaurant, but cash needs can bring you to your knees no matter how great the food is.
In the previous post, we outlined the problems we are having enforcing a provision in our lease concerning the adequacy of the HVAC system. Temperatures are uncomfortable in dining areas and the lease warrants that the A/C is sufficient to operate a restaurant.
In many cases, large properties are managed by management companies who represent the actual owners of the property. While the management company handles routine maintenance and operation of the property, they do not sign or obligate the actual owner. Your lease is always between you and the owner to be enforceable.
The management company has an obligation to operate the property at the lowest possible cost to the owner. Most of the time they get a percentage of the rents and other fees to maintain the facility. However management companies don’t always act in the best long term interest of the owner. For instance, if they are notoriously poor managers with sloppy properties and inconsistent maintenance, tenants may move or prospective tenants may shy away from the property.
Restaurants should always copy correspondence directly to the owners when involved with problems the management company seems to ignore or refuse to handle. Many owners are totally unaware of what transpires between tenants and the property managers. If owners continue to have issues coming from tenants, you may find service improve through regular contact. Keep in mind, once you go around the management company, your relationship will be adversarial in the future. Sometimes you have to take action when it affects the comfort and expectations of your guests.
We have tried to keep you up to date of all the problems, plans and changes that occur when buying, owning or starting a new restaurant. One of the early posts included lease negotiations and the importance of getting verbal assurances and other matters in writing. We are now faced with enforcing a lease provision the landlord is tryng to avoid.
In our lease agreement we had a provision that called for the landlord to warrant that the exisiting air conditioning was sufficient to run a restaurant. At the time I was very suspicious that there was enough capacity from my experience in other operations. The landlord had an “expert” do an engineering report that said there was enough cooling. Experts and consultants for anything don’t run restaurants! We insisted that a provision be put in the lease regardless of the engineer’s report.
Since we built the restaurant in the fall, outside temperatures here in Florida were moderate. However, now that summer is in full force, temperatures are in the low 90’s outside. The summer heat, a full restaurant and doors opening and closing find us with 80 degree inside temperatures. Customers are uncomfortable in busy times and many have expressed their displeasure.
The landlord was notified of the problem in early June and has done little to address the situation. Little, that is, until we asked our attorney to pursue the matter and enforce the clause inserted in the lease. Now they have sent HVAC people out to make “minor adjustments”. Nothing has changed. This week we will probably have to file an action in civil court to enforce the lease provision. We will post the results and on going problem resolution.
As a side note, we also had a provision in the lease that says if there is a dispute between the landlord and the tenant that requires an attorney to become involved, the winner of the action pays for the attorney fees of the other party. We are confident the owner will need to pay our attorney and costs.
It is difficult to believe I haven’t written a post in over a week. The week is like a whirlwind that never stopped
. To detail all that has occurred will take several posts to explain the details and activities that lead up to the opening day photo on the right.
Besides the holiday immediately after receiving our restaurant license, many of the suppliers were not delivering on their scheduled days. To complicate matters even further, both sister restaurants had about tens days of exceptionally high sales.
Fortunately we were prepared to hire and train employees, test menu items and get the doors open.
A day by day log and activity detail will be posted soon. Right now our exclusive goals are to work out the “kinks” that always creep up on you on opening day.
We are officially a statistic. A licensed restaurant in Florida. After 5 grueling months of construction, delays,
inspections and all the emotions that went with the daily hurdles, we received our Certificate of Occupancy from Pinellas county on Tuesday, December 30, 2008 and our state restaurant inspection and licensing on Wednesday, December 31, 2008.
Now the real work starts! Our tasks in the next few days before the doors open include:
- Hiring and training staff.
- Finalizing menu.
- Ordering smallwares, food and dry goods.
- Testing recipes.
- Implementing our marketing plan (some of which started weeks ago).
- Developing procedures, recipe manual, POS materials and forms.
There is nothing more difficult than marketing your operation and putting butts in seats. New restaurants are a dime a dozen with an average of over 55,000 started each year in the United States. Unfortunately, an equal number close each year. While the many details listed above are necessary to open the new restaurant, the priority is to make certain we start communicating our message to potential guests.
