How to Open a Restaurant, Part 4: Financial Success: How to Spend, Save, and Plan for Your Restaurant
Restaurants are commonly seen as risky business endeavors, and for good reason. In addition to being an intensely competitive and ever-changing industry, profit margins are lean, so every dollar makes a difference. Planning for financial success is often the most intimidating, time consuming, and least fun part of the pre-opening process, but it absolutely cannot be skipped. In this article, I’ll share some key tips for giving yourself and your new restaurant the best opportunity for long-term financial success.
Failing to Plan is Planning to Fail
The process of ensuring your restaurant’s financial viability begins long before there is even a restaurant to speak of. Whether you’re taking on investors or funding the project yourself, a business plan outlining how you intend to make money is imperative. Your business plan is your road map and the process of creating one will force you to think through every detail relating to conceptual coherence, cost, revenue, and profit. There are many different business plan formats, but the strongest ones always include these four things:
Describe your concept. Write this portion as though you’re describing your restaurant to someone you have never met. Taking the time to be diligent and spell out every detail at this stage will uncover pitfalls and opportunities that you may not have otherwise discovered until it was too late to correct them.
Include an initial budget. Without having a budget in place, spending can get haphazard and irresponsible, landing you in a big hole before the doors even open. Including contingency money for unexpected costs and setbacks is crucial so that you aren’t forced to cut back in other areas when that water pipe above the kitchen breaks. A detailed plan for spending will ensure that you and your opening team know exactly where you plan to spend money, and have parameters for doing so.
Create a sample menu. Getting a menu down on paper at this early stage is important in estimating revenue and illustrating your concept, even though it will change over time. It is much easier and more accurate to make small adjustments than to operate on assumptions, which can be dangerous and costly.
Calculate revenue and cost projections. This is the time to get granular; if you can’t make the math work on paper, it isn’t going to work in reality. Using your estimated average check and the number of covers you expect to do every day (be sure to take seasonality into consideration), you can put together annual revenue projections. Costing out recipes for food items and cocktails and costing out mock schedules for the property will give you a solid understanding of your prime costs.
If this is your first restaurant opening and business plans and budgets are foreign to you, enlist the help of professionals and external resources. There are tons of resources online and in bookstores to help you put together a business plan, but if writing isn’t your cup of tea, hiring a consultant that has experience with restaurant business plans is a solid investment. Similarly, an experienced accountant with restaurant clients is invaluable, and their expertise in combination with your vision can provide the balanced perspective you need to get your restaurant off to a sound financial start.
Become a Strategic Purchaser
The urge to get it all over with, the need to make decisions quickly, or having expensive taste can quickly make you forget your budget when it comes time to purchase furniture, fixtures, and equipment for your new restaurant. It’s important to stay focused because the decisions you make at this stage will affect your financials for years to come. Here are a few guidelines on getting it right:
1. Always request quotes from multiple vendors. There are generally numerous products, services, and tools available to you that will get the same job done. The first price you get may turn out to be the best value, but you won’t know until you’ve looked at a bunch of options. Getting competing quotes also puts you in a more powerful position to do some negotiating.
2. Don’t be sold on what you don’t need. Remember, while you may be new to this, your vendors aren’t. Ensure that you’re working with someone who understands your needs and budget, and stick to the essentials. It’s much easier to buy more of something than it is to get rid of something you have in abundance.
3. Keep cash flow in mind. As cliché as it may sound, timing really is everything. Save large purchases for when they’re absolutely necessary, as unexpected expenses are frequent, and cash flexibility can be a game changer.
4. Will it make sense in 3 years? It’s easy to get caught up in the moment when making opening purchases, but you’ll be kicking yourself later if you don’t keep the big picture in mind. Are your purchases crucial to operational efficiency? Is it something you need or something you want? When glassware and plateware start to break and silver goes missing, will you have to sacrifice a disproportionate part of your operating budget to replace it? Making smart purchases comes from constant questioning.
Make It a Team Effort
One major areas that is often overlooked is the impact that the financial health of your restaurant has on your entire team. It is imperative that you set goals for your managers and make P&L presentations transparent and keep financial discussions inclusive. This will encourage your managers to adopt ownership mentality and enable you to ensure that your objectives and those of your key team members are aligned.
