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How do you write a proper restaurant business plan?
Do I even need one before I start my restaurant?
These are two very common questions I get in my email.
One mistake I see budding food entrepreneurs make is not having a business plan. It is an integral activity and document for your business.
In this post, I’m going to share a workbook with you that will help you create your restaurant business plan, which will help you have more clarity on your business.
To get things started, we need to understand why is writing a business plan super important and essential for your success.
Why Have A Business Plan
1.) To Help You Raise Funds
The number one reason why you should have a business plan is to help your chances to raise funds.
If you’re looking to get funding, investors need to have the confidence in giving you the money in the first place.
This means having confidence in YOU to use the money effectively, build a successful business with it, and provide them a return.
Having a document that clearly shows your abilities, experience, understanding of the market, and the appropriate milestones is how investors, banks, and the government would be willing to fork over their money to you.
2.) To Attract Business Partners
A lot of people are looking for business partners.
Specifically, partners who are talented, hustle as much as you do, and someone to share the workload.
But it’s very difficult to translate your grand vision unless you’re a very organized person. This ends up getting interest from people who may imagine the business in a smaller or larger scale manner.
By having a business plan, you can communicate your vision and the business opportunity in full. It would then attract the right partners who have a higher chance of being aligned with what you’re looking for.
3.) Clarity For You
So many people get into business without writing a business plan and what does that do?
It blindsides them later. It exposes them to what they don’t know at often the worst times.
You would end up hitting all these pitfalls, which can be avoided if only you planned for it, if only you read this post and did the work.
Although there will always be issues that you can’t account for, your initial research will help provide a good foundation in clearing up major issues.
It will also pave the way for you to look back on when you’re 6 months in, 1 year in, or 5 years in. With so many moving parts in a business, it’s easy to get lost and even lose your way.
Looking back at your business plan can help keep you grounded and continue to set forth on the vision you initially set out.
We talked about why we need a business plan and why it’s essential for your success. Now we’re going to be talking about how you’re going to write that business plan so then now you can raise your funds, you can find the right partners, and have clarity for your business.
Let’s dive right in.
Side note: Everything that I’m sharing is just basic elements that are essential for your business plan. They are not the only type of things that you want to consider. The terminology might be different depending on where you are, which country you’re in, which is the reason why only use this as a reference and tailor it specifically to your area and your needs.
Restaurant Business Plan Workbook
Essential Business Plan Elements
1.) Restaurant Concept
The first element that you should definitely consider is your concept.
What restaurant concept are you trying to bring to the world?
What concept are you trying to offer your customers?
Last time, we talked about the four different types of restaurant concepts for your business.
In the business plan, you should be able to identify:
- the type of business and the type of concept that you’re trying to bring to the world,
- what problem it solves in the marketplace,
- why you are the one that is going to solve this problem,
- why you are uniquely capable of solving this problem,
- why your customers should be buying from you.
This concept is super important and it should be only a page long. It should cut right to the chase because you only have two or three minutes to capture your investor’s or partner’s attention.
If your concept is like a 10 page long essay, they’re not going to read it. It’s going to be boring.
You need to identify where you see an opportunity, why you are suitable, and how are you going to be able to fulfill and close that gap.
If I were to rewrite the business plan for 720 Sweets, our ice cream shop, we would identify this as a fast-paced food concept. A concept that requires minimal investment because we don’t need structural changes. We don’t need to install a hooded fan, which is something that a full-scale restaurant would need.
Our shop is only 500 square feet, a small little place that requires minimal investment for it to be up and running. That itself may be suitable for one investor, might not be suitable for another investor because of the potential revenue that they can bring.
What problem am I trying to solve?
With 720 Sweets, we are located in an area that does not have a lot of novel places to hang out for younger adults, which is the reason why we created our shop in this particular area. Then that way, we can fulfill that gap.
Why is it that we have the ability to solve this problem?
It is because of my background from being able to travel across Asia, seeing different recipes and seeing different presentations. I’m able to bring these ideas back to Vancouver and offer it to university kids who find this stuff very intriguing and find it very appealing for them to consume.
2.) Sample Menu
Your sample menu should consist of items that you propose to serve your customers.
Why is it that you’re offering this specific item? What need does it fulfill?
What’s its cost? How much are you planning to retail it for?
You’re going to build this whole menu out so you can understand what type of offering that you’re serving your customer and what needs you’re fulfilling.
By you doing that, you have a very clear idea of whether this menu is going to work or not, because with this menu you can go out there and survey people that are around the block. Survey whether this would fit their profile, whether this is something they need and this is something that they want.
Then you can include the cost of the item and how much you plan on retailing it for. That way, you can see what margins you can hit.
Without proposing a menu, we wouldn’t know the numbers. We wouldn’t know whether our customers want it.
Those are two very dangerous elements to be playing with.
For 720 Sweets, we went out to survey people around the neighbourhood three months before we opened.
We asked them:
- what kind of flavours they’re looking for,
- how much they’re willing to spend and
- seeing how much other dessert shops in the area are charging
Not only did we get a clear understanding of what people in the area wanted (in terms of flavours and pricing), it helped us see if there is actual interest in what we were trying to create.
3.) Your Team
What is the background of your management team?
What kind of resources you have that may give you the upper hand?
What are some of your backgrounds and relevant experience?
All of this helps in giving confidence to your investors. It lets them see how you are aware of your advantages, disadvantages and unique skillsets to make the business a success.
