Don’t Buy a Dream if You Can’t Afford a Nightmare
New Restaurant Owner Almost Gives Up
A guest at a table wanted to say hello. I visited the customer just before the lunch hour at one of our restaurants. My instincts immediately told me he wanted more than a casual greeting. He wanted to talk. The customer was no stranger. He visits regularly and owns a casual franchise restaurant in the same market.
For the purposes of this story, we will call the restaurant owner Joe. His restaurant background began about 18 months ago when he bought an operating franchisee of a small chain serving casual food similar to a Friday’s or Chili’s. After retiring a couple of years ago, Joe fulfilled his life-long dream of owning a restaurant. He wanted to be primarily an investor while his family ran the operations. His purchase was reviewed by accountants and lawyers and the deal was done. Let the dream begin!
Not an unusual story, so far as I knew he was surviving well. Joe’s estimated annual sales were about 1.7 million and, to my knowledge, the chain was handling the economic pressures of the past year as well as others.
Joe began our conversation asking about how we were doing and we exchanged pleasantries for a few moments until he asked about margins in the business. Giving him my normal answer of saying the restaurant business is like buying a new car that states you will get 25 miles per gallon – if you are driving on flat highway, at the speed limit, with no load, your engine is maintained properly and you have a nice tail wind. Otherwise you will get 20 miles per gallon like everyone else. A chain casual restaurant in his category should return about 10% of sales under optimum conditions.
Joe seemed to ignore my answer and extended the conversation by saying the restaurant business open his eyes. He said he has worked harder in the last few months than he has ever worked in his life. So much for the aristocratic role of an investor.
As a new restaurant owner, Joe and his daughter, the GM of the newly acquired establishment, along with his wife realized quickly that the numbers on financial statements, contracts, disclosures, daily receipts and all the standard due diligence he performed, never told the real story of his operation. As I listened, the story became more common. The restaurant business cannot be pigeon holed like other businesses. You cannot do the “standard” pre-acquisition inquiries and base your decision to buy on what you get in return.
To convert Joe’s struggles into a few lines, here is a list of his almost disastrous challenges as he took over the operations:
- Equipment that had been in operation for 5 years or more began to fail from day one. The life expectancy had run its course, hastened by some poor maintenance.
- Employees were out of control. Many had known the restaurant was for sale and let their attitude reflect their uncertain future.
- The POS system was outdated and had many loopholes, which exasperated efforts to control costs and discover waste and theft.
- Until Joe took over, sales had been relatively stable, but took a nose dive as the recession kicked in and the new restaurant owner’s lack of experience required a long learning curve to handle the declining trends.
- As part of a chain, he could rely on the restaurant franchisor to offer a good menu and supplier relations were good, but execution was solely on his shoulders and that of his family. Another “learning experience” he hadn’t anticipated.
- He quickly learned that the price of the business would include additional expenses for equipment, computer systems, training, changing much of the staff and refurbishing some of the interior that needed to match the customer’s expectations.
- Finally, the attempt to equate marketing with advertising was an expensive lesson.
Joe’s eyes’ told as much of his story as his words. The feeling of a captain on a sinking ship starting to list must be similar. There are few things worse than deciding whether you will survive or face the mental anguish of failing. Joe and his family had one advantage over most new restaurant owners. They had the financial ability to weather the storm. Even deep pockets didn’t keep thoughts of shuttering the doors from entering his mind in the early stages.
The story may have a happy ending. The restaurant seems to have turned around according to Joe. Sales are doing comparatively better. He can feel the new enthusiasm of his staff and his food product is meeting the customer’s expectations on a consistent basis. The family may feel like they have lived a nightmare, but there are signs of emerging from a terrible emotional and physical test of stamina. The thought of ever only being an investor is elusive and long forgotten by Joe.
The story is still not unusual. Nothing was strange, unique or complicated. In fact, four out of five new restaurant owners face these same nightmares and close their doors. The odds may be slightly better for franchisees, but only slightly.
You can start a restaurant, buy a restaurant or become a franchisee; the struggles may have a few twists and turns, but are generally the same. If you can’t pay for the unforeseen nightmare, don’t buy the dream. Joe hopes to recover his investment someday, but it won’t be anytime soon – unless there is another Joe who is too quick to spend his life savings on a dream.
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