THE RESTAURANT PLAN IS TO PLAN FOR A RESTAURANT
RESTAURANT CONSULTANTS OF AMERICA™
The Restaurant Plan Is to Plan for a Restaurant
• Reasons to build a business plan
• The business plan audience
• The basic components of a business plan
• The specific requirements of the financial plan
The journey from your wonderful and exciting restaurant idea to serving your first customer is a trek that requires commitment, stamina, willpower, and creativity. It also requires a plan.
This journey can be one of the greatest learning experiences of your life, and it can also be difficult. If you don’t have a plan, it will painful as well. Many aspiring entrepreneurs have great ideas and set out on their journey without a road map. They open up shop without preparing themselves for the many aspects of business ownership. And then something they didn’t expect destroys them, and they close shop. Those with a plan end up in much better shape. This chapter will help you develop a business plan so that you don’t get lost on the way to achieving your dream.
Why Build a Business Plan?
Building the restaurant of your dreams requires a sound plan, but creating a business plan is not an easy task. The best way to approach it is to write down everything you want to accomplish with your restaurant and proceed from there. Treat the business plan as a road map to your business.
By writing down your intentions, you will know what you expect of yourself and your business, and you will make decisions accordingly. If your plan is well done, you will be able to use it to make the right decisions for your business.
Your attitude has plenty to do with the effectiveness and efficiency of your business plan. If you understand why you need a plan, you will have a better chance of making it work. If you don’t understand why you need a plan, keep studying until you do.
Recipes Revealed: The company culture is the environment you build to surround every decision that is made inside your restaurant. This environment includes how you treat employees and customers, how you make decisions, how you take care of business, and how you deal with success and failure.
Who Reads the Plan?
A business plan is not the great American novel. You are writing a plan to run your business, so the audience is small and specific. In addition, different parts of your business plan are geared toward different people:
Potential investors tend to be more interested in the quality of the founding management team and the potential for growth than nearly any other factors. They want to feel comfortable that they are investing their money in a team that has a track record of success and in a concept that is going to return handsome profits.
Bankers tend to require more data to give themselves the comfort level that you will repay the loan. Bankers tend to look at your qualifications as well, but many times they rely more on your personal creditworthiness and may ask you to personally guarantee the loan repayment no matter how well financed the new business is and regardless of your background and expertise.
New management or potential partners can be recruited with a strong business plan. A solid plan may give people more confidence in leaving the security of their current situations to come on board with your team. Potential key players are most interested in your operational and organizational plans and want to be able to clearly see where they fit into your needs.
You and your team can use the plan to establish and build your company culture.
Vendors or service providers may also be interested in your business plan. Usually their interest lies in your potential for growth and how their company can benefit by doing business with yours. Clearly, if your business is growing and they are suppliers, their businesses are growing as well.
You do not need to share every component of your business plan with everyone. Depending on who the reader is, you can determine which pieces of the plan to share. Nevertheless, having all of the needed information available in one document is important. If you’re trying to secure some form of funding, which is probably the case, the money folks will want to see a comprehensive version of the plan.
The Basic Restaurant Business Plan Components
There are a lot of different ways to write a business plan, but most business plans have similar components. If you look at a business plan for Krystal, a fast-food hamburger chain throughout the South, and Ferreira Café, a fine-dining establishment in Montreal, you will see significantly different looking business plans. Upon closer inspection, you will realize that the basic elements have stayed reasonably the same. The following sections describe those basic elements.
A Cover Page and a Table of Contents
Your cover page and table of contents are just like any book report cover and contents page. They don’t do anything other than make your plan nice and pretty and more accessible. These qualities are more important than you may think, especially if the person reading your plan has 30 others to read. The cover page should include the business name, your name, the date, your contact information, and perhaps your new restaurant logo or signage design. The table of contents is just a listing by page number of everything in your plan.
An Executive Summary
An executive summary is a one- to six-page section that tells the reader the bare essentials of the business. This section is a sales tool for your business and your plan. People usually read this section of the plan to determine whether they have enough interest in the overall concept to even continue to read the rest of the plan. The executive summary should discuss the key aspects about your restaurant concept, the potential customer base, the benefits to this customer base, the talent level of the executive team, and your main objectives. The content of this section is up to you, but this section is not the place to spell out too many of the details. Many times this section is more like a visionary piece filled with bells and whistles and just enough data to keep the reader hungry and interested.
