How to Write an Effective Restaurant Business PlanA hardworking, persuasive plan has about eight ingredients and a pinch of passion.
To succeed at any endeavor you need a plan — a recipe for success. To succeed in opening a restaurant you need a business plan, one that whets the appetite of potential investors.
Writing a restaurant business plan is a bit like cooking: Doing it well requires the right combination of ingredients and a generous dash of inspiration and passion.
The first rule: Keep it concise. You’re writing a (long) recipe, not a cookbook. Many experts recommend a maximum of 20 to 25 pages including charts and financials. Some advise keeping it to half that length.
The second rule: Describe in mouthwatering detail the finished dish (that is, your restaurant), down to how it will look, smell and taste, as well as who will enjoy it and why.
The third rule: Know what it all will cost.
The process of writing the plan is as important as the final product. “Writing a business plan takes your cloud-based ideas and turns them into facts,” said Stephen Zagor, dean of business and management programs at Institute of Culinary Education. “It asks you lots of questions…and when you’re constantly being asked questions, the concept changes. I would bet that cloudy idea that you start with is not the final idea that comes out in the business plan.”
What investors want to see is evidence of “solid, strong strategic thinking,” said Deagon Williams, a chef and founder and principal of Culinary Business Strategy, a food and beverage consultancy.
Here are the ingredients experts say are essential to a good business plan, and some important recipe notes.
The executive summary
This is the first thing people will read and the last thing you should write, noted Williams. “You can write it in the beginning but it absolutely needs to be rewritten at the end,” after you’ve done the homework involved in writing the rest of the plan.
Include the most salient — and the most compelling — highlights of the business plan: the concept, what makes it unique, the factors that will make it succeed (including what unmet need it fills), who’s running the show and what notable successes they’ve had. Say where you plan to open, how much funding you’re seeking and any future plans for the business, such as additional locations or franchising.
Keep this section to two pages or under, advised Kevin Burke, founder and managing partner of Trinity Capital and a frequent consultant to restaurant companies and franchisees.
What are you going to serve, in what kind of atmosphere? What does the décor look like? How big is the restaurant? Above all, what makes it unique?
Here’s where you need to grab the reader by the emotions. “A restaurant by definition is a business that caters to feelings,” said Zagor.
“If you start your business plan and say, ‘I am doing a grilled cheese concept on 45th and Lexington, you’ve lost, game over. You have to start by saying ‘the grilled cheese was melting off the edge of the plate.’ The beginning really needs to read like food porn.” -Stephen Zagor
Ask yourself, advised Zagor, what you want to be known for. “You can’t just say ‘I will open it and they will come.’ Those days are gone.”
Williams believes the food should be front and center. “I will always go back to product. I believe that if your food doesn’t taste good and isn’t serving a very specific target market need, it’s going nowhere.”
Identify the need or desire your concept satisfies. “If you’re going to be the next great pizza restaurant, why is someone going to care? What are you doing different or better versus all the other pizza restaurants?” said Zagor.
Your target market
“People talk about target market in passing way — ‘everybody that likes pizza,’” said Williams. But it’s critical to go deeper. “Build a persona. What is she wearing? What kind of car is she driving, what kind of education does she have, what stage in life is she in?” Build personas for your primary, secondary and tertiary markets.
Clearly describing all three markets is “really important because it’s going to affect decor, menu, pricing, advertising and promotion — everything,” noted Burke. Your target market will also affect the size of your establishment and even how noisy it is, he said.
Understand who’s coming on Mondays for lunch and whether it’s the same person who’s coming Saturday night for dinner, Zagor advised.
Don’t try to appeal to everyone. “We all know the age-old saying, you can’t be all things to all people,” said Williams. “While everybody loves pizza, that beautiful, hand-stretched California style that’s so amazing, there are some families that want to get Domino’s.”
A sample menu
Most plans should include a sample menu. “I don’t kneed to know how many tentacles on your calamari but I do need a very clear idea of what you’re serving,” said Williams. Everything on the menu should fit the concept you described earlier in the plan.
Include prices, which should be based on a detailed cost analysis. Note whether the menu will change seasonally.
What’s the state of the industry, especially for the service style of your proposed establishment? How big is your target market? Is it growing or shrinking? Is it currently underserved in the area in which you plan to open? Are there other restaurants in the neighborhood that serve a similar market? How successful are they? List your main competitors and explain why your restaurant will do as well or better.
Information sources to start with include the National Restaurant Association, which produces industry forecasts, and, for demographic information, the U.S. Census Bureau and your local chamber of commerce. For more detailed information on consumer market segments and for industry analysis, especially on trends, you might want to pay for research reports from market research agencies.
Organization and management
Explain what legal form your business will take (sole proprietor, partnership, etc.) and who will own what percent.
Outline who will occupy key positions, from executive chef to marketing director, and exactly what tasks they will perform that impact the success of the business. Play up their background if it’s impressive. (You can attach resumes in an appendix.)
“You’ve got to have people who have experience and who’ve had success,” said Burke. “The team that’s going to run this thing has to have something to crow about.” And crow you should. Explain how their know-how will translate into helping your restaurant succeed.
If you have advisors, list them, too, and their qualifications.
Here’s where the rubber meets the road. Your restaurant could be the best idea in the world, “but it’s got to make financial sense,” said Zagor.
“So many well-known chefs don’t know how to cost out a recipe, manage the purchasing function, organize a menu and pricing for most positive impact on the bottom line,” he said. “It’s a business that looks very easy and is very seductive and very experiential, but it’s just not as easy as it looks.”
Don’t hesitate to seek help from a business consultant with restaurant experience for this section.
To complete these projections you’ll need to research your costs, including the rent and what the build-out will cost.
“The number one killer of restaurants is occupancy costs,” said Burke. To that end, size the restaurant appropriately. “Start small and see if you can get traction,” Burke recommended.
Know who your distributors and suppliers will be and what their pricing is. Figure out what you think your market penetration could be, the likely volume at each meal service and the average check size. Don’t forget equipment costs and salaries.
Include a forecasted P&L, cash flow statement and balance sheet for each of your first four quarters, then quarterly or yearly projections through year five. Don’t forget that restaurants have high and low seasons; make sure you account for both.
It’s helpful to identify your breakeven daily revenue and how many people you have to serve at each meal, at what average ticket price, to meet it. Williams recommended putting this information in a simple grid.
A huge problem with many business plans, Burke noted, is that the economics are unrealistic. Recognize that not everything is going to go your way. “You have to put that in the business plan.”
Outline the expected case, the best case and the worst case. “A good business plan works if things turn out worst case,” said Burke. “Look at the P&L and make sure it works at the lower revenue.”
What’s a realistic profit margin? “A very well run, efficient, busy, successful restaurant is typically going to yield 10 to 15 percent in net profit,” said Williams. “For every $1 that comes in the door, if you’re lucky you’re taking 10 to 15 cents home.”
Advertising and promotion
How will you get customers in the door? Which advertising and promotion channels will you use, including social media, and how much will you spend on each? Who will be in charge of advertising and promotion? Will you hire an agency?
“Word of mouth alone only works in places like Manhattan and San Francisco,” said Burke.
The final ingredient: believability
“The biggest thing is it’s got to be believable. In a good business plan, every single thing you read increases your confidence in what you’re reading,” said Burke.
A restaurant with a unique selling proposition, solid management, a well-conceived business plan and sufficient capital is well on its way to success.