It lets them know the business is in good hands.
For example, my partner, Tim, runs one of the biggest wholesalers for bubble tea supplies in Western Canada. When we put his name down and show his background, it instantly adds credibility to the parties we are raising funds from. If we were raising funds from angel investors or venture capitalists, it becomes a really big selling point when we have a supplier who is part of our partner team.
You want people to know that you have the background, the ability, and the resources that other people don’t have.
If you don’t have much experience, that’s okay. You need to try your best to write down what makes you different. What gives you a competitive edge?
You’re trying to wow them.
Because the more they get wowed, the more money you’ll raise, the higher the chances that you’ll get approved for your loan and attract the right team and the right talent.
When drafting my business plan, I want to be able to showcase and flex in front of them and show them that I know what I’m doing. This means the businesses I’ve worked on for the last 10 years and even the awards I’ve won.
As I mentioned, I also put my partner, Tim, which adds a lot of credibility to our investors and partners that we’re speaking to. This itself acts as a really great positioning piece for your business.
The whole point of creating a business plan is to be able to show your vision with the people you’re raising funds from and the people that you want to join your team.
The more that you’re able to do that, the more they can see your vision, and the more money they’re going to give you or join your team.
That’s why your design is super important. You need to be meticulous with your ability to transfer what you have and what you see to these different types of people.
If you have the ability and the resources to hire a drafting firm or interior design firm, they’re going to be able to generate all these designs for you.
They’re going to talk to you about your vision, type of material you want to use, the kind of feeling you want to transpire, and what kind of experience you want to give your customers.
They’re going to be able to create designs to showcase how it’s going to look like and to bring your vision into reality.
But not a lot of people have the budget to hire an internal designer.
Online marketplaces like Upwork or Fiverr may be decent places then if your budget is tight. Use them to employ different types of talent to be able to do this for you.
However, you’ll need to keep a closer eye on things because the quality of work isn’t as high on there.
For 720 Sweets, it was the number one thing we relied on when we were building out franchises. Having beautiful designs to show our potential franchisees and investors of what their shop could look like was crucial.
We were able to secure different resources and rounds of fundings partly because of the amazing designs.
5.) Target Market
The fifth element for your business plan is the target market.
You need to be able to identify who is it specifically you’re trying to serve.
Why is it that they want to shop from your place?
What problem are you trying to solve?
Are you trying to serve that 30-year-old that’s hustling in their job and they’re just trying to get something quick to go, and to eat, and something healthy?
Well, if you’re offering something that is going to take 40 minutes to make, that is unhealthy, that’s difficult to eat on the go, then that doesn’t meet the criteria.
It is the reason why you need to identify very specifically who is it that you’re trying to serve. By you doing that, you can profile their needs. You can profile what they like, how old they are, what kind of income they have, what is it that they’re trying to solve.
By you doing that, you can cater the whole experience to them and solve that one problem they are facing.
“Hey, Wilson, what if I only offer everything to this one customer that you’re talking to? Wouldn’t I be cutting out the rest of the people?”
The answer is no.
Just because you’re offering and catering your experience to this one demographic, that doesn’t cut out everyone else. People will still consume from you. People will still understand what you’re trying to offer.
You’re beating out the noise.
You don’t want to be vanilla in this trade. You want to be very, very specific. You want to solve that need.
By you doing that, you can now stand out from the crowd and that’s the reason why you need to identify your target demographics.
With 720 Sweets, it was important for us to identify our target demographic.
We’re serving Michelle.
Michelle is an 18-year-old that goes to university. She values the goodness of life. She loves social media, experiencing the world, and she has a purpose to what she wants to do in life.
Her disposable income is around $8,000 to $10,000 and she’s in her second year of university. She loves experiencing food with her friends and she loves innovative items, trendy items.
That’s our target demographic.
By doing that, we’re actually able to attract a bunch of Michelles to purchase from us.
We were able to gain a lot of traction because we were so specific with the experience that we were trying to deliver.
The next element of your business plan is the location. You have to identify the type of location that is the most suitable for your food concept.
Why is that the case?
There’s a big difference between a destination location versus a high traffic location. The difference is based on the foot traffic and the rent.
A lot of people make the mistake of instantly thinking about a spot with the most foot traffic.
Unfortunately, in the real world out there, budget is always a constraint, which is a reason why you need to identify the location that is best suited for your offering.
If you do choose a destination location, you need to consider how accessible it is for your target demographic. If you’re catering to high school students, you’ll want to make sure it is easy to get to by bus. Likewise if you’re targeting more luxurious crowd, you’ll want to make sure there is ample parking spots and even valet.
Other characteristics you need to be wary of:
- How much crime is happening around that area? Would it scare off our potential customers?
- What’s the visibility of the shop like? Is there a giant tree blocking the front?
- Is there a sense of community in the area?
The more specific that you can identify the nuances of a location, the easier it is to fully understand whether that location is a good fit or not for the concept that you’re trying to bring to the world.
Because if it’s confusing, then most likely you’re not going to get the funding or stellar partner you’re hoping for.
That’s the reason why with 720 Sweets, we purposely chose a destination location, which is a 15 minutes away bus ride from the nearby university. It was an accessible spot for our target audience.
The shop is only 500 square feet, which makes the rent super affordable.
When you scan the area, there are a lot of food establishments but very few dessert shops. This presented a good opportunity to fill that void.
