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Wednesday, November 28, 2012

Restaurants Are Not a Good Idea by Marc Charles

This from a reader.....

Question: We have a successful restaurant in a busy metropolitan area. However, we’ve seen a drop off in year-over-year sales. We’re nervous about the economy and have considered selling the business. But this is the only business we know. Would you sell the business and start over in a new business, in a new area, in THIS economy?                                          
A.B. Fort Collins CO

Marc Charles:  

There are too many variables for me to comfortably recommend selling or keeping your business in this economy. You’ve seen a drop off in sales. I think the drop off will continue.

If we enter a full fledged depression the businesses with massive overhead, debt loads, and declining sales will be the first to go. I’m sorry to say but restaurants are always the hardest hit.

However, I took my kids and two of their friends to dinner recently at a fun family restaurant in Rockport Maine. The restaurant was packed to the gills! People were laughing (maybe quietly crying inside) and kids were playing video games in a small arcade, and running all over the place.

It seems restaurants with a passion for great service and reasonable prices often find a way to make money in difficult times.

Nine restaurants in the same geographic area (Midcoast Maine) have gone out of business the past 18 months.

I know you said your restaurant was successful but is it profitable? Is the overhead manageable? Do you own the property outright? If not, you may be headed for trouble.

The bad news is there are probably hundreds of restaurants (maybe a thousand) for sale in your city.  Will you be able to sell your restaurant? That is one question to ask yourself.

The good news is you can always start a business on the side and get it going until your restaurant is sold.

Another thing to consider is starting a restaurant in an area with fewer encumbrances and expenses….like small town America, the exurbs or even outside of the US. my experience, restaurants are not a good idea in most cases.  Most of us hate chain restaurants, and owner/chefs always criticize them. But the truth is chain operators (like Brinker International) know how to make money with restaurants....plain and simple.

I'm not recommending buying a franchise or chain restaurant. But rather we need to study and copy the "formula" they use to make boatloads of money. can have a successful restaurant, refuse to compromise (buy local organic food and produce for instance) and make a comfortable profit (as opposed to boatloads of money).

But, I still recommend watching and maybe even work in a wildly successful restaurant. Most of the people I know who have opened restaurant think they've got all the answers, and they feel they are "above" franchises and chains. But in MOST cases they have failed miserably.

I hope that helps.

Your humble host.........

Marc Charles

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