Denis is President and Managing Principal of DTA Denis Turco Architect Inc., which he founded in 1995.
Congratulations, you are about to embark on a unique venture that allows you to combine business acumen and management skills with creativity and community interaction. It can, at once, be satisfying, challenging and, sometimes, lucrative. It can be an exciting world, in which some restaurateurs and chefs go on to gain celebrity status.
Unfortunately, it is also a difficult world of long hours, and one in which start-ups have some of the highest failure rates of any industry sector. While many fail because they simply cannot attract enough customers (the many reasons include: uninspiring concept, poor management, bad business decisions, lousy location or, simply, awful food!), many of them fail because- right up front- they are not aware of the many pitfalls and challenges that come with building a restaurant.
I’m an architect. I’m not a restaurant owner, a financial advisor, a lawyer, an accountant or a business coach. I'm not even a good cook. I am, however, intimately familiar with the design and construction of food service establishments, ranging from kiosks in shopping mall food courts to 300+ seat family restaurants. My clients, over the last 25 years, have included leading corporate “chain” restaurants, neighbourhood pub owners, experienced restaurateurs and seasoned hospitality professionals. I’ve learned a lot; not just about the architecture of restaurants, but about the process of building one.
I’m hoping to direct my architect's perspective at the budding restaurateur, those of you that are considering your first restaurant.
Your restaurant business is, most likely, going to be a tenant in an existing building or shopping centre, or a conversion of an existing space. For you, I have some practical pointers:
>> Have a solid, realistic business plan… and take that to the bank!
It’s OK to have big dreams and high expectations. Without them, where would the motivation come from? However, far too often, potential restaurant owners have a pro forma based on optimism and not reality. While I’m not going to talk about how to finance your proposed venture, or lease rates (what is the value of location, location, location?), I can tell you that a business plan is about much more than just money.
Most typical revenue projections allow for $12-30,000 per seat; however, for the new restaurant owner, predicting this figure is really a shot in the dark. Make sure your plan allows you to sustain your business for an extended period, at the lower end of the spectrum. It often takes a year or more for a new restaurant to take hold.
>> Fully understand your legal and financial rights and obligations - and liability exposure!
Invest up front in some solid legal and accounting advice before you commit yourself to your ideas, your lease and to others. For example, how will you structure your business venture? Do you need a corporation? What are the tax implications? If you have partners, have you legally documented your relationship? What are some leasing pitfalls to avoid? Can you legally do what you are hoping to do and does it really make financial sense? Etc., etc ... It will buy you piece of mind, guide you along the way, it may avoid long delays and it could save you a fortune in the future.
Pre-opening timelines are by far the most overlooked- and underestimated- part of any restaurant’s business plan.
Not correctly budgeting for the time and effort it takes to design and construct a restaurant is a pitfall that affects the bottom line before the first customer enters the door. And remember, leasing incentives are rarely geared towards the restaurant tenant. Three month's free rent is rarely enough until you open your doors to your first customers. Talk to a good architect early, before you might commit to an unrealistic schedule, and see how the design, permitting and construction process will affect you.
Design: Of course design costs money, but it also takes time… much more time than most people realize. There are architects, designers, various engineers, specialty consultants, municipal interaction and a multitude of coordination requirements that need to be considered. The entire design process, from initial sketches to building permit application, can take from several weeks to many months, depending on the complexity of the project and the individual restaurant owners’ goals and objectives. If a Development Permit or Rezoning is required, that can add on even more months, as there are specific submittal and presentation requirements that need to be dealt with before detailed technical documents are prepared for building permit application. Even people seasoned in the restaurant business can underestimate the consequences of the design schedule, especially if they have no experience building a new restaurant, or if they are upgrading to a more complex operation.
Permits: Another aspect that is often underestimated is the time it takes to actually get a permit. Permitting for restaurants is a complicated process- there is the task of obtaining a building permit (BP), yes, but there are also health approvals, liquor licensing, patio permits and, as noted above, there may also be the need for a development permit (DP) or even rezoning. A DP may be required if you:
- Are planning to alter the use of an existing space (for example, your proposed space used to be a retail store, a clinic or an office);
- Are making changes to the exterior of an existing building (sometimes that even includes just signage or replacing windows);
- Construct a new stand-alone building or, potentially, if you are the first tenant in a new base building.
A new building, or a substantial renovation, can result in the requirement for municipal service upgrades and municipal engineering review during the permit process. This can add on several weeks to the overall BP process, and some jurisdictions are notoriously slow.
Construction: “On time, on budget”… that cliché saying simply does not apply to the restaurant industry; at least, not in the strictest sense. “On time” has to allow a myriad of expected, but unknown, factors that will appear during construction. I have never, in over 20 years, seen a restaurant constructed that didn’t incur schedule changes due to unforeseen building conditions, equipment and material procurement delays or most often, believe it or not, owner design changes during construction. It’s imperative that owners make up their mind and stick to it. Changes during construction, unless absolutely necessary, should be avoided as they cost money and (more importantly) delay the project. Get the place open and save that great last minute idea for next time or the next location.
Except for the most simple of jobs (usually light makeovers to existing restaurants), most small tenant improvements will take from 6 weeks to 2 months. Larger, more complicated tenant improvements can take up to 4 to 5 months. A new, free-standing building could take double that to completion.
Hand-over and Testing: A construction schedule should consider a period for staff training, operations testing and deficiency clean-up prior to opening to the public. There should also be a contingency factor built in for inevitable hurdles. An ideal time for this is about two or three weeks, although you might get away with one week if necessary. The bottom line is that you will need final occupancy well prior to opening, so that you can occupy the premises for staff training and final touch-ups. The last thing you want to do is open up shop with unprepared staff.