7.) SWOT Analysis
I know a lot of people talk about SWOT analysis, and it may seem like a cliche, but it is super important for us to not be blindsided.
What is a SWOT analysis?
SWOT analysis stands for strength, weakness, opportunity, and threats.
What advantage does your company have over other people?
Do you have a partner that is supplying ingredients to you? This ensures that your cost of goods sold (COGS) are always at cost and way lower than what other people have to pay.
Or have you been studying the vegan industry for the last 10 years and you have this crazy recipe that no one has?
These are the strengths that you have over your competitors. You need to identify that.
What disadvantages do you have compared to your competitors?
For example, you could be offering a vegan recipe to the world. However, is vegan super popular in your marketplace?
It might not be the mainstream item that people are ordering. That really limits your type of people that are attracted to your business. It limits your potential for revenue because your offering is also limited to a certain amount of customer demographic.
Just because it is a weakness doesn’t mean you shouldn’t take that away from your plan.
Your investors and your partners should know that you are living in the real world, that you understand what your weaknesses are.
Just because you have disadvantages doesn’t mean that you’re bound to fail. It just means that it’s something to be aware of.
What is an opportunity in the food market nowadays?
Imagine you’re looking to start a new plant-based restaurant at a neighbourhood where this type of cuisine is still quite new. The opportunity lies in showing people that consumption of plant-based items is on the rise and is beneficial for various reason. You become the forefront of a trend that’s picking up like crazy.
That becomes an opportunity for what you’re trying to offer.
As I mentioned previously, there was a massive gap in the Vancouver dessert market. There were very few visually appealing and innovative items that appealed to young millennials. And the neighbourhood for our planned flagship store didn’t have a spot for people to just hang out at. That was our opportunity to fill that gap.
What are some of the threats to the survivability of your business?
If you’re in an industry that is on a downturn, the market itself becomes a threat. For instance, if you’re offering extremely sugary and fatty items, you’ll be hard-pressed in North America as people look to cut down on those types of food and be more health-conscious.
Aside from the actual market trends, other threats include:
- Competitors: Can a bigger and more established brand wipe your business out by just copying you?
- Talent: Will you go out of business if you can’t find specifically skilled staff?
- Price: Would your business be viable if the price of a core ingredient hikes up? (this is particularly dangerous for F&B businesses who rely on a single core item)
- Approvals: Is there a chance that something may not be approved? IE. building permit, food regulation, city regulation
- Weather: Will the weather affect the success of your business? IE. seasonality affects frozen dessert shops
- Customer perception: Is there a negative perception about the items you serve, your cuisine, or ingredients? Ie. fresh-pressed juice is considered expensive and may ward off people.
These are some of the items that you want to consider when you’re creating your SWOT analysis. The more thorough and the more descriptive they are, the better because it shows your investors that you are analytical and you don’t leave anything unturned.
In turn, shows that you’re much more sophisticated and it shows that you’re much more prepared to handle what is to come.
How do you plan on bringing your brand, your offering to the market?
Do you plan on partnering up with food delivery services?
Or do you plan on collaborating with different clubs and offering them discounts to bring in loads of people into your restaurant?
Whatever your marketing plan is, you need to identify this plan so your investors and partners know how you’re going to become successful.
Marketing is a very broad category and touches a lot of parts in a business. You want to consider your major marketing channels and how you’ll get people through the doors.
Are you going to be leaving brochures at office restaurants or office buildings all the time?
Or are you going to be planning on running Facebook ads?
What is your marketing plan?
What specific things are you going to be doing to bring your business to the next level?
For 720 Sweets, a big part of our marketing came down to collaboration.
We understood that our target demographic is looking for something new all the time. They want to be the first ones to show their friends and tell their friends the latest trends.
Collaboration with different companies allows them to tell their friends all the good stuff that’s happening. In turn, it allows our brand to be exposed to them over and over again.
Our latest collaboration with Nespresso and Vitasoy became such a big talking point with our customers. This is a great marketing channel specifically for us.
You need to understand and identify what type of marketing and strategies you plan on doing to bring your restaurant to the next level.
Last but not least, the financials.
Never ever leave this part out in your business plan. It’s something that shows your investors that you know what you’re talking about.
Just because you don’t know the financials, just because you don’t know how your performance is going to do, does not mean you shouldn’t budget. It does not mean you shouldn’t project.
The more different line items you can account for, the more you can actually project, and the more thorough you are, the better it is for you to be able to raise funds.
It becomes way easier it is for you to be able to justify things when you have the numbers.
How do you even come up with numbers to project when you even haven’t opened up your restaurant?
Sometimes we can become very optimistic. Sometimes we’re very pessimistic. Where will we be able to draw these numbers from?
By conducting surveys and doing your homework.
Now, what do I mean by that?
Doing Your Homework
Go to your neighbour’s restaurant and sit there with a clicker.
Every time someone walks in, you click and you count how many people are walking in.
Every time people order, see what they’re offering, see what they are ordering, and jot down how much that item is. Are they ordering a drink with it? Are they ordering dessert?
After you’ve done that multiple times, you can calculate an average of how much revenue that this place is generating on an hourly basis.
Go in morning, go at lunch, go during dinner, go during a weekday, go during a weekend. This will give you a clear idea of how they’re performing on a weekly basis.
From that, you can project that if and when you can perform as well as this restaurant, your numbers would look similar.
