When it comes to starting a restaurant, the statistics are bleak — up to 60 percent of restaurants fail in the first year. This doesn’t mean you won’t be successful. It does mean you need to be thorough in your planning, though, especially before you pitch investors who may be skeptical. Here are some essential restaurant startup steps to take before you get in front of investors to ensure you get the funding you need for your restaurant.
1. Get Educated
Before you get too far into planning your dream restaurant, make sure you have the know-how to make your endeavor a success. This might mean taking culinary classes at a local college. Business classes or a business degree can help as well, so you’ll know the ins and outs of financing a business.
It can also be helpful to work in a restaurant that’s similar to the type you want to open. It’s one thing to enjoy dining at restaurants but another thing to work in one. Try to get experience in the front and back of the house, so you’ll be familiar with all aspects of running a successful restaurant.
2. Decide on Your Restaurant Concept
Different restaurant service styles and concepts appeal to different demographics. A family-friendly midscale restaurant will draw in a different crowd than an upscale steakhouse. Consider the type of food you enjoy working with and serving and the type of atmosphere you want to create. This will go a long way in determining how much space you’ll need and what type of furniture your restaurant will require, which will be important to consider when you develop your business plan.
3. Choose a Potential Location
The location of your restaurant can make or break your success. Although it can be hard to nail down a location without funding, you should have one or two locations in mind before you pitch investors.
As you consider potential locations, think about whether there are enough people nearby to keep your restaurant going. A popular shopping district or a location near a busy street can draw in spur-of-the-moment customers. Also consider parking. If you don’t have a dedicated lot, you should consider whether there is accessible parking nearby.
There are other considerations once you’ve chosen a space, but you’ll want to tackle those once you have funding in place.
4. Develop a Detailed Budget
Before you’re in front of investors, know exactly how much money you’ll need. Account for one-time costs for kitchen equipment like kitchen scales and other essentials. Also account for ongoing costs, like food, employee wages and the rental of your space, including utilities.
You also need to account for your personal bills. Budget enough to cover six months of expenses — and possibly more if you prioritize paying back your investors quickly.
5. Test Your Concept and Your Menu
Know whether your restaurant will appeal to customers by presenting your concept and menu samples to a lot of people, including some outside of your target demographic. Get their feedback about your concept and food. Make sure to get feedback from people you don’t know so you’ll be certain of an honest, unbiased opinion.
If you get negative feedback, incorporate that feedback into your concept and menu, then test again. This process can be time-consuming, but it will give you confidence and data you can present to your potential investors.
6. Develop a Detailed Business Plan
One of the first things investors will want to see is your business plan. Your restaurant business plan should be comprehensive and spell out all the details associated with opening and operating your restaurant.
Your business plan should start with an executive summary. Although this is the first section, you may want to write it last as it sums up the points in the rest of your business plan. It should give your investors a basic idea of the type of restaurant you’re planning to open. Your executive summary should also include why you are the right person to open this restaurant. Talk about your education, experience and any transferable skills you have from other types of work.
The next section of your business plan is the company description. This is a high-level run-down of the essentials of your business, including the legal name of your restaurant and a description of your population base and local competition. Include information on what sets you apart from your competitors.
From there, include your marketing strategy. Think about who your business will appeal to and how you’ll reach out to them and create buzz about your restaurant. This might include traditional and digital advertising, participating in local events and festivals, offering free delivery or giving discounts to new customers.
The next sections should outline your business operation, management and ownership. It should include details about your vendors, how many people you plan to hire and your proposed business hours.
7. Choose Potential Investors Carefully
Before you start pitching your restaurant, ensure you’re getting it in front of the right people. Although friends and family might be willing to invest, having money at stake may create friction in your relationships. A better source of potential funding is your professional network. Consider former employers, colleagues and people who work in finance or real estate — fields where investing is common.
8. Practice Your Pitch
You never know when you’re going to have the opportunity to talk to a potential investor. Come up with and practice an “elevator pitch” — a short description of your restaurant concept and what makes it unique.
Also, prepare for more formal presentations with investors. Consider having sample menus created and lead your presentation with your enthusiasm around your concept before you dive into the details. If you’re passionate about your concept and seem confident as you present your ideas, potential investors will feel more comfortable trusting you with their money.
9. Get Professional Help
It’s good to get feedback from a third party before you present your business concept. Ask a financial advisor to review your budget and business plan before you show it to investors. They may find errors or opportunities you may have missed. An interior designer can help you create a professional model of your restaurant to show potential investors that will give them a better idea of your concept. Also, consider consulting a lawyer to draw up an agreement between you and your investors that spells out how and when they are going to be paid back.