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Restaurant Success: The Main Ingredients

Restaurant Success: The Main Ingredients

Eileen Figure Sandlin | Entrepreneur Magazine

Ray Sidhom, co-owner of Four Food Studio and Cocktail Salon in Long Island, New York, with 2007 sales projections of $5.7 million, is one savvy owner who reviews his plan frequently. “We have so many details to watch, from the food and liquor to staffing costs,” says Sidhom, 41. “If they’re not where they should be, the business suffers. So we look at the intricacies of the business plan often and use analysts who do projections and models.”

A good business plan will also be useful when seeking financing, but it’s more common for aspiring restaurateurs to rely on personal savings and funds from friends, relatives and outside investors rather than bank loans.

So how much do you need? “This is such a capital-intensive business that it’s easy to underestimate the amount you need,” Smith says. “Don’t even think about starting with less than $100,000 in cash for a bargain-basement opening, or you won’t get even remotely started on the right path.”

The amount also depends on your location and the local cost of living. In pricey New York state, for instance, Sidhom says you’d better have $2 million for a restaurant with 200 seats if you hope to generate $1 million in sales.

A good location is crucial to the success of a restaurant. Choose a building on a well-traveled street where it’s possible to install highly visible signage, but beware of historic districts, where there are restrictions on every aspect related to a building’s exterior. Check out the local pedestrian traffic, like Lao did. Because his restaurant is on a busy thoroughfare in the middle of New York City, he does a brisk carryout business during lunch hours—and attracts famous guests like Martha Stewart. Also, look for a building with a large, well-lit parking lot as close to your establishment as possible, and check out the other local businesses. If there are too many restaurants in the vicinity (especially if they serve the same type of cuisine), or if the other businesses don’t generate a lot of regular traffic themselves, you could find yourself short on customers.

As for leasing a building formerly used as a restaurant, don’t sign until you find out its history. There may be a very good reason why it failed—reason enough to make you invest your time and money elsewhere.