Use those projections to project forecast how you’ll do in the first year, the next three years, and the next five years.
Remember, these are simply projections.
How impressed would the bank and investors be if you told them that you went to your competitor’s restaurant and you sat there for a week just to get these numbers?
They’re going to be so impressed because you’re willing to do your homework.
You can actually give them something more accurate to base off. They understand that these are not real numbers, but it shows them that you’re willing to prove how this business would become successful when you’ve put everything in place.
Determining Startup Costs
You need to identify what you’re purchasing.
You need to identify the equipment that you’re purchasing, your renovation costs, the design costs, the build-out costs. You need to identify everything in this plan.
That way, your investors would know how much money you need and why is it that you’re asking for 200K. They’ll also have a better understanding of how you plan on using this money.
Ask Peers For Help
If you’re confused about how to do projections, consider asking your accountant for templates and what are some costs to consider.
Also ask other entrepreneurs, how their numbers are looking like. This is how I was able to get a lot of insight to consider before engaging in business.
There you go.
These are the elements you would want to consider when building out your business plan for your restaurant.
It is super imperative for you to create this business plan.
It is so important, not just because you want to raise funds with it, not just because you want to find partners with it, but it is so important for you to have clarity in how you want to build your business.
Throughout this whole journey, it is so difficult and there are so many different moving parts.
If you don’t have anything to reference back to see what you envision and what you have planned out right from the beginning, you’re going to get lost throughout the way.
It’s going to be very tough for you to backtrack and you won’t know where you’re going if you don’t have a map, which is a reason why you need this business plan.
You’re going to have milestones. You’re going to have identified what you’re trying to create right from the get-go.
To have that clarity is going to be priceless for your own experience.
Restaurant Business Plan Workbook
Location location location!
I bet you’ve heard of this tune before.
It’s basically the song that experienced brick & mortar owners sing when someone asks them tip on how to be successful.
Each day I get people asking me questions about restaurant locations:
How do you choose the perfect location for the food and beverage shop?
How much should I be paying in rent, should I be paying $10,000, or should we be paying $2,000?
Because of how many people ask me these type of questions, I’m going to be answering that here in detail.
I’m also going to be covering the common pitfalls to avoid when choosing your restaurant’s location.
Let’s get into it!
Location Hunting Cheat Sheet
The cheat sheet to help you find your perfect restaurant location.
In A Fantasy World…
Where pricing isn’t an issue…we’d choose to have our restaurant in the heart of downtown, right?
Because it has the most traffic. Which gives more opportunities to convert the traffic into customers (revenue).
But in reality, pricing is a major issue and deciding factor.
It’s the reason why we’re going to be talking about the difference between a destination location, and a high traffic location.
What is a High Traffic Location?
A high traffic location means that there’s going to be a lot of foot traffic. That means a lot of people are walking by that area.
An example of a place that has high foot traffic would be malls, downtown, and financial district.
Since there are so many people walking by, it’s a lot more potential for you to convert these walk by traffic into your customers.
However, “potential” does not equate to revenue if you don’t do a good job converting the foot traffic into your customers.
Most high traffic locations are dominated by big box brands (like Starbucks and McDonald’s) because rent for these spots is extremely expensive. Landlords know these are hot spots and could bring high potential revenue.
What is a Destination Location?
Destination location are polar opposites of High Traffic Locations. They have minimal to no foot traffic at all.
These would be your mom and pop shops tucked in an inner street or residential area. They are out of the way and need to be driven to.
The advantage of Destination Locations is that the rent is a lot more affordable compared to high traffic locations.
But of course the major disadvantage is lack of foot traffic. You need to be able to drive your own traffic. People need to know about you, and people need to drive intentionally to your location, and to consume at your location.
That requires a lot more friction.
To give you an example, 720 Sweets is a destination location because we didn’t want to take the risk of paying five, six thousand dollars for rent just to sell ice cream.
We chose a destination location, a little bit tucked in from the main street, where the rent was a lot more affordable. So even if it takes a while to gain traction we were okay with that, because our risk tolerance was a little bit lower. That’s why we chose a destination location.
Depending on your resources, and the confidence level of your offering, you would be able to choose either a destination location or a high traffic location.
Franchises, and big box shops, and chains don’t just choose downtown locations because they can afford it, it’s also because they have a proven formula.
They know they can convert that foot traffic.
It isn’t so Black & White
In many cases, locations are not as clear cut as either being a destination or a high traffic. There are a lot of different elements that come into play that tips one way or the other.
4 Location Elements
How visible is your shop?
How visible is that location?
When people drive by, can they see your location?
Or, is your shop completely tucked in and out of sight, and there’s no way anyone can ever see your shop?
If it’s completely tucked in, that means that it is a Destination Location to the extreme.
Sometimes there are locations where people do drive-by, and people do see it, although not a lot of foot traffic. Other times the location will be situated at the financial district, which is only busy during work hours. But, then after work hours no one goes there.
There are these elements that you would consider, and you would bring these elements to actually go and negotiate with your landlord.
2.) Crime Rate
How safe would you feel if everyone around that area of your shop is taking drugs, and having multiple break ins, so on and so forth?
You wouldn’t feel that safe, and in turn that rental space would cost a lot less because of the crime rate around that area.
Even though it has a lot of high traffic, it is not the traffic that you’re looking for. And in turn, you can negotiate for a better rate with your landlord.
Is there accessible parking for your location?
