It was your dream to open your own restaurant. You probably remember the first night you sketched it all out on a cocktail napkin over drinks with a friend. Then you were scraping together every nickel you could find to bring your dream to life, with that cocktail napkin to guide you. And with things happening so fast and fires to put out, you either skipped the development of a formal business plan, or it was just that — a formality.
Does that sound familiar? Well, don't worry. It's never too late to write your business plan. In fact, it's something that should be reviewed and updated at least annually, if not quarterly.
What, then, constitutes a business plan? A business plan is a document that presents the past, present and future results of the business in detail, whether existing or planned.
Why should you have a business plan, especially if you've gone this far without one?
If you are looking to open a new restaurant, a business plan measures the feasibility of the proposed venture. It's a vital step because you may find out when you complete the plan that the restaurant you want to open won't work at all. And if you can't make it work on paper, what do you think will happen if you actually open it as designed?
The beautiful part about putting together a business plan and finding faults within it is that you now have the opportunity to refine your plan to ensure your success. A business plan helps you avoid risking your money and your family's future on an ill-fated dream.
But that helps the new guys. What about an existing restaurant? Whether you've been in business for 1 year or 40, a business plan can still be your guide to success. Your plan makes you look at your business from many different angles, from doing a SWOT analysis (where you identify your internal strengths and weaknesses and your external opportunities and threats), to setting financial goals and targets that can be measured and managed to.
A restaurant is one of the hardest businesses to operate successfully. According to an Ohio State University study, 61 percent of all restaurants fail within their first three years; in some restaurant segments, the failure rate is as high as 87 percent. And the average restaurant only makes about a nickel on every dollar it brings in.
If you want to buck those statistics, you've got to have goals so that you can plan and put the systems into place and reach them.
What should your business plan include?
This is where you present your business mission and goals. You need to describe in detail the opportunities and/or challenges your restaurant faces.
To be successful in any business you have to know where you came from and where you are going. In this section you describe your business, the organization and its history, the owners and key personnel, its current position and any achievements to date.
Products and services
This sounds straightforward, but it's really not. Yes, in this section you will present the type of food you're going to serve and the type of service your restaurant has, but there is more. This section will lay out what makes your product or service unique compared to the competition, or lack thereof, in the market. It's often called a unique selling proposition, or USP.
This section presents a detailed evaluation of the market where you want your restaurant to open and its demographics. You do so by defining the needs and characteristics of the marketplace. You'll also want to present an analysis of your current competition, showing their strengths and weaknesses.
Marketing strategy and plan
This is probably one of the most commonly overlooked steps in the restaurant industry. You can waste a lot of money following one of two approaches:
A reactionary approach is when you see sales slip because something has happened locally, such as competition opening up around you. Once your sales start to slip, you freak and decide it's time to do some marketing. Often, it's already too late.
An opportunistic approach to marketing is when you buy marketing from an advertising salesperson because they sold you on why their form of media or service would be good for you and they probably offered you a deal. This deal benefits them and often, it doesn't really benefit you.
Instead of approaching marketing in either of these ways, base your marketing on where you are in your restaurant's life cycle — new to well-established — and put together a marketing plan for the next year. Outline all of the strategies in detail, the marketing channels and price positioning you have chosen to penetrate the market, which all should reflect your restaurant's niche and desired customer. Include any marketing personnel or agency you have employed and any other resources you intend on drawing from. You must be in charge of your marketing, not the other way around.
In this section you are going to describe three major areas: management and the organization; production; and the facility and equipment needed to operate.
The section on management and the organization is where you present the legal form of the business, the organizational structure and the key personnel and what each of them is responsible for.
Production describes how you will produce and deliver your product to your market. It also details the main suppliers and any restrictions the business may have regarding its supply channels.
A detailed description of the restaurant facility and any equipment needed to operate is listed, as well as whether it will be rented, leased or purchased. Accompanying this list will be the budget needed to obtain the facility and equipment described.
The financial plan is the meat and potatoes of the business. This is where you lay out your sales forecast, projected expenses and budgeted goals. Remember, you will need to also include all of the assumptions made for the financial results you've forecasted.
Any financial plan worth its salt should include the following:
Financial highlights of the forecasts, which include projected sales, net profits and cash flow analysis
A break-even analysis, which is vital to presenting the attractiveness of the plan and its risks accurately
Pro forma reports, which present the financial results in the form of a profit and loss statement, balance sheet and cash flow reports
Operational budget for what the business requires to operate
Main assumptions used to create the financial plan, outlined in great detail
Financial requirements or capital budget, which define the financial requirements necessary to achieve the business plan goals
One of my key people recently reminded me of the importance of planning, but especially how important it is to share those plans and goals with your key associates. If you don't put it on paper, nobody around you will ever know what's in your head. And ultimately, if they don't know what you want, what your vision is or the financial and what marketing goals you have for the next year and beyond, how do you expect any of your key people to perform to your expectation and for your restaurant to reach its financial goals?
Just remember, it's never too late to plan. Either dust off your old business plan or create one from scratch, because you have to plan for success.