Choosing suppliers, pricing menu items and organizing storage and focusing on each step to create
maximum efficiency for staff will reduce waiting time for customers and increase table turns on a busy day.
Each plate of food must go through the line in an orderly progressive manner without retracing steps as menu items are produced. The end of the process is the server window where food is ready for delivery.
On Wednesday, December 24th, we had four inspections that went very well. Electrical, plumbing, chemical and HVAC are all done and passed by the county. Tomorrow, Monday December 28th, we have our hood inspection, fire suppression system inspection and building inspection. After all three of those are done and passed, we can get our Certificate of Occupancy.
The final step is to have an inspection by the state of Florida, Hotels and Restaurant Division, which issues the license to operate as a restaurant. We will schedule the state on Wednesday. At that point we need a full week, minimum, in the kitchen perfecting recipes, procedures and prep work.
Its hard to believe that the last six months have gone by so quickly in retrospect. However, it seemed very slow at the time. We are six weeks behind our projected opening date.
Opening a new restaurant is no easy task. If possible, always buy an existing restaurant if remotely possible. You can save time and money in most instances. Of course, the mitigating factors such as location, amount of remodeling and type of structure must be considered in the equation.
As you can tell by the dates on the posts, it has been several days since we detailed what has occurred. All I can say is that it is almost a 24 hour a day project as the final stages approach. The image to the right shows the restaurant on the day before Christmas. Is has been one crisis after another to try to get open prior to the end of the year.
On Monday, December 22, 2008, we made the decision that it would be impossible to open before year end. Inspections, slow contractors, details and regulations combined to dash our hopes. The new opening target is the first week of January.
For those of you opening a restaurant for the first time, here is a list of things that occur in the final stages to try to avoid:
- The contractors start pulling off the job to start others. They know they have you about done and there is little you can do penalize them for the delays they create as work crews get smaller.
- Inspections become extremely detailed. Any changes must be clearly noted on your plan and approved by the building department or you may fail the inspection. Moving walls, changing sizes of rooms, installing extra electric outlets and even more safety or fireproofing protection requires scrutiny by the regulators.
- Tradesmen become agitated working around each other, even though one or more of them have created their own problems by pulling workmen off the job. Plumbers don’t like working around electricians, electricians don’t want to work around finishing carpenters, HVAC people don’t want to work around anyone!
- Deadlines become scrambled due to scheduling issues. For instance, the people installing the fire suppression system in the kitchen are dependent on the electricians to wire the shutoff valves. HVAC cannot be tested until they electric gets their final inspection. Ceiling installers can’t finish their work until until the HVAC is done with their duct work. Tile cannot be completed until the plumbers are done. And the list of scheduling conflicts goes on and on!
- We learned quickly that codes change almost monthly. If you built a restaurant a year ago, don’t think you cans use the same building standards today. We discovered that things that have never been required in the past are being added constantly. The costs, time delays and changes to plans may create operating issues.
The goals now are to get our final inspections and our Certificate of Occupancy, commonly known as a “CO”. This is a permit that allows you to occupy the building safely and you have met the code requirements. Does this mean you can open? No. It means you can now apply for your city or state permits for a restaurant and go for another round of inspections. That is where we are - on the night before Christmas.
The photo shows how much detail goes into a building and restaurant as it takes shape. Notice the fire separation ceiling about 2 feet above the grid for the drop-in ceiling. The electrical work and HVAC is about 75% done. The view is from the front table area and booths will be to the left. The kitchen is at the rear to the right.
We still have hopes of opening for at least a day or two before the year ends. It looks like an impossibility, but if you look at the detail that has been accomplished since the previous photo update a few days ago, the project is moving quickly. The issue is whether we can get all the inspections and permits as quickly as we need them.
Bureaucracy is alive and well in Florida. The inspection and permitting struggles have been detailed in previous posts. Now, with the holidays approaching, it will be interesting to see if the various agencies become even more difficult to communicate with.
It’s taking shape! The past few days have been so busy on the work site that, at times, it was hard to keep up with the questions and which workers were doing what. In a perfect world, you generally try not to mix certain trades with others. Electricians and plumbers don’t like working around each other. Drywall installers don’t like to work around ceiling people. However, when you are six weeks behind your projected schedule, you do what is necessary.