If there’s no parking spot dedicated for your restaurant, then that means that is not as accessible as a place in a lot that has a lot of parking space. That itself will take away a lot of different customers.
For example, if you’re catering to a more higher end demographic without parking spots, then you would probably offer valet, which is another additional cost.
Having said that, is your location accessible by bus, or public transit?
If it is, then that means that the prices would go a little bit higher as well because once again, higher traffic.
This is something that no one talks about.
Yet, it is one of the crucial things to consider when deciding a location.
What I mean by that is, you need to be in a place where you feel that it serves your customers. You need to be in a community where you feel belonged.
A lot of times when I choose locations, I would actually be in that location, and be at the competitor’s spot. I would observe how the community is coming together.
When people come in, do the waitress and waiters address each other by their first name? Because if they do, then we know that these are regulars, that they come back again and again.
When I’m there I’m also observing whether people feel like they belong there. Whether they sit there for a long time, or they just grab and go.
Regardless of the fact, you need to be within the community where you feel comfortable, because you’re going to be spending years in this community.
If you do not spend the time to consider this really crucial factor, then you’re going to be stuck in a place where you don’t find any joy and passion in, and that really defeats the purpose of running a food and beverage shop.
For example, when we were choosing location for our dessert shop 720 Sweets, we were driving around the area, and driving across different communities to see which one is most fitting for our demographic.
In turn we were able to find a community which we really, really like. Our shop is very accessible, right in front of the bus station. We were 10 minutes away from the university, and when I was choosing that location I was just at McDonald’s, and I was able to see a lot of university kids just walking and strolling by the streets, even though the traffic is not very dense. But, a lot of university kids are just walking around the area.
This community proves to me that it is catered towards my demographic, and which is the reason why we chose our first shop 720, in that location.
Now that we’ve talked about the different elements to consider when choosing your perfect location, we’re going to be talking about the two deadliest pitfalls that I always see people make.
2 Deadly Pitfalls When Choosing A Restaurant Location
1.) Confirmation Bias
Confirmation bias is basically falling in love with a place that you’ve been to, and you’re finding all these reasons to back up and validate why this should be the place of your choice.
Why this is the place that’s going to make it super successful.
And, you’re finding all these clues just to confirm and validate your emotions, which is you falling in love with the location.
And, you fail to see there’s no visibility, it’s tucked into a corner out of nowhere, there’s not accessible at all, no parking spots, no public transit, yet you’re catering to university kids.
How are they going to be able to get to the shop?
They’re not going to be able to get to the shop.
And thirdly, you fail to see the three other ice cream shops around the area, and they’re all suffering.
These are what I call confirmation bias, and a lot of people fall into this trap because they’re making judgment based upon their emotions, not rationally.
When it comes down to it, choosing a perfect location, always, always be aware of this number one deadliest pitfall, which is confirmation bias.
2.) Not Negotiating
Now, the second deadliest pitfall that I always see is that people don’t negotiate for their rent.
It’s not that they don’t want to, it is because they’re afraid.
Why are they afraid?
Because they’re not well equipped with the education that I’m just sharing with you.
They’re not aware of how much of the surroundings they’re charging per square foot. They’re not aware of the different elements that come into play.
Is the place accessible? Is the place highly visible?
These are the things that you would want to bring up to your landlord after you’ve done your research, to tell them, and negotiate with them, and to rationalize with them.
“Hey, you know what, landlord? Your place is charging the same as something that is comparable, but you’re lacking parking spots. Why can you charge the same? Can’t you lower the rent because you don’t provide parking spots for my guests? And in turn, that would lower our customer satisfaction.”
A lot of times, they know about these things.
I’ve been on the other side before. I’ve been a landlord.
I know my shortcomings, and I know when people pick on them, I would be much more willing to negotiate because they know their stuff.
A few things that you can negotiate:
- build-out cost
- free rent
- not increasing the rent
- lowering the rent.
These are things to consider, and to negotiate for when negotiating with your landlord.
Make sure you guys always, always negotiate with your landlord when choosing a location. Because, at the end of the day there really is nothing to lose.
Location Hunting Cheat Sheet
The cheat sheet to help you find your perfect restaurant location.
Setting up your restaurant business for success starts by understanding what type of business model you’re looking to create.
We’re going to dive into the four F&B business models so you can properly choose which one would fit your specific lifestyle.
Whether you want to build an ice cream shop, bubble tea, banh mi, burger joint, or you have an amazing recipe that you want to bring to the world, you need to understand the nuance of each model. Each model has its pros, its cons, and the amount of money that it’s going to be able to make.
When I first started out my ice cream business, I never thought about the amount of work and money that is needed. This was a big mistake.
You do not want to make that mistake and then realize the model you chose is not what you expected. But by that time you’ve already spent the money and time.
Let’s dive right in.
1.) Fast Concept
The first type of restaurant concept that we’re going to be talking about is the fast concept type.
We’re talking about something like an ice cream shop, a dessert shop, or something that’s more of a specialty, a coffee shop. These are the fast concept types, which have an average order value of roughly $6.
A typical space, we’re looking around 300 to 500 square foot place. Not too big, but just enough for you to be able to operate a tiny shop. You need to situate these locations at high-traffic places because of the volume that you need to be able to generate the profit that you’re looking for.
The amount of servers and talent that you need at the space is quite limited. You might even choose to have no server and stick with one or two baristas.
