When I opened my first restaurant in 2005, I thought the hardest part would be the concept: designing the space, crafting the menu, finding a chef. With a Master’s degree in finance and experience starting a successful tech company, I wasn’t quite as worried about managing costs and profitability.
However, like many other first-time restaurateurs, I quickly learned how highly variable a large percentage of my business’ finances would prove to be. Labor, food, and operating expenses rapidly changed, but more significantly, the number of people coming in varied every day, meaning revenue fluctuated as well.
As a new restaurateur, getting off on the right financial foot takes more than balancing the books—it requires the right operational foundation, smart technologies, and informed fiscal decisions from the start.
New restaurants, old challenges: 3 lessons for first-time restaurateurs
At MarginEdge, the restaurant management platform I started with other industry insiders, we’ve seen a significant uptick in inquiries from first-time restaurant operators. That mirrors recent data from Yelp showing new restaurant openings are now outpacing pre-pandemic growth rates.
While a lot has evolved since I first got my start in the restaurant business, new operators will find that many of the industry’s core challenges haven’t changed. Signing a lease is still difficult, construction costs are only getting higher, and margins continue to tighten.
If you’re like me, you may fall into your first fiscal pit quite quickly. Here’s the advice I wish I’d known when I was getting started:
- Location and lease require careful upfront scrutiny
“Location, location, location.” You hear it all the time in the restaurant business. But here’s what no one tells you: location is multidimensional—you must find the right balance between your concept, your target customers, and the space itself for every restaurant.
For instance, I opened two restaurants in the Boston area just 45 minutes apart. Each had the same concept and execution, but the demographic was a bit different, and that made the outcomes wildly different: One location made a quarter of the money that the other did. Success in one location is no guarantee of success in another.
It’s not just where you’re located either, it’s what it costs you to be there. First-time operators often get starry-eyed about a great location and sign a lease with personal guarantees or other riders that could potentially bankrupt them. Balance your excitement about potential locations with a hard look at the lease terms and be particularly careful around personal guarantees. Always limit the liability.
- It’s easier to integrate technology from the start
Building technology into your operations from day one is far easier than transferring systems or migrating from analog to digital later on. When opening a restaurant, take advantage of the initial window you have to intentionally deploy digital solutions across your business, as this will better position you to maintain and drive value from these investments over time.
For example, when integrated properly and from the start, technologies like cloud-based POS systems, scheduling tools, and platforms that integrate with third-party delivery apps enable you to track and refine every part of your business—from streamlining operations to optimizing labor costs to pulling real-time insights.
Bringing on these tools early means you can grow your business from a data-driven foundation. In particular, look for agile, flexible digital systems that seamlessly integrate with other platforms and scale as your restaurant grows.
- Fiscal transparency is your most important ally
With such tight margins and volatility, it’s crucial that restaurateurs establish fiscal transparency. That means daily visibility into your numbers—not monthly or weekly.
You can’t get by on spreadsheets that tell you what went wrong last month. You can lose a lot of money in a single month if you are not on top of it. Instead, you need smart, data-driven technologies that provide real-time insights that empower your team to identify and quickly solve cost issues.
For example, the average restaurant purchases hundreds of unique items, with prices in constant flux. With modern solutions in place, you can pinpoint these price fluctuations, as well as any outliers, and tackle challenges head-on. These types of insights allow you to make smarter purchasing decisions that protect your margins, from optimizing inventory to refining recipes based on current product prices. Without technology, you may end up spending hours manually tracking costs or even end up paying more for the items your restaurant needs most.
Don’t make the same mistakes I did
When I entered the restaurant business, I knew there would be challenges—but what proved difficult in those early days wasn’t always what I anticipated. Back then, I and so many other first-time operators did our best to navigate a highly variable industry without a clear picture of our day-to-day finances or the technologies we rely on now.
Thankfully, today’s restaurateurs have the opportunity to be far more tech-savvy and sophisticated from the start. Take it from me: Strong, transparent finances are the best initial investment in your restaurant’s long-term success.
Bo Davis is the Founder and CEO of MarginEdge.