"A Big Nut To Cover"

Chef Larry gave an abbreviated lecture today, about the calculation assumptions for our restaurant profit & loss statement, then we had free project time until 10:30, when our guest speaker arrived. Steve Zimmerman is a restaurant broker and told us an amazing amount of information in 90 minutes. If I were in the market to buy a restaurant, I'd certainly look to him for advice and assistance.

But I shouldn't be looking for a restaurant, at least not for five years. That's his recommendation, anyway: culinary school plus at least five years of on-the-job experience. That's only one of the critical factors for success. Others are location (primarily, a solid base of residential neighbors who will become "regulars"), adequate capitalization (including at least six months projected labor costs, in reserve), professional management, and consistent food, service and cleanliness. Oh, and it helps if you are simpatico with your partner(s), if any: Steve said most restaurants come on the market because of partnership disputes.

He gave us the "extremely abbreviated" lowdown on leases: ideally, five years with a 5 year option, not to exceed 6% to 8% of your total sales. In SF, rents are ranging from $1 per square foot to $10, in Union Square and the Metreon and the like. He said most new restaurants are "built out," meaning already existing as restaurants, then refurbished, as opposed to "built to suit," which costs between $300 and $500 per square foot for tenant improvements, fixtures and equipment. Another benefit of buying an existing restaurant is licensing, especially liquor licenses, which are distributed via a lottery system and can entail years of waiting or expensive separate transactions.

Even though "built out" establishments are far less expensive to get into than a "build to suit," the cost of the restaurant is only the beginning. For a business costing $150,000, for example, you might have additional fees and costs of up to $350,000, for redecorating, staff recruitment and training, marketing, permits, and the all-important cash reserves. As he said, "It's a big nut to cover."

You shouldn't consider your friends or family as a source for capital. "Life is too short," he said. "This business can ruin relationships." Instead, a good investor is a person with sufficient wealth such that losing the investment in your restaurant will not affect her personal wealth. How do you find such a person? Actually, in the best scenario, they find you, by virtue of your excellent cooking.