I don't know where it's like where you are, but around here, there's a dozen established eateries, and corners of strip malls that get new restaurants every 8 months or so. There's gotta be a solid profit in selling loans to people who have a dream of owning a restaurant (or bar, or eatery, or whatever), but haven't the faintest clue how to run the business.
The statistics thrown around are 75-80% of new restaurants won't last the first two years.[1]
That day want terribly surprise me, as I spent a sizeable portion of my career travelling around fixing restaurants.
Biggest issue I've seen is people creating a restaurant because they think it will be fun, or high profit margin. (Spoiler: it is neither).
(Source: chef for 18 years).
[1] I don't have a source to back this up, it's just been repeated so many damn times. I think it would be closer to 60-70%
Quite possibly the complete opposite. Especially when today's asset / property prices are being pushed up to a ridiculous level by QE, rent eats into profits, And most restaurants owner I know has thin profits margin and lots of long hours working.
>The statistics thrown around are 75-80% of new restaurants won't last the first two years.
I guess it depends on location, but 50%+ of new restaurants changes hand within the first 3 years.
The standard costing for a restaurant meal is 25% food cost.
It approx breaks down as:
.25 food cost
.25 staff cost
.25 rent and gas/elec etc
.25 profit.
That's not real world though, that last .25 is going to be eaten into. I personally prefer to try and run at .21 - .22
It may seem like an awfully unbalanced profit margin, (in relation to me saying low profit margin), but you need to add in wastage on top of this, both due to staff error(eg keeping by too much stock on hand), unexpected quiet periods or even supplier sending lower quality produce. There's also the matter of variable prices for ingredients as well.
This is one of the biggest things I had to drill into clients, it's not just about making good food and slapping a fee on top, it's a strict regieme of training, control and excellent book keeping on top of a passion for food and a desire to make people happy.
As to your last paragraph, I believe that's covered by closing, I should have clarified on that point, my apologies
Interesting. When I first got into the industry, knowledge pass down to me as 30% Food Cost, 30% Staff, 30% Rent / Electrics, and 10% Profits. Again this differ from places, City and non City restaurants. And This is mostly in Asia, HK, Taiwan and China. ( Not Japan )
When I left the industry, Food Cost are now pushing down close to 20%. Staff Cost and Rent made up of nearly 70%. With Rental taken nearly 40%. Since Staff Cost, and Rent are mostly fix cost, the only way they could improve Revenue was to becomes fast food alike, i.e faster table turnover. ( A trend I really dislike )
>This is one of the biggest things I had to drill into clients, it's not just about making good food and slapping a fee on top, it's a strict regieme of training, control and excellent book keeping on top of a passion for food and a desire to make people happy.
This. So Much.
I still wanted to get back into Food and Hospitality business someday. I think Food is a topics that connects with everyone. And I still think there is lot of innovation and tech could help with the industry, it is rather unfortunate no one is taking a look into it.
VC is equity not debt, and very very few restaurants raise money via equity.
Often they'll take out large loans secured on both house and business, along with a chunk of their own (or investor/friends) money to get things started. The lenders get to stick nice chunky rates on the whole thing and generally have limited downside because collateral.
I don't mean to imply the banks are doing anything wrong, just that the business model is based on managed downside rather than "striking it rich"
Correct, but I would say it's next to impossible to find a VC who treats a SAFE/Convertible Note as debt. Nobody wants it paid off, the VC will always choose to convert to equity because that is the VC's model.
