Restaurant Business Ownership Advice: Is It a Good Idea to Buy a Restaurant Business In This Economy?
Hard to believe, but restaurants, fast food and other types of food manufacturing or food distribution businesses compose fifty percent of all small businesses sold. Fifty percent! This means a lot of you buyers are buying restaurants.
Restaurant Business Ownership Advice
Now, I’ve picked through more than my fair share of them over the years, doing business valuations and analyzing businesses for potential business buyers. I do not know how many it is but it is in the hundreds. In the course of doing this due diligence for hundreds of franchise and non-franchise retail food businesses, the problems specific to these food businesses have become very clear – but you have to look carefully.
I’ll spell a few out for you
The number one observation is that there is a franchise fast food restaurant on every corner. Usually there are three hamburger joints clustered together, all within 200 feet of the same corner, competing for the same patrons. This of course divides up the potential customers by three, regardless of the economy. What with higher rents and lower volumes, many fast food places are not doing well.
In answer to the problem of lower sales volume, many franchisers’ solution has been to expand their menu to the point that they are a hamburger stand, a Mexican take out and an Orange Juice Store all in one location. They are trying to be everything to all people. In my opinion, they are making a big mistake. This is the age of specialization, not generalization. Huh? You say “Isn’t it better to cover all your bases?”
Why are we an age of specialization? Because our culture has become so technical that we as business owners cannot be all things to all people or another way of saying it is, “being an expert in everything.” Trying to be an expert in everything turns us into an expert in nothing.
The public, when wanting the best, is smart enough to find the most qualified expert in any field – and food is no exception. If I want good Mexican food, and do not need to eat in 15 minutes, I do not go to a fast food franchise drive thru. I will find a non-franchise Mexican restaurant owed by a Latino family that is reasonably priced and packed with customers every night. We all have seen them.
The non frozen Burger place is more successful than those drive troughs that fry or broil their meat, in my opinion, regardless of what the published numbers are. The reason? They taste better. They are going after adults, not kids. They have a very limited menu, which keeps food and labor costs down. And they are very reasonably priced.
Consider Buying an Existing Location
If you are going to start a restaurant focusing on your favorite specialty, consider buying an existing location; do not open one from scratch.
When buying an existing location, remember you are buying the furniture and fixtures, not the customers. You are buying a location with approved permits – 24 of them, if the business is in the City of Los Angeles. Of course, make sure you have ALL required permits before shaking hands.
- You need to have the best tasting food of the type you’ve chosen.
- You need to have a limited menu – but where the customer does not feel like it is limited.
- You need tight labor and food cost control – or profits can and will go out the back door.
- Your price has to be affordable for the neighborhood you are located in. Do you know the price point? That can only be determined by surveys. A big problem for restaurants is opening up without surveying. I can help you with surveying.
- Lastly, any restaurant must market properly to differentiate itself from everyone else – stand out or die out. This is done with marketing. You have to budget for marketing and advertise into your local neighborhood. Your target neighborhood is a half-mile radius of your location and if there is not a glut of restaurants with your specialty, then you can expand out to a one-mile radius. Adverting and promotion must be constant. Your goal is to continually advertise – and advertise twice as much for the first three months. Get your name out there, at least to your would-be customers, to the point where they know your name and where you are located without asking or looking you up.
If you do this correctly, your odds of success are greatly increased.
Whatever type of food you serve, make sure you create in your customer’s mind the idea that your place has great tasting food for a fair price, and confirm this with surveys.
Make sure you have tight control over all of your costs, while still delivering a quality product. If you are not making a profit, you will not be able to continue to deliver great food.
Regardless of what kind of fast food or sit-down restaurant you are interested in owning, keep in mind this key point – your success as a food business owner is directly related to the number of times that you correctly advertise to your actual prospective patrons. It really is that simple.
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Willard Michlin is a CPA, CFE (Certified Fraud Examiner) and Business Broker. He offers assistance, anywhere in the USA, in the key areas involved in the buying of a business: Due Diligence and Business valuation. He is an experienced, honest and trustworthy consultant. He has published many articles and is in demand as a public speaker in and for the business community.
You can write to Willard at Willard@EvaluateABusiness.com and he will always answer your questions. He can also be contacted at his Seal Beach, California office by calling 805-428-2063
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