Commentary

Expanding to a restaurant: the big ticket items to consider

Once the aspiring restaurateur has determined that a market for their restaurant and that the necessary team and cash flow exist, a food truck operator then needs to make sure he or she has the necessary capital to make the investment.

Image courtesy of iStock

April 1, 2019

Agnes Teh Stubbs serves as a content analyst at Software Advice, a Gartner company, covering trends in the retail and restaurant space.

By AgnesTeh Stubbs

The process of expanding from a food truck to a brick-and-mortar restaurant is certainly not for the faint of heart. As noted in part 1 of this two-part series, food truck operators have a number of questions to ask themselves before embarking on the journey to a second operation that is considerably more capital intensive than a food truck.

Once the aspiring restaurateur has determined that there is a market for their restaurant and that the necessary team and cash flow exist, as described in part 1, the operator then needs to make sure he or she has the necessary capital to make the investment.

So just how much capital is needed? On average, according to industry sources, $200 to $300 per square foot is needed for a restaurant build out, including furniture, fixtures and equipment. On top of that, you'll need additional capital for professional fees for designer services, marketing, legal and operating expenses.

Capital considerations

Capital considerations include the following:

Building: Variables include new construction versus using an existing building. As with buying a home, there are advantages and disadvantages to building a new facility or using an existing one. It is possible to purchase an operating restaurant as opposed to having to convert a business space to a restaurant.
Inventory and equipment. What equipment and inventory do you need to get your restaurant going? These include cooking equipment, product, furniture, plates, utensils, etc.
POS. Consider what restaurant POS will be a best fit for your type of restaurant. For example, for a full-service restaurant you may want to consider mobile POS. Pricing models also differ; some charge per-transaction and monthly fees while others charge a flat rate annually.
Labor. The number of employees will vary based on the size of the restaurant, the hours of operation and the level of business. As a general rule, the following roles are needed: a manager who oversees operations and food quality; a chef who oversees the menu and cooking; sous chefs or kitchen staff who cook and prepare food; bus boys for clean up; servers; and cashiers.

The number of employees will also depend on whether the restaurant is dine-in, self-service or a combination of the two. At a self-service restaurant, orders aren't taken by servers and plates aren't being delivered to tables, so you might only require one or two servers per shift. However, at a casual dining restaurant, customers will expect more attention and service so you'll require more servers. On average, you will need one server for five or six tables to manage orders and cleaning.

Once the restaurant is operating, it will be essential to monitor your labor expenses against incoming sales and adjust schedules appropriately. The ideal labor to sales ratio is 30 percent.

Site selection

What considerations come into play in selecting the restaurant site?

Visibility. You may be serving up the best tacos in town, but if no one knows the restaurant exists, it'll be tough to get customers.
Foot traffic. Are people walking by mostly in the mornings, afternoons or evenings? When is it the busiest? Knowing when you could experience the heaviest traffic will determine whether your particular restaurant is the best fit for the neighborhood.
Population demographics. Who are the people living in the neighborhood? These people will be your target market. You can ask the town office for more information on who's living in the area, or just take a walk in the area to get a sense of your potential clientele.

Funding sources

What are the best funding sources for finding startup capital for a restaurant?

If you need outside sources of funding, your personal assets will be an important factor. Lenders will want to know you're in it for the long haul and fully committed. That means putting your own capital on the line. What liquid assets do you have? These are assets that can be easily converted to cash quickly with little or no loss to you. It could be cash, deposit accounts, bonds, etc. Be sure to consult a tax adviser before taking that step.

You can also borrow money from friends or family. These people are likely to recognize your passion and believe in you as an individual. Typically, these loans offer more flexibility than your traditional capital sources. But it is important to be upfront and clear about terms of the loan and risk of loss in writing. While commercial lenders may understand what the risk of loss are, your friends and family may not.

Opening a restaurant is the goal of many food truck owners, but for the restaurant to succeed, it's important to be realistic about whether adding a restaurant to your food truck is the best strategy at its current state of business.