The decision to open a restaurant is a big one. You may leave behind a steady paycheck in return for the potential of increased revenue. You’ll swap out a set schedule for flexibility. You’ll also have the opportunity to get creative and create a menu that customers love. Before opening a restaurant, carefully considering your options and creating a business plan can better help you prepare. Here are a few financial things you should know before you open your first restaurant business in Toronto.
Starting From Scratch Can Be More Difficult
Starting any business from scratch can be more difficult and expensive than purchasing one that’s already established. While your dreams of opening a restaurant may include creating your own menu and designing your space as you wish, an existing restaurant can give you a good start. When you buy an already established business, you can improve upon something that’s already earning revenue.
Learning to Negotiate Can Save You a Lot of Money
Negotiating will become an important skill as you venture into entrepreneurship. The first negotiation that can save you a ton of money is with your landlord. Even if you’re purchasing an already established business, you still may be able to get a lower rent price while you establish yourself. Even if the landlord isn’t willing to drop the monthly rent price, they may offer better lease terms, such as a longer lease or inclusion to cover repairs or renovations.
Another important area of negotiation with a restaurant business is vendors. You’ll rely on your vendors to supply you with ingredients to create your menu. Negotiating lower food costs means you have more room to profit. You could also switch vendors if you can find one who will offer better terms.
A Business Plan Is Crucial for Lending
A business plan is an important part of opening any business, including a restaurant. You’ll use the business plan to obtain funding through a lender or investor. Spending considerable time researching your business plan is always a good idea. Not only does this increase the chances that a lender will give you money, but it can also help guide you on important business decisions.
Competitive analysis is an important component of a restaurant business plan. It’s always a good idea to understand what other restaurants are in the area and how you’ll compete with them. It’s especially important to identify any direct competitors you may have in the area, including restaurants that serve the same or a similar menu.
Dive Into the Books
Before buying any business, you’ll want to dive into the books. This includes reviewing how much the restaurant is currently earning and what expenses they have. You might also review the location of the existing restaurant and even stop in during meal times to see how they function. When you buy the restaurant, you may acquire the staff, and stopping in is a good way to identify any necessary improvements.
Diving into the books can also help you calculate how much lending you’ll need. In addition to the purchase price of the restaurant, you’ll also need funds for labor, equipment, food supplies, and kitchen equipment. Lending is typically dependent on your credit score and financing history. Boosting your credit score can help you earn more favorable financing terms for the items you need.
Location Is More Important Than You Might Think
Location is an extremely important factor when opening a new restaurant. This is why the largest restaurant chains have full teams to choose locations where they will likely get the most foot traffic. The ideal location also depends on the province or city you’re in. In smaller cities, restaurants are best situated on the main street or nearby other points of interest. In larger cities like Toronto, you might choose to buy an established restaurant near a university, office complex, or business district. Check out the restaurant at different times of the day to get an idea of the potential traffic patterns.
It May Take a Few Years To Earn a Profit
Most restaurants won’t earn a profit for at least a couple of years. This means you’ll need to live off savings for the first few years of ownership. During this time, you’ll learn how best to optimize your menu and find the perfect labor balance. You may also incur more upfront costs as you establish your restaurant. For example, many cities require inspections, licensing, and permits. You’ll also have to equip your kitchen and dining room with cooking equipment and customer seating. All these costs are incurred before ever opening your restaurant and earning any revenue.
The more information you have, the better prepared you’ll be to open a restaurant. Opening a restaurant can be a big financial decision, but with the right planning, you can turn your culinary idea into a successful business venture.