A great way to incentivize managers to keep the numbers top of mind is to institute a bonus program based on hitting specific targets related to operational costs that they directly affect. Managers set the tone for your staff, so if they’re a part of setting the goals and stand to benefit from reaching them, they’re much more likely to manage as an extension of ownership. When you hit your monthly/quarterly/annual goals, you’ll happily pay out bonuses for a job well done, and everyone wins.
Opening and operating a successful restaurant is hinged on a structured approach to managing finances. The most successful restaurateurs start with a plan, operate accordingly, and make sure to communicate expectations with staff. Developing a sound financial strategy requires some time and commitment up front, but is sure to payoff in the long run
Most independent restaurateurs spend years carefully considering every detail of their dream restaurant from the concept and menu, to the upholstery on the banquettes and everything in between.
Rarely, however, do those same new restaurant owners think excitedly about putting together their employee handbook, and understandably so – it’s not the most stimulating subject matter, and seems more a chore than a passion project. But, despite their relative dryness, employee handbooks are a vital asset of any restaurant that plans to be successful and stay out of court, regardless of size.
In this article, I’ll dive into why employee handbooks are so necessary, what should be in yours, and provide some insight into effectively translating what’s on paper into action when opening a new restaurant.
Do You Really Need a Handbook? YES.
Employee handbooks may seem like a staple of “corporate” establishments, but there’s a good reason for that; corporations understand the risks associated with not having them. At a high level, an employee handbook serves two critical functions for your business:
1. It outlines the expectations of all staff members.
2. It requires that all managers and employees sign the document confirming they’ve read, understand, and agree to its provisions.
By accomplishing these two things, your employee handbook will immediately set up the framework for accountability and provide a baseline understanding of both what to expect from your employees, and also what they should expect from you. Documenting performance and behavioral standards in a handbook is the first step towards eliminating the inconsistent and subjective treatment of employees that sometimes land restaurants in expensive, time-consuming, and damaging litigation.
Remember that every handbook should be different - the specific areas yours covers will depend on the size of your business, where it’s located, what kind of culture you want to create, and what type of restaurant you are opening. The list below provides some general guidelines for what is commonly included in handbooks, but, as discussed later in this article, you will need to involve an employment attorney to customize and expand upon this framework in order to build an effective and legally sound handbook.
- Disclaimer and Acknowledgement. There should be a disclaimer at the beginning of your handbook stating that it is not an employment contract (especially important for states with at-will employment laws). Dedicate one page at the end that requires employees to acknowledge that they have read and understand the policies outlined in your handbook.
- General Employment Policies. This section should cover labor laws such as equal employment opportunity, accommodations for individuals with disabilities, religious accommodation, as well as restaurant-specific topics such as having an open door policy, performance evaluations, and the company’s stance on outside employment.
- Timekeeping & Payroll. The goal of this section will cover all state and federal laws, including the Fair Labor Standards Act, how overtime is paid, payroll deductions, and pay corrections, as well your restaurant’s specific time-keeping procedures, paydays, and consequences for not abiding by any of these rules. This section should also include policy regarding attendance and punctuality, tip reporting and break laws.
- Employment Benefit Programs. This where you will outline any benefits like health insurance or 401k programs that your company offers, when employees become eligible for those programs, and where they can find more specific information about each program.
- Time Off From Work. Here is where you will go over federal and state mandated leaves (bereavement, jury duty, time off to vote, Federal Family and Medical Leave Act, Military Leave), any holidays that the restaurant will be closed for, paid vacation time, and paid sick leave. You should also review how employees should properly communicate the need for any of these types of time off from work with their supervisor.
- Health, Safety and Emergency Protocol. This should cover policy and procedure around work-related accidents and injuries, possession of weapons and firearms, OSHA compliance, and how to handle different types of emergencies.
- Employee Conduct and Corrective Action. Making sure that this section is very clearly written and easy to understand is vital. Clearly outline your behavioral expectations of every employee and include a detailed progressive action plan so that your staff understands consequences and your managers understand how to handle employee misconduct.
- Anti-Harassment & Non-Discriminatory Policy. The goal of this section is to define the company’s stance on harassment and discrimination, define the type of behavior that qualifies as harassment and discrimination, state who the policy applies to (everyone), and how employees should report harassment or discrimination in the workplace. Your policy should also outline how the company will handle reports of this nature.
