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Things You Need to Know Before You Purchase a Restaurant, Bar or Club Business

  1. You must understand the financial aspects of the business. You must be able to understand how to read and analyze financial statements such as the monthly profit and loss statement, daily sales report and monthly bank statement. It is also helpful to understand how to read a balance sheet but this is not as important as the other items mentioned above. You must understand the proper target expense percentages on the profit and loss statement that are acceptable for all of the major expense categories such as food cost, pouring cost, labor cost, utility cost and occupancy cost, etc.  It is also helpful to understand the source and use of funds statement which outlines all the source of funds and uses of funds for your business to help you have a better control of your cash flow.  Inventory control is a very important aspect of running a business.  You always must keep the proper inventory on hand so you don’t run out of product.  If you’re out of a product, unless it is a special of the day when frequently only a designated amount of  products are prepared, it gives the customer the impression that your business is not reliable and may influence the customers decision to not return to your business again.
  2. You must understand the operational aspects of the business. To truly understand all of the operational aspects of the business it is helpful to have a working knowledge of each job in the business.  I was taught when I was in the business that if necessary I could jump in and fill any job that needed to be filled on a temporary basis such as cooking, waiting on tables, hosting guests, washing dishes, busing tables, seating quests and making drinks at the bar.  Inevitably in running a service oriented business some employees get sick at the last minute or for various other reasons don’t show up for their shift and it might be necessary for the owner  to jump in and fill their shift until he has time to find a replacement employee.  By having a working knowledge of all of these positions you will be more humanistic and empathetic in dealing with employee problems and the challenges that arise in these positions as you have experienced these situations yourself from your past experience.
  1. You must understand the legal and accounting aspects of the business.  It is important that you follow all of the legal requirements of running a business such as making sure everyone meets the immigration requirements for being hired.  Additionally you must have the proper licenses in good standing such as business license, health department license, alcohol beverage control license and if applicable, fire inspection approval.  The various tax returns are required to be filed such as payroll tax, county tax, state tax, federal tax, etc.  It is important that you deal with accountants and attorneys that are experienced in working with restaurant, bar or club businesses.
  2. You must understand the marketing aspects of the business.  Most small businesses cannot afford any type of expensive advertising such as television, radio, newspaper, magazine and billboard advertising, etc.  Most marketing of a small business comes from word to mouth communication from a prior customer.  If a customer has had a good experience he’ll undoubtedly tell other people about his positive experience and conversely if the customer has had a bad experience he’ll spread the unpleasant news to others as well.  Needless to say it is important to provide every customer with a good experience so he’ll become the goodwill ambassador for your business which will create a domino effect in reaching others who have never experienced your business and motivate them to come and try your business. Another important source of marketing your business is being reviewed by a local well known food critic. Many people are influenced by well known food critics and a good review could draw a lot of customers into your business and conversely a bad review can negatively impart a business to the extent of putting a business out of business.  I had a client that operated a chain of well know up scaled restaurants nationally and I placed them into a location in Marin County.  The first couple of years they did well and then the operation started to slip in terms of inferior management, food and service.  At the same time they received a terrible review from the most well known food critic in the San Francisco Chronicle and consequently I ended up selling the business for them and they lost over a million dollars on the transaction.
  3. You must understand how to effectively deal with people. You should be a person that genuinely likes to be around people and likes people.  You are dealing extensively with employees, customers, vendors and landlords.  You should be a good communicator and should treat people honestly and fairly. It is very important to be objective and not favor one person versus another. You should be a role model as the employees look to the owner as the one who sets the pace for the business. As an owner you should always have a smile on your face, put your best foot forward and strive to maintain high standards in maintaining consistently good service, good food and beverage quality in a clean and safe environment.

Based on my experience as a former restaurant, bar and club owner it is imperative that you are proficient with all of the above items to enhance your chances for success as a restaurant, bar or  club owner.