Now, in terms of projection of how much you’re going to be able to make at a location like this, given the fact of a $6 average for an item, you’re looking at around and aiming at 300 orders per day. That would net you around $50,000 per month, which itself is an amazing business if you’re looking a business that is relatively low in stress, low in investment, and low in workload.
For example, our ice cream shop, 720 Sweets, is a fast concept business. We serve ice cream, we serve bubble tea, and these are really high-generating items. It only took us three months to be able to open up the shop.
The major equipment that we needed was the ice cream machine and fridges.
The investment to open up this place was only $100,000.
I talk about in this video, how we made more than $36,000 in our first month, and this itself is an amazing location for something simple. Staffing wise, we only have five employees per location, and that’s on a rotating basis. On really busy days, we may have 2 – 3 staff in the store at one time, but most of the time we have one.
The shop is completely hands-off for me, which is the reason why I love this model because it’s profitable when you can make it profitable when you look at all the different numbers, and when you can actually control them and know what to do with them.
- Low investment
- Easier set up
- Low amount of labour required
- Do not need skilled labour
We’re talking about a low-investment model. Because you have such a small place, the amount of equipment that you can purchase is completely minimal. You’re not looking at a full-on scale kitchen.
The set up is a lot simpler, which means city permits and licenses is going to be a lot easier for you to get.
The amount of labour you need is also substantially lower than a full-service restaurant, which is why this type of concept is so popular because it’s so hard to be able to find talent out there. These are the pros.
- Limited offering for customers
- Lower revenue
Now, the cons of running a business like that it has a limited amount of offering that you have for your customers. You only have so much space and so much equipment that restricts your menu.
This also affects your revenue because you’re only able to offer certain types of food and drinks. Your average ticket price will be limited.
2.) Fast Food
The second type of food concept that you’re going to be looking at is the fast-food type. I’m talking about something like a donair shop, a burger joint, or a banh mi shop. These are food items that are quick grab-and-go.
Average prices we’re looking at is around 8 to 15 bucks, so we’re going to put it at $11, our average pricing for projections.
For a place like this, we’re looking at around 500 to 900 square feet. You don’t need that big of a space and don’t need front of the house staffing since it’s more of a grab-and-go or cafeteria-style. People are not expecting full service, which is beneficial for you because it keeps the cost much lower.
For a projection we’re looking at $11 average pricing. That nets around $2,750 at 250 servings per day. In a month, you’re going to be able to generate around $77,000 for a concept like this. Not too shabby. Once again, this is a little bit better than the fast concept places.
- Lower investment required
- Do not need skilled labour
- Low amount of labour required
- Higher revenue potential than fast concept
Now, some of the pros of a fast concept place is that the investment is also relatively lower than comparing to a full-service diner because the equipment you need is a little bit less.
The skill level to produce these items is, once again, a lot lower than a full-service diner. As mentioned, the amount of staff needed is quite low since you don’t need servers.
The revenue that it can actually potentially bring in is a little bit higher than a fast concept place.
- Higher investment needed than fast concept
- Lower revenue
Now, the cons of running a fast-food joint is that the equipment costs more, meaning that your investment will be higher for this concept compared to a fast concept.
You’re going to be able to cap your revenue based on you’re offerings. At 11 bucks, you can’t really offer too much, right? For example, if you look at a donair shop, they can only offer so much. People only come in to grab-and-go for lunch or for a quick dinner.
That itself is limiting the different revenue streams that you can generate.
3.) Casual Dining
The third type of restaurant that you can build is casual dining business. For casual dining, you do need front of the house staffing because there is an expectation of some service at these establishments.
Average pricing we’re looking at around $16. You can expect average tickets to go up with drinks and desserts being added to the mix. That’s the type of places that people actually go in, and it’s like a hole-in-the-wall shop that is offering grandma’s a recipe.
For a place like this, you’re looking at roughly around a thousand square feet. That gives people enough space to actually soak in the ambiance and actually enjoy the food. The location of a casual dining shop could be at a high-traffic or even a destination location because people don’t mind driving to a specific place just so then they can have like the best spaghetti in town.
For projection, we’re looking at roughly $3,200 per day, given an average value of $16 per meal. You’re looking at roughly $90,000 per month. This is your million dollar business if you’re looking to create a business. A casual dining experience would be able to help you get there.
- Fulfilling to run
- Higher revenue potential
First of all, it is super fulfilling because now you can actually create your grandma’s recipe and you can actually bring it to the world and for everyone to enjoy this recipe. It also gives you a lot more room for creativity and provide different offerings.
Also, the revenue that you’re able to generate is much more. This is your seven-figure business.
- Higher investment required
- Skill of labour is higher
The cons of running a casual dining experience is the investment is much higher than a fast-concept and fast-food business. From more expensive equipment, to a bigger space, to more expensive ingredients, to city permits and extra labour, they all are required for a casual dining spot.
Not only that, the staff you hire need to be more skilled as well. This is because they need to actually prepare a dish, which has much more variables that can go wrong.
If you don’t manage all the moving parts in a casual dining business properly, even though you’re making a million dollars, you could still be making way less than someone that’s running a fast-concept shop. That’s because you don’t control your costs of goods sold or staffing effectively.
4.) Full Service
Last but not least, a full-service dining experience.
We’re talking about this as like full-on front of the house staffing. You have food service. You have wine. You have dessert. Everything. People are coming to greet you by your first name.
