Are You Ready to Open a Second Restaurant?

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

On a nice, clear, crisp Monday morning the phone rings and it's your meat vendor. He says "I've got a deal for you. There's an excellent location opening in your town and I know you've been talking about expanding into a second restaurant. I'd like to give you the name and phone number of the party to call."

This starts your adrenalin going and in your mind's eye dance images in full color of "My Restaurant" cropping up in every town and by-way of this country. Immediately the calculator comes out and you say "If I'm making $1,000 a week in this restaurant, if I have two restaurants I could make $2,000 a week, if I have four, I'll make $4,000 and on and on. The possibility of $100,000 to $200,000 a year becomes readily apparent. You have contracted a disease called expansion virus.

Today, conflicting economic signals are being sent to restaurant operators. On the one hand the general economy is growing steadily, so fast in fact, that the Federal Reserve Board has taken steps to slow growth slightly by raising the discount rate. On the other hand sales in certain types of restaurants have shown a flat growth pattern.

Therefore, as a restaurant entrepreneur, I would propose that your decision to expand should rest on how well you can handle the shock to your present operation of attempting to double your size and not on general economic considerations.

Here are some important factors to consider:

1. Do not spend all your time creating the new restaurant and let your existing restaurant go to pot.

Examine why your existing restaurant has been successful. It's probably because you've been there every minute watching what goes on. Now, suddenly you'll leave and be spending hour after hour each day at the new site watching the concrete being poured, the masons and carpenters erecting walls and partitions, the plumbers, electricians and ventilation journeymen installing the mechanicals, and having conference after conference with your contractor. Something's got to suffer. It could possibly be your existing restaurant.

2. Many good restaurant operators have suffered financial failure opening a second place.

Some common reasons for failure are:

• A bad operating strategy. The owner thinks that either of the two units can be run as economically as the first one was operated. This is usually not true. In the first restaurant, the owner did everything he or she could do him or herself and then hired others when they were needed. This won't work with a second place. A plan has to be in place whereby you assign yourself a portion of the tasks that need to be done, and assign the rest to the best possible person next to yourself. This will cost extra money. Have you taken this into account?
• A lack of financial planning. If you profit $1,000 each week in your restaurant, it's improvident to expect to maintain that type of profit in either restaurant after you open the second one. You can often succeed in your first restaurant with little formal planning, but to make it in a second or third unit, good planning is essential.
  
  Your plan should include an operations budget developed from Proformas for at least three years of future activity. You must have a complete and realistic budget of construction and opening costs for the new restaurant. These costs must be recoverable in your future projections. You must do a thoughtful prediction of month-to-month cash flow so that you aren't caught flat-footed with almost no cash if the business suffers a slight turn-down for a few months.
• A lack of delegation of responsibility for the old and the new facilities. You can't do it all. While you're spending time at the site, who's running the business? Remember, that your present business is the prime reason you want to expand. Who is running it during your absences? The failure of the restaurateur to properly schedule his or her time between both ventures, and provide adequate back-up for normal duties and activities at the first restaurant can cause serious problems for both the old and the new facilities.
  
  Will your customers remain indifferent to your continued absences? Will your employees still give the same good service and friendly hospitality to your customers which they have grown to expect? Can you control pilferage and shrinkage? At the new restaurant, if you're not really skilled in your new role, it could suffer if your inexperience causes delays, conflicts, and moves in the wrong direction. These could result in its development taking longer and increase your costs of getting it open for business.
• A lack of a stable financial performance history. If you have operated your original restaurant with little thought to budgets and firm controls, a review of your profit history may show peaks and valleys that are unpredictable. These inconsistencies in your profit profile mean that your controls are weak or your accounting methods are not mistake proof.
  
  These can be a disaster waiting to happen when you have two restaurants operating. You must have a good control system for both, and a good reporting system to provide you with measurable results. Trying to operate two or more units without modern tools such as a computer is foolhardy.
• A failure to provide a record of how you operate. It is necessary to have written documentation of how your original restaurant is to run and once for how your second restaurant is to be operated if the second is not an exact clone of the first.
  
  In any case an Operating Manual is essential. Most operators of a single restaurant do not have such a manual. Consider please, how can you train a waitress in your first unit, if you are running the new one? How does a dishwasher get trained? How and by whom does a kitchen worker get trained and supervised? How is the restaurant opened? How closed? How are the cash funds handled? By whom? What safeguards are to be taken?
  
  The absence of a detailed operating plan for each restaurant can lead to confusion, dishonesty, indifference and inefficiencies in either or both restaurants. It is often too late to begin developing Operation Manuals after the second unit is open because you won't find the time to do it.
• A failure to conserve your management energies. You can't do everything well at once.
  
  A practical solution is available to avoid these pitfalls. Since you can't be all things to everybody and can't stretch your time beyond 24 hours each day, it is only prudent to add an extra pair of eyes, ears, arms and legs by using the services of an experienced consulting team to help you plan and implement your expansion from a single unit.
  
  It's a fact that you will open a second restaurant only once in your lifetime. Certain skills are required to accomplish good results in a limited span of time. It is almost impossible for you to learn these skills and use them effectively to build your second restaurant while maintaining the profitability and productivity of the first. The alternative is to employ the services of a professional who has opened a "second" restaurant many times over.

3. Professional assistance can expedite your opening a second restaurant successfully.

Such a professional comes to you as an "expert" in developing second restaurants. The costs of these services should correctly be incorporated into the development plans for the new restaurant. It is a cost that will pay off immediately for you by making for an easier development, quicker opening, more efficient operations of both units, better employee morale and better customer acceptance.

In the long run, a well orchestrated opening of your second restaurant will assure greater financial success and a better chance for on-going business growth for both your restaurants.

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 "Are You Ready to Open a Second Restaurant?" he can be reached at 847-674-6310.

To Top

http://www.gecconsultants.com   email: experts /at/ gecconsultants.com
website design: websiterevamp.org