No matter how much experience you have, starting a new business is always risky. Most people enthusiastically open up shop one year, only to find themselves closing down their business the next. Opening a small restaurant on your own is pretty hard too.
While the restaurant industry is huge, restaurant chains take up a large part of the market. As a matter of fact, according to NPD research, fully independent restaurants drive only 22% of industry traffic.
One of the biggest reasons why restaurants close their doors so soon is overspending. Investing money into useless decorations, supplies, and services can kill your restaurant in a matter of months.
While reducing your expenses is not an easy job, it certainly is not impossible. The best way to do this is to see how other restaurant owners spend their money and to make sure not to make the same mistakes. To help you with this, here are four things restaurant startups usually overspend on.
1. Remodeling and Decorating
Whether you want to decorate the dining room or to remodel it completely, it will cost you. The problem is, many small companies are working on a tight budget, so going overboard with decorations isn’t something that you should focus on. You’re probably now wondering how much money you should spend on decorations?
As Dawn Papandrea writes for Upserve, renovation prices vary significantly. Depending on your plans, a renovation company can charge you anywhere between $150 and $750 per square foot. There are a lot of factors that affect the renovation price including worker costs, construction price, and quality of the materials used, to name a few.
When decorating you need to look at things realistically. For instance, you should ask yourself, do you need to replace that chandelier or do you need to change the wall color completely. In the rush to make their restaurant look perfect, inexperienced restaurant owners forget that spending money on a few eye-catching elements will make their restaurant look more expensive than it is.
2. Kitchen Equipment
This comes as a surprise but most restaurant owners tend to overspend on kitchen equipment during the first year of business. Is there a reason to spend so much money on kitchen equipment? The answer to that question is more complicated than you probably think. There are actually two answers:
- Yes, you need good kitchen equipment, especially if you plan on having lavish, hard-to-prepare meals on your menu. Good meals require good equipment. No, because you don’t have to spend any money on kitchen equipment before you start making a return on your investment.
Let us explain. You see, in the first 12 months of work, your business can go down if you are not careful with your finances. One of the areas you can easily go over budget in is kitchen equipment. A good way to avoid this is to find an equipment supplier that gives out loans. They are rare but they exist.
Establishments like Kitchenall offer fast financing options, which allow you to buy everything from basic kitchen appliances to commercial food processing equipment as soon as your loan gets approved. This will ensure your that kitchen is fully equipped and that your company is not neck-deep in debt.
3. Marketing and Branding
Your business is brand new. You want people to discover you. Naturally, you turn to a marketing company to help you get more exposure. That’s how other companies and startups do it, why should you do anything differently?
Although this scenario happens often, in reality, you don’t need to spend a ton of money on marketing. Not in the beginning anyway. We live in the age of the Internet, which gives you a few dozen low-cost marketing methods. Instead of running to an expensive marketing agency, asking for help, and spending a ton of money, you should look into online marketing.
How can you use the Internet to market yourself? Usual methods include:
- Signing up for large social media networks.
- Placing low-cost ads on Instagram, Twitter, or Facebook.
- Using your company’s website to create content that will attract visitors.
- Handing out cards and flyers in your area and networking with other entrepreneurs.
On the surface, spending money on a TV spot may seem like the best commercial for your business. However, as you will see, you can attract as many people with a cleverly written social media post.
4. Food Supplies
How can a restaurant operate without food, right? Although your food supplies depend on your number of customers, you should make an effort not to buy too much food. Most new owners spend too much money on unnecessary foods and bad menu choices. Although buying just the right amount of food is easier said than done, there’s a way to manage your food budget.
For starters, you should avoid overly-expensive vendors. Instead, you should reach to local farmers and suppliers that will provide quality meats and vegetables at much lower prices. Once you establish a working relationship with local businesses, there’s a good chance you will have certain discounts on the amount of food you’re buying.
Furthermore, you should go through your menu, evaluate your meal-offering, and identify the so-called “waste areas.” You can do this by putting attention on the food that comes back to your kitchen and talking to your staff. Once you throw out unnecessary meals and cut down your menu, you will be able to streamline both the purchasing and preparation process.
Final Thoughts
In any business, risk management can make or break your business. Identifying the things you’re spending too much money on will help you stay on budget. You need to realize that keeping some money in reserve could potentially save your restaurant. Lack of planning and risk management has resulted in the failure of many restaurants across the globe.
As long as you make a plan and stick to it, you should be alright. Learn from the mistakes of your predecessors not from your own.