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Develop the exit plan before you enter the restaurant business
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(Author's Note: This is the third installment of a three part series on starting a restaurant. Now this is just a slight overview of the basics. Don't think you can just go out and start a restaurant. You can't. Take it from someone who did it.)
When I purchased my first grocery store without any knowledge or experience in the food business people thought I was a fool. How right they were. But obstacles never stopped me. Three years later when Lloyd Sigel, the creator and powerhouse behind Lloyd's Ribs, walked into The Cottagewood Store in Deephaven, Minnesota, I approached him on how I would raise money to expand. Sigel was a regular customer and strong supporter of my struggling endeavor.
"There's only one guy that can help you. Michael Snow is the only guy that can raise money in these economic times. Here's his number. Tell him I told you to call him." Clamed Sigel.
Snow, a Minneapolis attorney was a restaurant finance genius. According to all who knew him he was a magician when it came to culinary concepts.
When Kranston, (my girlfriend then and wife now, (yes a lot of patience) ), sat down at Sunsets on Lake Minnetonka, Minnesota to discuss our venture with Snow his first question was, "What's your exit plan?"
"Exit plan?" I asked. "I am a keeper. I build them and keep them." I added.
"Well, you'll never make any money keeping them. You need to build them, grow them and sell them. You need an exit plan." Snow said.
He was right. And you too need an exit plan before you begin to raise money.
Currently, an exit plan that provides return on investment projections is one of the most important aspects of your business plan. Developing one proves to investors and yourself that you not only have a start-up plan, a development and growth plan and a strategy for recouping the investment with a potential profit. It also announces to potential investors that you have completely thought your project through from beginning to end.
There are numerous reasons for getting into the restaurant business. Passion, party, enjoyment financial rewards, culinary artistry, creative outlet are all typical reasons that one delves into what is the hardest business in the world to get out of and the easiest to get into.
I have said time and again that if retail stores lost as much money as restaurants do on a regular basis they would close. Yet restaurants continue to limp along hoping for a huge weekend or catering event to bail them out of their current financial woes.
When I developed my restaurant group I purposely looked for failed spaces that could be easily remodeled, remarketed and repositioned and then sold for a profit. It was a formula that I stuck to. Unfortunately, along the way I lost sight of the ultimate plan and let the passion of the business overtake my financial sense. It cost me and my investors a substantial amount of money over the course of time. .jpg)
One of the most important facts to remember is there are two businesses in every restaurant: running the business and running the restaurant.
In San Francisco, famed restaurant icon, Pat Kuleto has built an empire while realizing that every smart businessman needs great chefs and management. And along the way, every smart chef eventually realizes they need partners who are good businessmen.
Making sure you know your limitations and outlining those with potential investors is a monumental step in gaining the trust of the people who will back you in your venture.
And finally, don't think you are going to develop a business plan, outline your operating strategy, and explain your exit plan and then assume you will circulate your plan and people will be standing in line to give you money.
Raising money in any market is difficult. In today's economic climate it is almost impossible. So don't forget the three F rule Approach Friends, Family and Fools for your first round of capital. Use it wisely. Be frugal. And, keep your eye on the exit plan. You may want to implement it sooner than you think.
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