Average item cost is around $50. For a location like this, you need it to be a bigger place. We’re talking about 1,500 square foot to 3,000 square foot.
Now, the average ticket, we’re looking around $50 because there’s wine, there’s a full meal, appetizer, dessert, everything. We’re looking around $6,500 per day and $180,000 each month in revenue.
But, just because the revenue is there, it does not mean the stress, the risk, and the work level is worth it. It is the reason why I always, always stay away from concepts like this.
- Fulfilling and allows for creativity
- High revenue potential
One of the pros of running fine dining experience is that you have your creation out there for the world to experience. You’re basically creating art for your customers, and that fulfillment is definitely irreplaceable.
If you can manage your restaurant properly, this fine dining experience properly, and you have line up out the door all the time, the financial reward that is going to give you, it’s much, much higher. We were talking about millions of dollars in revenue.
- High investment required
- Skilled and specialized labour required
- Higher expectations involved
The investment to create a fine dining experience is well over a million dollars. We’re talking about a full-on ambiance with a full-on makeover of a unit. We’re talking about alcohol license. We’re talking about full-on kitchen with all the state of the art equipment and accessories.
The labour that is involved to run a fine dining experience needs to be well-trained and experienced. The expectation is much higher for both the service and the food. This means your front-of-house and back-of-house staff needs to be top-notch.
A lot of people have trouble finding talent to create good food for them and controlling your food costs to make sure that you have a business that is profitable.
There you go.
The food money-making models for your food and beverage shop.
Just because someone else is running a bubble tea joint that is super successful, it doesn’t mean it’s suitable for you.
If you have dreams of bringing your grandma’s recipe and showing it to the world, then that’s not the place for you. That’s not the model you want to choose. You want to choose a casual dining experience that you can provide your customers.
Now, I’m going to be covering the three different elements to consider when choosing the different models that you would be best suitable for your needs.
3 Elements To Consider When Choosing Your Business Model
1.) Stress Level
The number one thing that you want to consider is the stress level. Are you signing up for being super stressed out every single day for years to come, or do you want to just have a coffee shop that you would want to go to?
You don’t mind it not making that much money to begin with, and you have time to spend with it, and you meet all the customers there, and you just have this really homey place?
It’s really coming down to the stress level that you want to take on.
For some people, they like that chaotic environment. They like being in that stressful environment because that’s how they thrive.
With different types of business models, they have different types of stress levels, so know what you’re signing up for before you choose that type of vehicle.
2.) Risk Level
The second element to consider is the risk level. We’re talking about if you’re wanting to open a fine dining experience full-on with alcohol license, you’re talking about over millions of dollars in investment.
Are you up for that type of risk?
Are you going to put your house on refinancing just so then that way, you can create this fine dining experience with no experience, or do you have a hundred thousand dollars saved, and you just want something that is your own?
You want to escape your nine-to-five and you just want to have a coffee shop that you feel good about and that you can actually just be there, and you’re completely fine with it.
Well, the risk level of a hundred-thousand-dollar investment and a million-dollar investment, that’s completely different.
So at the end of the day, consider the risk level for your needs because everyone’s needs are different.
3.) Work Level
The third type of element to consider is the work level. In the food and beverage industry, the work is always going to be crazy.
For those first six months, you’re going to be working in the business all day long until you have a process in place, until you figured out how to hire people that can help you out.
So after the fact that you are working there for six months, everything is already on automation. Do you want to continue to be working in there, your business? Do you want to be in the kitchen cooking up your grandma’s recipe and showing the world how great it is?
That’s a casual dining experience, or just like, “Hey, I want this as an investment. I have a bubble tea shop. i hired people to build, run it from me on automation, and I’m just going to go there once a week just to check it up.”
That, for me, is the work level that I chose, which is the reason why I chose a fast concept because it’s very easy for me to be able to monitor the type of work and the type of quality that people are churning out.
It really comes back down to your work level that you’re choosing to meet your needs.
So there you go.
At the end of the day, just because someone is successful with a taco shop, it doesn’t mean it suits your needs.
Choose the one vehicle that brings you to your destination.
Choose the one that is the most fitting for you (risk level, the work level, and stress level).
Do not be tempted to follow what other people are doing. Choose one that is the most fitting for you.
Recently, I interviewed 100+ food and beverage restaurant owners to see which types of food businesses are actually making money and what isn’t.
It gave me a lot of insight into how people invest and the type of service that is being offered.
From the interviews, I was able to nail down the top five most profitable food businesses.
A typical food and beverage shop’s margins range from 5% to 10%. That is very, very slim margins.
The five food businesses that are most profitable all range from 20% to 35% margins. We’re talking about 20% to 35% margins take-home – which is incredible.
All right, let’s dive right in.
1.) Bubble Tea Shop
The number one most profitable food and beverage business is a bubble tea shop.
It’s the most profitable because the cost of goods sold (COGS) is relatively low. It ranges from 10% to 15%.
The items are also super easy to make and it is relatively simple to keep the quality consistent. All you have to do is just follow the formula and recipe.
Once you have all the powders and the syrup, you’re good to go.
Lastly, training staff is super easy because bubble tea doesn’t require any special skills (unlike cooking) to make and only require minimal service talent.
Some of the pros of operating a bubble tea shop is that it has high demand. Nowadays, everyone is drinking bubble tea and if you do not know what bubble tea is you definitely are missing out.
