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* Rest. Biz 101:
Opening Up Your Own Restaurant
* {By Rick Kouns, the "Restaurant Profit Planner"}
















Ask the Restaurant Profit Planner

Let Rick Kouns of Profit Planners, Inc., answer all your restaurant accounting and business questions - from raising capital to deciphering financial statements. This experienced entrepreneur and consultant is at your service to help your business succeed.

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Q:I am looking into buying an existing rest. i hve never owned one but have many years of business experience and have wanted to get into the industry. The restaurant in question is in nyc in a great locatin, turn key oppritunity. State of the art equip amazing decor 8 years left on lease at a modest rent and its fully operational and profitable. ,y question is how much is too much to pay for a leasehold business of this kind and what are the strtup costs involved for me. the owner is asking 550k. how many months operating expenses shoudl i plan for. thks

Raymond,
NYC
A:Raymond

You need to have at least 6 Months worth of operating cash at your disposal. You will need to add a seasoned operator if you are buying from the owner/operator. It will get away from you quickly- if you do not have the restaurant experience. Especially in NYC.

--by Rick Kouns
--Profit Planners, Inc


Q:Can you tell me all the different insurance that is needed when opening a small, full service restaurant

Jamie Leeds,
Washington DC
A:Chef Leeds:

The insurance that you need is General Liability, workers compensation and disability(state mandated)

--by Rick Kouns
--Profit Planners, Inc


Q:I'm an LLC restaurant. Can I write off dining at other restaurants. Is it consider research?

JJ,
Atlanta Georgia
A:JJ:

Excellent question! I was waiting for someone to ask this! The answer is yes! But you would need to classify the expense correctly. This would be a research expense- "Research expenditures qualify if research relates to discovering new information that is intended for the use in the development of a new or improved business component/product of the taxpayer." So if this, in fact is what you are doing it will be 100% deductible. If however, you are using it as an Meal and Entertainment expense it is only 50% deductible. This is the letter of the law- so you need to be able to determine between the two:)

--by Rick Kouns
--Profit Planners, Inc


Q:CAn you tell me if there\'s a formula for calculating the benfits of seasonal hiring, i.e. firing and hiring vs hiring and retaining through the slow months?

JusTin,
Montpelier VT
A:JusTin:

This is a difficult question to answer. However, I will give you my opinion on a business level. There are always costs of attracting employees but usually the costs are less than keeping someone on the books for the slow periods. The other problem is that your experience rating for your unemployment insurance will continue to rise(depending on the state). Everytime, you hire and fire the numbers are reset and you will have to pay unemployment insurance. However, as the business owner, you need to budget appropriately to weather the "peaks and vallies" of your season.

The short answer is fire and rehire as needed.

--by Rick Kouns
--Profit Planners, Inc


Q:Can you give me a good example of a restaurant break even problem?

Karl Tipton CEC, CCE, AAC,
New Orleans
A:Dear Chef Tipton:

I am unsure of your question? However, I am going to assume that you are requesting "how" you come up with your break-even point. It is easier than one might think. There are a few numbers that we must know. We need to know your "Gross Profit Margin (GPM)." Your GPM is Net Sales less your cost of goods or your variable expenses. You need to know your monthly fixed costs. These costs are usually the G & A. After you know these numbers it is easy. Let us look at an example.

ABC Cafe has a GPM of 60% (Net Sales less 32% of Food Costs + 8% of Other). ABC has fixed costs of $12,500 (3K of Rent, 5K of Wages, 2K of insurance and 2.5K of other). Your Break even point on this example would be $20,833.33 in net sales. The formula is Fixed Costs/GPM%=Break Even.

To Prove it out:

NET Sales 20,833.33 *40% cost of goods = 8,333.33.

NET Sales 20,833.33 less 8,333.33 = $12,500.(GPM=60%)

GPM of $12,500 less $12,500 of Fixed Costs = 0.

I hope that this helps.

--by Rick Kouns
--Profit Planners, Inc


Q:I am a 31 year old chef. I have fifteen years experience in the field and over four years management experience. My dream is to own a 50-80 seat restaurant so I can showcase my cuisine. Currently, I am in the Virgin Islands but I am returning to Minnesota next year. What would be the best way to find money backing for me to be an owner operator of a restaurant if I cannot fund it myself through bank loans?

Christopher Cody,
St. John, USVI
A:Dear Chef Cody:

Funding sources are very difficult to receive when preparing a start-up, however, here are a few ideas! This actually will prove my point of how important a business plan is viewed. "SBA"Loans are almost impossible to gain in the first year- so you will need to look for angel investors. "Angel investors" are usually high networth individuals looking to make an investment in small to medium size businesses. Every city of any size has these associations which will allow you the opportunity to go and pitch your business plan to these individuals. Another avenue that you should be looking at- concurrently is most urban area's have "Economic Development Offices" whose function is to incentivise new business within their city limits. They usually have low cost loans or even small grants to assist companies that provide "job creation." A great source of finding funding is through your Accountants and Attorneys, they usually have clients that are looking to make investments. Also do not forget the friends and family route, usually they can provide small increments of funding, but if you have enough of them, it will quickly add up. And finally, since you have a year, begin working on your business plan so that it is flushed out by the time that you need to present to potential investors.

--by Rick Kouns
--Profit Planners, Inc


Q:I'm looking at a site for my restaurant and they're only offering a 10 year lease. It's the best place I've seen, but this seems like a very big commitment. What do you think? Is this normal?

John,
Plano
A:Dear John:

Yes, I agree-ten years is a big commitment!! Unfortunately, a great deal of the landlords want to ensure their cashflow for a signifigant amount of time. There are a few things that you can do. If you have an attorney- make sure that you get a "good guy clause" which basically says that if the business is not profitable and you have to cut your losses, you will just lose the security deposit and that months rent. Be forewarned-landlords do not like this. Another idea, is check out the area's sublease sections in the local newspaper or craigslist.org which let you ride on someone else's long lease. I am sure though, with more research you can find a lease of 3 to 5 years. Landlords also want to mitigate their losses if their space has been sitting empty. Happy Hunting!

--by Rick Kouns
--Profit Planners, Inc


Q:Is there a good way to project food costs? I keep messing it up. Thanks

Mark Wolfner,
Lansing MI
A:Mark:

Projecting Food Costs can be a daunting task- especially if you are in a start-up phase, so I would suggest using industry standards. The industry standard for food costs range from 30% to 35%. Therefore assuming that you have $10,000 in sales, you would take ($10,000 X 30%= $3,000 Food Costs). However, this is just a national average. When you have some historical data, you can get a more accurate picture of your food costs by simply adding up all of your purchases of food and dividing by your net sales. For instance you have bought $4200 in meat, vegetables, spices etc. for the month you had Net sales of $11,306. Your food costs would be 37.1% ($4200/$11306). The best ways to control food costs is to maintain portion control, negotiate favorable terms with your vendors and if needed raise your retail price.

--by Rick Kouns
--Profit Planners, Inc

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