As you can see, from concept to reality can take a long time. Consider the cost and time implications when you sign your lease, purchase your property or decide to renovate. Talk to an architect and become aware of the schedule so your results don’t fall short of your expectations.
Your budget must allow for a myriad of things and, when it comes to restaurants, most business plans fall short on both soft costs and hard costs. Owners will often rely on a realtor or leasing agent anxious to close the deal, without confirming actual costs. This can come as a surprise so it’s best to be aware of all potential costs up front.
>> Determine how much you will need, and make sure you have the necessary funds at your disposal!
Often overlooked or underestimated are the following:
Design Fees: As mentioned above, restaurants are specialty buildings that require specialty consultants. These include architects (required by law for any assembly building, no matter how small), mechanical engineers for the heating, cooling, ventilation, plumbing and sprinkler components, and electrical engineers for lighting and power requirements. Most projects also utilize the services of interior designers, audio consultants and kitchen equipment consultants. New buildings and substantial alterations will also require the services of a structural engineer and a geotechnical/ soils engineer. Assuming there are no environmental (hazardous materials) concerns, these are the players you will need and their fees will range somewhere between 8 and 15% of construction cost, depending on the size and complexity of the project. For a new tenant improvement, budget between $60 to $120,000 for total design fees.
Marketing Fees: A communications company can coordinate the image of your restaurant business to the public. I believe this extends to the image that the building exterior and interior conveys. For this reason, it’s important to have a brand image conceptualized that can be coordinated with the architectural design. Signage, graphics, menus, advertising and general PR can add up. Budget accordingly, depending on your needs.
Pre-Construction Expenses: As noted, permit fees will be necessary at the time of application and a balance prior to permit issuance. Again, this varies depending on the size and scope of the project, and whether development permit, rezoning or variances are required. For new development, development cost charges may also be payable to the City, which can reach the tens of thousands of dollars. Letters of Credit may also be required, for the cost of offsite service upgrades (see above) and landscape work. These too, can total tens of thousands of dollars. For a simple tenant improvement restaurant, budget about $6,000 for BP.
Cost of Construction: It’s by far the largest single expense most restaurant owners will face, and it’s often underestimated. Talking to a contractor early on is useful, but it’s impossible for them to cost a project without detailed technical documents that are used to receive bids. Having said that, you will need to budget something for the cost, which can be all over the map.
This is why you should talk to an experienced architect first- right up front- one that can take your ideas, look at the proposed location to determine probable building requirements and potential upgrades, prepare an outline of requirements and help you and a contractor determine a preliminary construction budget. Because the initial budget is preliminary, and dependent on the ultimate level of finishes, detailing, quality of materials and equipment, not to mention any structural and life safety upgrades that may be required in tenant improvements, as well as potential unknowns, most project budgets should carry a 10 to 15% contingency at the early stages.
And then there’s that FF&E that can range from very little to enough to buy a small nation. FF&E is typically a separate cost item from hard construction, which does normally include all “back of house” costs such as kitchen equipment, staff rooms and washrooms. Although some come in significantly under and others much more, for a straight-forward restaurant a construction budget of $250 to $350 per sf of leasable space is the norm.
Operating capital: Plan on having 9 to 12 months of operating capital from the start. It’s amazing how quickly expenditures add up and how much time it takes for a new place to take root and get regular customers. And remember, revenues usually take a dip after the initial opening excitement! The honeymoon does not always last forever, so budget wisely.
>> Hire good people!
This adage applies to the design consultants and contractors you hire, just as it will to the staff and management of your operation. A restaurant is a specialty building, and designing it is also a specialty. The Architectural Institute of BCclassifies it as a “complex” building type, above “advanced” and just below “specialized” buildings such as medical research, scientific and hospital buildings.
Naturally, you will want to start with an architect. Hire one with experience in the design of restaurants (and I can recommend a really good one, if you ask). If an interior designer is used (not all architects offer interior design services), the same applies. Most of all, I can’t stress enough the value of an experienced mechanical engineer- one who understands the nuances and special requirements of restaurants and commercial kitchens.
You will probably want to hire a good marketing and communications team. A successful restaurant is as much about branding as it is about food and service. A well defined brand should also be coordinated with the building design. Marketing should not to be taken lightly; after all, you are starting a people business and it will be important to communicate to potential customers.
Hire a good contractor or construction manager with experience, and a good track record, building restaurants at the scale of your restaurant (for example, a small tenant improvement with a tight timeline vs. a new building with a tight timeline… they always have tight timelines!). Do not do it yourself. You are a restaurateur, not a contractor; and even if you are handy swinging a hammer and laying tiles, you have much more important things to do.
>> Marketing 101: Brand your restaurant.
A strong brand will create an identity for the restaurant. It will tell potential customers what your restaurant is all about and sets it apart from its competitors. It creates a corporate “personality”. When done properly, a brand gives visual and emotional cues to potential customers. An effective restaurant brand extends across all parts of the business, from the architecture to interior design and décor, to marketing materials and menus. Developing a brand and using it to your advantage can give your business a competitive edge. It’s especially critical for those of you envisioning multiple locations.
It may make sense to hire a firm that can assist you with marketing analytics. As restaurants are increasingly faced with daunting challenges in a progressively crowded marketplace, customer analytics can help your brand stand out. Know your customer. A sharper perspective of your core customer can be used, not only to drive real estate site location decisions, but for targeted marketing, promotions and other elements of the overall brand concept.
If the food is good, the brand will allow customers to remember you and to recommend the restaurant.
>> Know your competition.
Surprising to some, there is a great deal of camaraderie in the restaurant industry. Get out there and talk to your competition; see what they’re up to and do your own “hands on” research. If you look at them as allies, you will find that they will offer a lot of free advice. After all, the restaurant world is also a small world. You might as well learn to get along.
>> Have fun at it!