The second thing is the high turnover rate. You don’t need a big space to do a lot of volume. People tend to grab their bubble tea and go. That why it is such an attractive business model.
It doesn’t require a lot of investment. All the equipment is actually very affordable.
The fourth thing is quality control. It doesn’t require a very high skill to be able to make the product good because it’s all in the formula. That’s what makes this product and this business model so attractive.
For 720 Sweets, we actually started selling bubble tea two years ago because we saw how profitable it is and the demand it has.
Now, the con of running this business is that the average ticket price relatively low. This means you need a lot of volume for you to be profitable.
It is also very competitive. I’m not sure about you, but in Vancouver there are more bubble tea shops than 7-Eleven’s and Starbucks. Going down a block you’re going to see at least five of them. It is because it is such a profitable business idea out there.
I have a few friends who own bubble tea shops, and a lot of them actually surpass seven figures selling bubble tea.
We’re talking about peak times – more than $200,000 per month. That crazy amount of volume and demand was the reason why 720 Sweets began selling bubble tea too. Our franchisees love us providing this as well.
2.) Ice Cream Shop
The second most profitable food and beverage business out there is an ice cream shop.
Luckily enough, our 720 Sweets, our dessert chain, is in the forefront of this as well. This is the reason why we’ve expanded so rapidly.
The cost of goods sold (COGS), once again, is relatively low in comparison to a full-service restaurant.We’re talking about around 20% to 25% in cost of goods sold (COGS).
The quality control is definitely a pro because when you make these things in batches, it becomes a formula. Basically, you just need to follow the recipe and create mix A, mix B, mix C, and out comes a product. This means it doesn’t require highly skilled labor and talent to create the product.
And who doesn’t like ice cream? Everyone loves ice cream and the volume you potentially go through is crazy during the summertime.
Now, some of the cons of running an ice cream shop is that the equipment is a little bit higher in cost, seasonality is a problem and the low average ticket cost. So just like bubble tea shops, you’ll need a lot of volume.
The reason why 720 Sweets was able to do moderately well is because, knowing the fact that seasonality would be a problem, we introduced bubble tea and taiyaki in our menu. This allowed us to lift our average ticket cost.
People don’t only come in for dessert. They can also can come in for a light lunch or a light dinner. We created taiyaki sandwiches, which is a croissant sandwich that people love, which helped us increase our average ticket cost and tackled the seasonality problem.
3.) Ramen Shop
The third most profitable food and beverage business idea is having a ramen joint.
Ramen is amazing when it comes to profitability. The cost of goods sold range from 15% to 20% and there is a high demand for it – people love ramen.
The average ticket cost is a lot higher compared to a bubble tea or ice cream. It can be lifted even more if you have alcohol available and set menus like a bowl of ramen and a plate of gyoza.
Although ramen isn’t as simple to make as bubble tea or scooping icecream, it only requires medium-skilled labor. A full-on trained chef isn’t required since a lot of the processes are actually preset.
Best part about a ramen business? The super-quick turnover.
Not only is ramen quite fast to make, but it is also fast to eat. In Japan, ramen is meant to be a quick meal, where you’re supposed to eat and slurp the noodles right away.
I have a friend who is in the ramen joint business. His place is only a thousand square feet and he makes more than $2 million dollars in revenue. It is mind-blowing.
It is crazy how much volume they do because of how high the turnover is.
On the flip side, the investment is a lot higher compared to a bubble tea or ice cream shop. You’ll need to consider more expensive equipment, ingredients, and number of staff.
For a bubble tea and ice cream shop, there are cases where you only need 1 or 2 staff on site. A ramen shop needs more on a regular basis for it to run.
And because of how popular ramen is, the competition is quite fierce. You’ll see many of the big names from Japan set up shop overseas. You’ll have to consider how you’re going to be able to compete with them.
4.) Pasta Shop
The fourth type of super-profitable food and beverage ideas is having a pasta joint.
After interviewing more than hundreds of food and beverage owners, F&B shops that specialize in pasta always sits near the top in terms of profitability because of how a staple this item is. Just like ramen, people love pasta, and the COGS is incredibly low because they’re just mixing flour and water.
We are talking around 15% to 20% cost of goods sold, high demand, average ticket cost is definitely a lot higher than bubble tea and ice cream.
The amount of investment needed to open a pasta joint is higher when it comes down to it. You’ll need a full-on kitchen and higher-skilled labour to open up a pasta place.
5.) Pizza Shop
The final most profitable business idea in 2019 is having a pizza shop.
This has always been super profitable because you’re basically mixing dough and water. You’re talking about maybe 10% to 15% in cost of goods sold (COGS).
Now, we’re not talking about those $1 pizza spots. But your COGS will be higher depending on what type of pizza you serve. Some people might have arugula and have different types of really upscale meat so, for those joints, their cost of goods sold is definitely higher.
When it comes to pizza, the skill required to make pizza is lower than a full-on restaurant as well. If your shop is more grab n’ go and cafeteria-style, you can also avoid having to hire extra staff.
On the con side, the investment for having a pizza shop is definitely a lot higher as well.
So there you go, the top five most profitable food and beverage businesses in 2019. I know I’ve focused a lot on the cost of goods sold but because of the fact that when it comes to running a food and beverage business, the margins are really determined by the COGS, by your labour, and rent.
So if you can control any of these to a minimum, that’s where upside comes from.
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