- Drug Testing and Substance Abuse. Describe what qualifies as “prohibited conduct” with regards to drugs and alcohol and what the consequences are for violating the policy.
- Separation Policy. This section should define voluntary and involuntary termination and explain what is expected of the employee and the employer in each instance.
- Other Policies You May Want to Include. Other topics that I would highly recommend including are uniform and appearance standards, social media policy, confidentiality and nondisclosure, smoking, use of company property, romantic relationships, and conflicts of interest.
Make Your Handbook Yours
Just like your menu, design, and concept choices, an employee handbook is a rare and valuable opportunity to make and communicate decisions that reflect who you are and what you’re about. Assuming that a handbook has to be strictly a risk management tool is missing a powerful opportunity - your handbook can be hugely helpful in connecting the dots between your mission statement and your actual employment practices.
Whether you decide to hire someone else to do the bulk of the writing, work from a template from a professional Human Resources site, or use customizable software as a guide, make sure that you stay actively engaged in the process to ensure that your handbook shares your voice and reflects your brand as much as possible.
Regardless of how you decide to complete the actual writing, you will need to get an employment attorney involved. If the thought of shelling out precious start-up cash on something like this makes you cringe, remember that only using a generic template or copying an outdated or flawed version of a handbook from another business can be just as bad as not having one at all. Handbooks are all about setting standards, and if yours communicates incorrect information, it decreases your credibility and may not do much to protect you or your staff.
Hiring an employment lawyer with restaurant experience can help get you on the right track. They should be able to answer any legal questions for you throughout the process, and give the document a comprehensive review to ensure that your handbook is properly tailored to your establishment, and is fully compliant with state rules and regulations.
Put Your Handbook Into Action
Finishing a thoughtful, comprehensive employee handbook is a useless investment if you don’t follow through and put it into action; proper implementation and documentation to prove that your business is abiding by the laws and policies your handbook spells out is crucial. A labor lawyer that I worked with frequently in San Francisco recently recounted a story about an independent restaurant that prepared family meal everyday and required that the entire staff take a 30 minute break to eat, in accordance with state law. But, because the employer never required that employees clock in and out for those breaks, there was no documentation to support their defense in court when a group of staff members sued, stating that they didn’t receive a full 30 minute break on a regular basis. In instances like this, a restaurant can be forced to backpay break penalties, in addition to fees related to the amount of time an employee had to wait between the time the violation occurred and the time the case is heard. The restaurant was forced to close.
Once you’ve done your due diligence and completed your handbook, you’ll need to:
- Train your management team. Your managers need to understand everything that is outlined in your handbook so that they can both answer questions for employees and also effectively manage based on the standards it outlines. Having documented expectations can prove counterproductive if they are applied unevenly, so make sure that every manager is enforcing the rules stated in your handbook across the board. Ensuring that your management team understands your guidelines and its role in upholding them will ensure that in critical moments, everyone is equipped to perform by the books.
- Train your employees. It’s also in everyone’s best interest for all employees to have a clear understanding of everything in your handbook, so simply handing it out and asking them to sign it isn’t enough. During pre-opening training, dedicate at least 1-2 hours to go over the most important points of your handbook and require everyone to read it before signing. Giving everyone a basic quiz on its contents is a good way to ensure that employees understand critical topics. Employees that have a clear understanding of what they should expect to give and to receive from their employer are more comfortable and confident, allowing them to do a better job.
- Revisit it often. Your handbook has to be a living, breathing document in order for it to remain a useful tool. Employment laws change frequently, as will your expectations of your employees in the months and years following your opening. As your restaurant changes, encourage the management team to make suggestions that can meaningfully aid in ensuring standards remain high. The more bought-in your team is in helping to maintain quality, the better.
While it can seem mundane at the outset, an employee handbook is an important step as you try to align your vision for your restaurant with the reality of how it comes together. Setting guidelines and expectations isn’t always the most fun, but it is a sign of a measured and professional restaurant that is primed for success. It will help immensely as you hire, develop, and retain top talent, as the best employees always want to have a solid understanding of what is expected of them, and how to achieve it.