The Business Concept
The business concept is a one- or two-page detailed and visionary explanation of the purpose of the business, the products and services provided, the core values, the unique and distinctive features, the benefits, and the primary customers. The business concept is an important tool; you will need to be able to give a verbal description of your restaurant concept many times going forward, so it’s important for you to be comfortable pitching the concept. The background of the concept, the proposed restaurant location, the menu, and the unique features of the restaurant all need to be a part of this section.
Tip Jar: Consider writing the executive summary after you have detailed the facts of the business. Having all the facts at hand makes it easier to pick out your concept and business strengths and display them appropriately in your executive summary.
Recipes Revealed: A company must try to clearly define its competitive advantage over its competition. Simply stated, a competitive advantage is what makes a customer choose to do business with you versus doing business with your competitor. Once you know this, it becomes easier for you to market to your potential customer base.
The Restaurant Management Team
The management team section is a glorified resumé of you and your founding management team. In one to two pages for each person, write out what each of you is responsible for and what each of you has accomplished in the past. This section is a great place to have complete resumés on each of the founding key players as well. Also, mention what expertise each of you plans to continue to develop in any given area.
The Restaurant Market Analysis
The market analysis pinpoints your industry description and trends, your target market, your key competitors, your pricing, your competitive advantage, and your available market size and customer base. These facts are important for determining whether your business concept has any legs. The length of this section can be anywhere from 2 to 12 pages, and it should include specific data regarding your projected clientele, attractions in your area that will drive customers your way, the benefits you will provide to the consumer, and all kinds of research regarding your competitors and where they may or may not be missing the mark. This section should also be full of industry and segment data and information and should clearly outline industry, geographic, concept, and consumer trends.
The Process Analysis
The process analysis is the technical description of your products and services, your distribution channels, and your concept designs. This section is much more detailed than your business concept section and provides more in the way of data, facts, and figures. The business concept section is more visionary. This section is for the technically driven, data-hungry executive who may ask, “Can this team really make this concept happen?” Not everyone will be interested in reading this section, but you should include it for those who want to be in the know. The length of this analysis depends on the technical nature of your concept. A simple concept can be covered in a page or two; a technically driven concept may require 20 pages or more.
Food for Thought: The section on the management team is a good place to mention the members of your support team: accountant, attorney, contractors, vendors, consultants, insurance agent, bankers, mentors, concept designers, and so on. Add anyone who seems relevant and who strengthens the overall picture of your team. Lenders like to know that the level of talent is stacked in your team’s favor before they cough up any cash.
Tip Jar: You must build your brand for the long haul. To do that, your marketing plan must be more than a bunch of singular disconnected ploys. Instead, it should focus on a congruent marketing approach with many little concepts and programs that are interrelated in order to drive brand awareness.
The Restaurant Organizational Plan
The organizational plan is where you lay out your management philosophy, company culture, legal structure, organizational chart, and guidelines for doing business. This section is technical in nature and not real sexy or fun to create, but it is pertinent information that needs to be shared. The philosophy and culture devised by the management team need to be more than pie-in-the-sky stuff. This section should show that your method of conducting business is as important as the type of business you conduct. This section is usually two to six pages long.
The Restaurant Marketing Plan
This three- to six-page section is where you explain how your target customer will see or hear of your business. This section should include your marketing strategy, media budget, and miscellaneous marketing and public relations tools. As your business evolves so will the marketing plan and vice versa. In this section, list your marketing strategies by month, quarter, and even year.
The Restaurant Financial Plan
The financial plan should include start-up requirements, estimated sales and profits, capital needs and requirements, break-even analysis, payback periods, funding plans, sources and uses of funds, projected proforma and financial statements, and other pertinent projected financial data that may be requested based on your individual circumstances. The length of the financial plan does not matter. It must be full of pertinent data, and it will be scrutinized whether it takes 3 pages or 20.
The financial plan is traditionally the most highly scrutinized section of your business plan. And just like the core of the business plan, the financial section of your overall business plan can have many different forms and structures. The two most basic and important aspects of any new restaurant’s plans are start-up cost projections and the proforma or income statement. In addition to these basic parts, you need to include three more things in the financial plan: the timeline and growth plan, the contingency plan, and your supporting documents.
Recipes Revealed: A break-even analysis is used to determine when the company will break even. In essence, you will need to complete a projected proforma to determine in what month will the revenues and expenses be equal? Many times this is illustrated in a neat little line graph that shows the point where revenues and expenses meet.
