The Value of A Good Business Plan
Your Restaurant’s GPS - Gastronomic Positioning System
For many, opening a restaurant is often a romantic idea, until reality sets in of just how difficult it actually is. We advise clients that developing a detailed business plan is the first step. A great business plan becomes your navigation system (your GPS) for everything from raising funds, to fleshing out a concept, to getting open. In its simplest form a business plan is a guide for your business that outlines your goals and details how to achieve them.
A good business plan should include: a summary of your concept, mission and company goals; a market analysis of where you plan to open – including a competitive analysis; a detailed description of your product and how you plan to execute that product; a labor model; several sets of financial models and an exit strategy – in the event that your concept doesn’t work.
Before and after opening your restaurant, a business plan can:
Be a pre-investment gut check - Investing in the development of a business plan before doing anything else can save you money, time and often heartbreak. The plan gives you an opportunity to flesh out your concept and to investigate whether it can be profitable in the marketplace. You might just discover that what you thought was a great idea won’t work: the demographics of the area may be wrong; the rents may be too high or the financial models don’t work for your concept. Better to know in advance than risk losing many thousands of dollars after the fact.
Help you source start-up capital and financing – Many independent restaurants that try to self fund their start-up, are often under capitalized and fail within the first year. A detailed plan, with several detailed sets of financial models, allows restaurateurs to secure outside monies with various types of lenders and/or through alternative sources. Your plan must be able to answer the following questions for lenders and investors: 1) how and how soon do you plan to have a positive cash flow in order to be able to repay a loan or pay out investors? And 2) what is the unique selling proposition for your restaurant – for example, why will customers come to your restaurant versus the others in the neighborhood?
Help you manage cash flow- Careful management of cash flow is a fundamental requirement for all restaurants. The reason is quite simple: many restaurants fail not because they are unprofitable, but because they ultimately become insolvent. Most restaurants' cash flow can fluctuate dramatically from week to week primarily because of the timing of payments like payroll, sales tax, and rent combined with on-going operating expenses. Unexpected costs, such as emergency repairs, only amplify this fluctuation. Knowing your business cycle (e.g. busy season/ slow season) will help you be proactive in your cash flow management. The only thing worse than having a cash shortage, is having a cash shortage that was a total surprise.
Be used as an on-going road map to your success and should be updated often. By continuing to review and update your plan, you can understand and develop changes to, and the growth strategy for, your business. Regularly checking your planned performance versus your actual results allows you to make the necessary changes to get you back on track. This is a living breathing document, not a book that is thrown in a drawer and never looked at again.
We see restaurants that did not start with a formal business plan struggle to be successful - they figured their passion and optimism were enough to build a successful company. Operating without a plan can prove to be more time-consuming and costly in the long run – like driving somewhere without directions and just hoping you get there.
Don’t know where to begin? Do you know how to write a great business plan with appropriate financial models? www.4qconsult.com can develop business plans to meet your needs.
All original content copyright Noelle E. Ifshin, 2016-2017.
4Q Consulting, LLC
244 5th Avenue, Suite 1430, NY, NY 10001