You feel great – for about a second. Then your dishwasher breaks and you’re forced to shell out the cash to fix it. Forks start to go missing at a rate you can’t even comprehend, and one minute your staff are bored without much to do, the next they’re in the weeds because you had no idea Thursday lunch would be so crazy.
The first year of restaurant ownership can leave you feeling nothing short of overwhelmed. So I’m here to help: here are five things you can anticipate in your first year and how you can deal.
1. Unexpected Costs
In your first year, your operational costs will be higher than in any other year. The worst mistake a new restaurant can make is to open without a reserve fund. Why? Because $#!* always happens. Your equipment will break. Your glasses will shatter. Your cutlery will go missing.
Let’s say you have 100 seats in your restaurant. So you start with 200 forks, enough for the whole dining room, plus full turnover. Say you lose five forks per day – customers steal them or your staff accidentally throw them away. Within only one month, you’ll have 50 forks left, enough for only half the dining room and none for turnover. All of a sudden you can’t operate because you forgot to constantly be ordering forks!
How to deal: Have enough in your reserve fund for three months of operational costs. First, you’ll likely replace glasses, cutlery, takeout containers, etc. three times in three months. Second, you’ll need enough to cover unexpected costs like broken equipment, layout changes, higher labor costs, and extra promo costs to let people know about your brand new restaurant.
2. Erratic Financial Reporting
You likely won’t turn a profit in your first year. This is normal. Most restaurants only start to turn a profit within three to five years.
But instability doesn’t mean you need to feel alarmed. If your financial reports are showing that your revenue is good and you can reasonably project rising revenue, you’re likely okay.
You can anticipate that once your operational costs stabilize, you’ll have paid off some of your equipment, and you’ll start to know enough about your operations that you won’t be needing to tweak your layout as often.
How to deal: Think long term. Don’t forget about your depreciation costs and the wear and tear on items like your carpet, countertops, equipment, etc. Project your spend for these items five years into the future and include them in your financial reporting. When you anticipate future costs, you’ll have a better idea of the true financial health of your restaurant as your costs start to stabilize.
3. Understaffing and Overstaffing
Your staffing is going to be all over the map for the first three months. You’ll either schedule way too many or too few.
Say you assume that Thursday lunch won’t be busy at all, so you staff light. But, it turns out, you’re the only game in town for Thursday lunch, so you get slammed. This may seem like an excellent problem to have – and in some ways it is – but in the end your staff can’t keep up and customers’ first impression of your restaurant is bad service. You’ll end up spending extra cash on marketing costs to make up for the reputational damage or losing potential profit to service recovery comps.
In your first year, you’ll be constantly be trying to figure out the puzzle that is staffing Goldilocks-style: not too few, not too many, but just right.
How to deal:Be diligent about checking the reports on your POS: they’re there to show you where you can tighten costs so you can start to turn a profit faster. Your reports can show you when to cut back on staff at certain points in the week, even if it’s just an hour before dinner service begins. As more time passes, check your labor reports regularly against seasons, holidays, times of days, etc. to make sure you’re scheduling the exact amount of staff when you need them – and not when you don’t.
Your POS is going to give you a ton of information about your business in increments that will eventually build up to full visibility about the financial status of your restaurant.
4. Pivoting on Your Concept
Your first year of business is going to give you tons of information about what your customers want and don’t want. You could be super proud of your extensive draft selection – but it turns out your customers are way more into your wine. Or a competitor could open up next to you and undercut all your prices – how will you differentiate yourself so you can survive?
How to deal: Do as little as possible in your first year. Seriously. Have a focused menu, the most conservative hours, the simplest version of your concept. When you start small, you’ll have room to grow organically in ways that make sense for your market. It’s important to be flexible and open to change. You’re not going to please everyone with your concept, and you need to know when to stay true to your vision and when to bend to the market.
The worst thing you can do is go big on a concept and then be forced to backpedal once you realize the market isn’t responding to your brand. There’s nothing worse than retreat – starting as a 24/7 diner and discovering you have to reduce hours, for instance. This signals weakness to the market.
Use your POS reports to identify your best sellers so you can adjust your concept. Customers speak with their wallets, and your POS is there to help you listen.
5. Lifestyle Changes
I would be remiss if I didn’t mention the massive lifestyle changes that can come with owning a restaurant. And I’m not just talking about the long hours, financial instability, and lack of a social life.
Bar owners need to watch for this especially, but nothing gets you more faux friends than opening a restaurant, bar, or nightclub. Everyone wants to know the owner – and everyone wants to drink with the owner. I’ve known plenty of restaurateurs who get caught up in the lifestyle of owning a restaurant – and forget about the business in the process.
How to deal: Keep your goals top of mind. Know who your true friends are. And have fun – but in moderation and without detriment to your business.
The first year of any restaurant owner’s life is a rollercoaster. You’ll need to expect the unexpected, prepare for the worst, and try to anticipate the future – but there’s only so much you can control. The best way to make sure you survive your first year is to prepare for disaster so that when catastrophe strikes, it doesn’t take you down.
You can do this. Congratulations on your new business!
Melanie is a veteran of restaurant strategy, finance and operations, starting her career in her mother’s bakery franchise as a part-time dishwasher and pie-presser. As past Product Manager at TouchBistro, she brought subject matter expertise gleaned from decades of experience as a General Manager, Director of Food and Beverage, Corporate Controller and Strategic Consultant for some of Toronto’s top venues, including Service Inspired Restaurants, Mercatto Restaurant Group and The Drake Hotel Properties.