A projected proforma is a guess of your revenues and your expenses. Put them on paper and you have a projected proforma. I advise you to be overly conservative and lean toward underestimating revenues and overestimating expenses. This gives you wiggle room just in case things don’t go as planned.
Food for Thought: Estimating start-up costs is a work in progress. The more items you guess at and research, the better your projections will be.
Restaurant Start-Up Cost Projections
Estimating your start-up cost is much easier than it sounds. You just need to think one step at a time. The key is your ability to guess prices and then do research. First pick a reasonable cost for each item. Then contact some people who know prices, such as vendors, suppliers, and other restaurant people, and ask for their more educated guesses.
As you think about costs, remember to include everything. For example, paying your crew is a big expense. Also, you cannot do the entire electrical work on the facility by yourself even if you are a certified electrician and you want to save a few bucks. As you continue this tallying of start-up costs, you must continue to ask yourself, “Can I afford this?” That is a normal reaction, and it is a good question. In some cases, you will need to reevaluate and make the necessary adjustments.
The Restaurant Proforma or Income Statement
The proforma or income statement section tries to answer the question of whether your restaurant can make money. There are six numbers that potential investors want to see. Of course, there are plenty of other numbers to look at, but with these six numbers the investors can calculate the rest on their own:
• Projected sales
• Projected food cost
• Projected labor cost
• Projected controllable expenses
• Projected facility costs
• Projected profitability
At this stage the only help you’ll need in estimating these numbers is your own thoughts after checking on other restaurants in your segment. You can get these numbers from a variety of industry and affiliate sources.
Don’t be afraid to forecast great results. But you must include a clear explanation of what you are going to do differently and better than your competitors.
The Restaurant Timeline and Growth Plan
What’s going to happen, and when will it happen? The timeline and growth plan is your calendar for getting the location open, a tactical approach to making the restaurant a success, and your vision of the business for the next three, five, and seven years. This plan usually is a two- to three-page section that provides the investor with a description of what could be. The future is fun to imagine, but remember to stay realistic. Growth takes hard work, strategic steps, and time.
Wet Floor! Your numbers must be reasonable. If, for instance, you are opening a lunch buffet restaurant that seats 100, it is unreasonable to suggest that you can do $3 million in sales. A number cruncher will realize this. The lunch buffet concept traditionally has a lower check average, the length of the average lunch period is short, and 100 seats is not that many.
The Restaurant Contingency Plan
The contingency plan is your plan B, just in case plan A doesn’t work. This plan is not negative thinking; it’s realistic. Things happen, so be honest. Point out risks and threats to your business and the overall industry. Investors like to know that you are aware of potential problems.
A contingency plan is also necessary when you don’t know what to expect. A few years ago, I built a restaurant for a client in Utah. At the time, the city was still debating whether or not the new street in front of our site was going to be a one-way heading south or a one-way heading north, or even possibly a two-way going in both directions.
We knew the site was going to be a great one and we wanted to get ahead of the competition, but our concept was dependent on the city’s decision. We took our completed concept design and added in three different contingency plans to accommodate whichever route the city decided to go.
Extra work? Yes. Was it worth it? Big time!
We opened many months before any of our competition. When the city decided to go with two-way traffic, which we were hoping for, the place was a giant success for all three day-parts. But we were ready with other options. If they had decided on a northerly flow of traffic we would have served only breakfast and lunch. If they had decided on a southerly flow of traffic we would have served dinner and cocktails. Instead they went both ways, and so did we.
The Supporting Documents
Support your cause with all you can. If you have anything to support your plan, put it in the supporting documents section. This section is for all the legal and professional documents, as well as any other applicable forms and papers, that make your plan even more complete. This section has plenty of room to put in forms, appendixes, pictures of sites and concepts, or whatever else you think fits.
Your Restaurant Business Plan Is a Living Document
Even as you go through the planning process, personal and business circumstances can change. Fuel prices, for instance, could go up. Labor costs could go up. Keep the fluidity of the world in mind as you write your plan and revisit it often.
The Least You Need to Know
• Writing down your intentions makes it easier for you to make them come true.
• Investors, bankers, management, partners, yourself, your team, and vendors will read your business plan, so gear it to everyone.
• There are many ways to write a business plan, but all business plans contain many of the same essential elements.
• The financial plan part of your business plan is the key component of your proposal.
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