At Cayenne Consulting we’ve written dozens of restaurant business plans and created an equal number of financial forecasts for our restaurant and hospitality clients. For the most part, we can proudly claim that our clients love our work and, equally as important, our clients’ lenders and investors love our work as well.
This success has caused us to sit back and wonder if there is really a differentiating factor between the way we develop business plans for this sector and the way other plans are written. In speaking with restaurant entrepreneurs and those who fund restaurant businesses, it appears that what sets us apart is the fact that we give our readers insight into how our clients actually operate their businesses on a daily basis and how they produce their “product” in a way that delights customers while at the same time allowing the business to generate positive cash flow and earn a satisfactory return on the investment of their creativity, effort, time, and money.
Of course, every business plan should include a description of the concept, the proposed location, a sample menu, the team’s qualifications, an analysis of the target market, a competitive analysis, the marketing strategy, and a financial forecast. And indeed, most business plans accomplish this with varying degrees of detail and quality. What most winning restaurant business plans seem to lack is a thoughtful discussion of what it actually takes to make a restaurant successful – the ability to execute. In this article, we will detail the issues that every restaurant owner and manager must confront in the daily operation of their business, as well as what lenders and investors want to see included in the business plan.
In many of the business plans that we write, the Daily Operations and Production section occupies more space than any other section. That is because there are so many important aspects of operations and production for an owner to consider. We usually compartmentalize Daily Operations and Production into three sub-sections:
- Customer Service and Training – The hospitality industry recognizes that the customer service experience is the key driver to repeat business. Restaurant management must provide a superior level of professionalism by hiring, training, and leading a staff that is passionate about accommodating guests. Your business plan must explain that you will maintain high levels of customer satisfaction with talented, knowledgeable, and well-trained employees that understand and implement the principles of great service. Training teaches employees that, by creating an outstanding guest experience, they are able to maximize sales and – in turn – increase their own compensation. The staff will have the knowledge and support needed to make great service happen every day, for every customer.
- Management Controls, Software & Systems – Have you ever heard an old expression that goes “you can’t control what you can’t measure”? A guy named Tom DeMarco, a long-time software engineer, author, and consultant on software engineering topics, gets the credit for that truism and it is just as important in the restaurant business as it is in software engineering. Here are a few examples of where restaurant owners must control their businesses:
- Money and profit management – While the quality of the cuisine and dining experience contribute significantly to a restaurant’s profitability, it is attention to business and financial details that can transform small changes into large returns. While all decisions are made with customers and employees in mind, they will also consider financial benefits and consequences. Your business plan must explain that each day, key metrics related to sales, cost of sales, labor, inventory, marketing, and overhead will be monitored. Trends will be evaluated and constructive actions will be taken where improvement is needed.
- Accounting system – Your business plan must explain that you will utilize “Point of Sale” systems that enable you to accurately track and analyze transactions, minimize labor costs, manage inventory, process payroll, track marketing efforts, and provide real-time entry and reporting functions. Your inventory control system will enable your restaurant to precisely track purchases and yields, analyze and adjust pricing, and perform cost analysis on all food and beverage inventory.
- Weekly direct cost report – Proper control of the direct costs (food, beverage, and labor) is the single most effective measure of management’s ability to operate the restaurant. Weekly monitoring allows for quick reaction to adverse cost ratios.
- Recipe and portion control – Food preparation personnel will follow standardized recipes developed by the owner or master chef to control food costs and ensure consistency.
- Operating Standards – Your business plan will explain that you are responsible for ensuring that day-to-day operations comply with established operating standards even before you open your doors. Weekly management meetings will provide a forum to review and discuss financial and operational performance. Key decisions related to purchasing, human resources, marketing, capital expenditures, and customer service will also be addressed. Some of these issues will include:
- Sanitation and food handling – You will maintain a 100% compliance policy for sanitation and food handling to ensure the safety and health of all guests and employees. Your restaurant will always comply with all city, county, and state Department of Heath sanitation and food handling standards. Your business plan must state this.
- Staff turnover – Staff turnover rates in the restaurant industry run at over 100% each year, and fast food is even higher. Maintaining quality standards with such high turnover rates is an ongoing challenge. Lower than normal staff turnover due to sound management and a rewarding working environment will help reduce training costs and enhance employee satisfaction. Your business plan will explain that reduced staff turnover will result in fewer errors and minimum product waste while improving customer satisfaction and repeat business.
- Training for excellence – An ongoing program of training and education will ensure that each staff member learns and implements your exacting standards for service and operational procedures. Daily staff meetings will reinforce service standards and principles. The Company will have detailed work descriptions, expectations, and training programs for each position, from the entry-level employees to the ongoing development of managers and owners. New employees will undergo an extensive training program. This ensures that each guest receives a quality experience from all employees, regardless of how long they have been employed.
The successful implementation of the operating standards and philosophies outlined above and hopefully in your business plan will demand proven support tools and professional management. Your business plan is your opportunity to communicate in a compelling and effective way that you have thought through all of these important aspects of restaurant management, and that because of your planning and experience, you have substantially reduced the execution risk that every entrepreneur and his or her lenders and investors must consider.