Do You Need a Feasibility Study?

By Lloyd M. Gordon, President
GEC Consultants, Inc.
Skokie, IL 60076

There is an ongoing debate among restaurant professionals as to which comes first the concept or the site. This means do you find a location and then swiftly develop a concept to fill it, or do you first develop the concept and then search out the best location to exploit your ideas?

Many fine restaurants have been developed from concepts rushed into shape after the operator discovered a "truly great location". An equal number can be said to have had the concept gathering dust in some closet of the mind until one day the "perfect site" for the idea was located.

For the uninitiated, the development of the concept is going to take more time and greater mental effort than that of finding a place to develop it. Therefore, your time had best be spent refining your imaginary restaurant or catering place so that when that "once in a lifetime" piece of real estate is discovered you're ready to speed the deal through.

When you find the site, you are ready for a feasibility study. This study consists of two parts. The first concerns the site demographics or the study of the population surrounding the proposed location, alternate potential sites, special advantages or hazards of the proposed location for the business and the proforma of the structure of the realty package such as lease life, rental rates, rates of payback, special assessments, tax projections and closing costs.

The second part of the study concerns general proformas for one or more years after opening the business, operating budgets, cash flow forecasts and evaluations for a period of years, working capital requirements, general capital requirements, financial requirements, payback forecasts and analyses, general layout and mechanical estimates, equipment and fixtures costs, leasehold improvements costs, pre-opening expense budgets and estimates of all general costs.

You should be prepared to pay a consultant or accountant anywhere from $500 to $4,500 for a feasibility study depending on the size and complexity of the undertaking. You'll need a contract with the person or firm that is making your study. Be sure the one that is presented to you covers these points:

• You get everything you need to have.
• You know what it is going to cost you.
• You know how you are going to pay.
• You know how much you pay for each portion completed.
• You know what will happen if you don't pay.

Before you sign this or any other contract or letter of agreement, you must carefully read and understand the contract. Remember, before signing any document, relax and read it through once. Then examine it paragraph by paragraph for content. If you have any questions concerning what the text means, stop and get it clarified. Once you've signed, its too late to protect your interests.

Mr. Lloyd M. Gordon, President of GEC Consultants, Inc. has an MBA from the University of Chicago. He has concepted more than 390 restaurants and has been consulting for over 44 years. He helps people enter the restaurant industry, points the way to profitability, and helps keep them successful. To discuss "Do You Need a Feasibility Study?" he can be reached at 847-674-6310.

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