Running a successful restaurant is hard, and takes a ton of work. Here are some signs to look out for.
You expand too quickly.
Restaurants need scale to become truly profitable. No matter how good and/or popular a restaurant is, there are only so many people you can serve in one location. This inevitable truth leads owner/operators to quickly look for other locations, sometimes to the golden goose’s detriment. Make sure you have the breadth and depth of management and operations before you even start looking for No.2. If your operation is owner-driven, especially if you are a solo entrepreneur, you need to have a No.2 that has clear operating parameters and whom you trust to count the money and take it to the bank. Model your business as if you are attempting to create a franchise. This doesn’t mean flair on your outfits and an HR department, but it does mean thorough documentation and accountability of the processes needed to make your store profitable.
You’re broke (and that’s OK).
Maybe you are the idea guy, perhaps you have worked your way up the ranks from the bottom and are truly ready to run your own restaurant from the ground up. MAYBE, you have already assembled an all-star cast of back of house and front of house managers and recently returned from Barcelona or Florence with a transformative take on full service restaurants. None of this matters without good old-fashioned cash. The good news is that people with money are always looking for ways to make more money. If you put together a solid team and business plan, you can find investors that will back you. One common way is to create a SPE (Single Purpose Entity) such as an LLC that will only operate one restaurant and sell points in it based on ownerships. This can be cumbersome if you have too many investors because they will usually want to be less than silent, and worst case scenario strut around the place handing out business cards that say Owner and try to buy pretty girls free drinks. Make sure to over estimate capital needed and pick people that can truly afford to invest because there will almost certainly be a secondary capital raise after you blow through your initial war chest. Under capitalization is the best way to kill a one-unit restaurant because by the time you get the kinks worked out and find your audience and your groove, you could be stretched very thin.
You are letting the chef design the kitchen.
I get it, you found a chef that would make Julia Child swoon. He makes you feel like a child when he talks about classic French technique and all of the assorted equipment needed in the kitchen to make you both fabulously wealthy. Commit this point to memory: Unless he is paying for the equipment or an equal partner in the deal, do not let him design the kitchen. It will be twice the size and twice as nice as it needs to be. You are paying thousands of dollars for class A retail space, and unless there are tables and chairs with customers butts in them, you are not making any money off of space that is not essential to serving your menu. (I will caveat this with a restaurant with big catering and to go programs, but a new restaurant is probably not going to have this as a big part of their P&L).
You didn’t surround yourself with professionals.
Keep your friends and family out of the business if at all possible. Surround yourself with seasoned restaurant professionals and young up-and-comers you can get for value. You need to be able to fire quickly if someone is not a cultural fit or simply cannot pull their weight. If you need to make special stipulations for friends and family, it can drastically undermine your ability to keep the best team in place.
You want the sexy (restaurants suck).
If you are starting a restaurant to show off for your friends and pour your own beer from behind the bar you will almost certainly fail with alacrity. Restaurants are like a mirage in the desert. They look sexy until you get up close and personal and realize they are a fragile and expensive nightmare. A smart guy once told me, “There a thousand reasons to not open a restaurant and only one reason to do it. To make money built on solid operations and fundamentals.” If you think 100-hour weeks and razor thin margins are sexy, then proceed. If you just want to flirt with the hostess and pour yourself a beer, get a boat and a kegerator and save yourself a couple $100,000.
You are getting a great deal.
Beware the great deal. In today’s market, if there is a great deal, there is probably a not so great reason behind it. If you think it’s a great deal, get a second and third opinion. Hopefully you are using true professionals on your team (real estate broker/general contractor that specialize in restaurants/retail) that can manage the risks of a great deal. You could find out that all of the “almost new” equipment and HVAC is shot. The landlord could be a nihilist, you just don’t know what you don’t know.