The accomplishments include;
- All walls roughed in and ready for finish work.
- All electric run and fixtures to be installed today.
- Data wiring and cable wiring for POS and Internet connections installed.
- Counters ordered, Formica chosen and all should be installed by the weekend.
- Ceiling grid in and waiting on lighting in dining area.
- Stainless steel and FRP started on walls in the kitchen.
While progress is at a fast pace, here are a few problem areas to avoid when building or remodeling a new restaurant;
- Equipment and supplies that you thought was available quickly and/or locally sometimes follows Murphy’s Law. In our case the table tops we had hoped to acquire were not available as a result of defective resins. We had to order a slightly darker color.
- Building inspectors take sick days, vacation and time off. That means an inspector who has been on location for several visits becomes familiar with the project. If he or she takes a day off, a new inspector creates problems because of the lack of familiarity. Discuss this with the inspectors.
- Make sure one inspection doesn’t cause the project to come to a halt until it is done. For instance, there is a screw inspection that requires the inspectors to make certain there are the correct number of screws for the product being used. Nothing can be placed over the screws until they are inspected - no taping, no drywall mud, no paint or paneling. That can stop your progress immediately!
- Don’t expect your General Contractor to know each and every detail of your plan for the restaurant. Contractors may not like your constant vigil of their work, but you can avoid many delays and problems by being on the site as much as possible.
By the end of the weekend we should be ready to finish the flooring and start accepting equipment as early as Tuesday next week. An update will follow in a day or so with pictures.
This past week or more has been a whirlwind of progress (finally). Here is a list of achievements;
- With the exception of the fan on the roof, the hood is in. It passed inspection and the fireproof duct work is completed.
- The fireproof tenant separation ceiling is up, taped and “mudded”. Waiting for inspection tomorrow, Monday, December 8, 2008.
- The electrical circuits are run and passed the rough-in inspection. The wall electrical inspection, which allows us to close all walls, should be inspected Monday.
- All walls are drywalled on one side and waiting for the electrical inspection to cover other side.
- As of last night a crew was completing some floor tile work in customer visible areas.
The items above may not seem like a big move forward, but you must consider we are dealing with 1800 square feet of space. That means when the restaurant contractors put the ceilings, tile and electrical into the location, the contractors are covering front to back.
This week should complete 90% of the rough-in construction. We have a schedule that looks like this:
- Monday - get electrical inspection. Begin covering rest of walls. Starting ceiling grid for drop-in ceiling tiles. Get final inspection on fireproofed ceiling separation. Order and construction of all counter tops.
- Tuesday - Complete wall covering and drywall mudding and taping after screw inspection. Complete drop-in ceiling. Install data wiring for POS system, phone and cable.
- Wednesday - Finish office space to begin putting up shelving, work space and computer locations. Start kitchen and bathroom floor tile. Grid system for ceiling complete for electrician to begin installing lighting.
- Thursday - Complete office and storeroom. Finish all flooring. Finish all electrical. Do wall finishing with primer and “knockdown” coat. Install FRP in kitchen. Plumber to starting final connections including gas piping. Wi-fi system in office.
- Friday - Paint walls final teal color and install wood beadboard. Start scheduling delivery of restaurant booths and equipment for following week.
- Saturday - Install baseboard. All counters installed. Office completed and operating with filing shelving and accounting computer. Start decorative shelving and finish work for interior.
- Sunday - Have restaurant cleaning crew come in and do complete cleaning before booths and equipment start arriving following week. Install video security system.
While all of the above work deals primarily with construction, during the coming week we will also;
- Order all remaining restaurant equipment to be purchased by Wednesday. Remember we have already purchased a lot of the kitchen equipment as we found bargains.
- Place a smallwares order for delivery early the following week.
- Purchase stainless shelving and install Friday or Saturday in kitchen.
- Schedule delivery and setup of POS system, beverage machines and cleaning system installation.
- Complete menu and testing. Start working on inventory initial order.
- Start interviewing potential employees late in the week. Process to continue until open.
- Complete forms and all filing and background office system.
If we have any chance to open before year end, next week will be the determining factor.
