How the heck do restaurants survive?

[tricknick]

Due to the fact that I'm looking into starting a small takeaway restaurant, I've been getting my numbers together in terms of outgoings and potential profits.

I worked out, on a very compensatory level, that it's very hard to break a profit, even with limited opening times and just two alternating staff.

I worked out that if we're lucky, we would clear just about £170 per week in profit, before tax.

Forgive my ignorance, but that's not great, is it? Considering the work involved in spinning all the plates (no pun intended.)

I know that there are varying factors, but apart from the £5k start up costs, my numbers seem pretty fair and account for all the typical running costs.

Maybe I'm miscalculating our potential sales...?

It's weird, because on the same street we want to start up on, there are restaurants that are EMPTY almost every night, but have been around for years...

... and they're MUCH bigger than our little shop.

I just don't understand where or how they make their money back, let alone a profit?!

 

[GeorgeStrait]

£5k start up costs are not going to cut it I'm afraid.

And you are either a take away or a restaurant, or possibly a restaurant that does takeaway. Describing yourself as a takeaway restaurant is a oxymoron.

On the plus side your not going to be paying hardly any tax on £170 a week, but if it is a profit gives you a very good starting point to grow the business if you can make that money from day one.

 

[KidsBeeHappy]

TBH the very simple answer is that many of them aren't. And those that are are the ones with the lower rent and overheads, with owned properties with low mortgages (or no mortgage), or very amicable rent agreements.

Also, most of those "surviving" tend to have family working way below the minimum wage, or owners that do the work of several people.

 

[tricknick]

£5k start up costs are not going to cut it I'm afraid.

And you are either a take away or a restaurant, or possibly a restaurant that does takeaway. Describing yourself as a takeaway restaurant is a oxymoron.

On the plus side your not going to be paying hardly any tax on £170 a week, but if it is a profit gives you a very good starting point to grow the business if you can make that money from day one.

Could you elaborate on what makes you think that £5k won't cut it? I didn't give you the details of the costs involved, so maybe you're assuming I'm starting a huge Italian fine dining outfit (which is not the case, this is a very small operation in a very small retail unit.)

Takeaways are a class of restaurant. http://en.wikipedia.org/wiki/Restaurant

Yeah, good point on taxes, I guess it's not exactly a bad position to be in, but I actually just realized that I wasn't incorporating the right weekly rent into that figure, so basically, we'd be lucky to make any money at all (unless we had 20 orders per day before the weekend.)

 

[Gill]

Hello

Afraid I have to agree - I wonder if you have your start up figure is accurate? I have just started up a cafe/takeaway (8 weeks ago) and believe me it is incredibly hard work, long hours with enormous start up and ongoing costs (bloody tea pot lids!!!).

However, the work is extremely enjoyable and my little cafe is now profitable and getting a really good regular following from word of mouth/recommendation.

It is possible therefore to make a profit but you have to be realistic. What sort of research have you done? How many customers do you think you are going to serve, how much spend per head, to achieve this what is the actual cost to you - how did you reach these numbers?

Wages and waste - that is what will make or break it, I am trying to keep both to a minimum.

There will be lots and lots of advice on here for you I am sure by people with far more knowledge than I - but in my own experience I know for a fact that there are easier ways than catering to make money - however the experience, the meeting people, the stress (in a good way - adrenalin) and the highs make it incredibly worthwhile and enjoyable.

This is my first day off in 8 weeks - yep 56 days in a row and I am still smiling.
If I can be of any help I'd be glad to, feel free to contact me - better still come and see me at the cafe - guaranteed delicious coffee and hand made cakes!

Oh and even the daft things have to be taken into consideration - teapot lids and napkins and the additional laundry........

I'd like another 2 days per week or at least an extra 3 hours per day!

Best of luck with whatever you decide.

Gill

 

[tricknick]

TBH the very simple answer is that many of them aren't. And those that are are the ones with the lower rent and overheads, with owned properties with low mortgages (or no mortgage), or very amicable rent agreements.

Also, most of those "surviving" tend to have family working way below the minimum wage, or owners that do the work of several people.

That would make perfect sense, and would explain a lot.

No matter which way I cut it, I just can't see how it would be possible to make a profit on the rates we're looking at.

We'd have to get dirt cheap staff (£4 per hour) and negotiate about a 3rd of the proposed rent.

Just 'aint gonna happen methinks.

The guy we're competing against (or would be competing against) sells a similar product, in the same street, and apparently makes a fortune, with hired staff.

He's been there since early 2000, and the only thing I can see that he has over us is that his premises is about 3 times smaller.

Even still, as you say, unless he owns the property, it's probably still not very profitable.

I now see why so many retailers close up shop these days!

 

[Homer J Simpson]

Don't look at not paying much tax as a good thing !

Would you rather earn £170 a week and pay little tax or £5k a week and pay half of it in taxes. I know which I would prefer. You're in business to make a profit, at £170 a week it's not worth the effort/stress......

 

[Gill]

Oh just re-read my post - I am not paying minimum wage - I pay my staff fairly, my belief is that I would never ask anybody to do something which I am not prepared to do myself - we are all on the same rate - I do work longer hours as I roast the ham at home, make the soups, jackets and some of the cakes here which for the time being is 'free' but this is whilst we start up and create a reputation for simple, honest locally sourced good food.

Tomorrow I am off to the farmers market for our veg - I don't count that as work, all good fun. Tons to do, I haven't even printed our menu yet but people come in specifically for our delicious soups and our cream teas have developed a good following too.

If you are determined it can succeed - I have big plans - mwooaaahhh, more on that story later as they say.....

 

[GeorgeStrait]

Could you elaborate on what makes you think that £5k won't cut it? I didn't give you the details of the costs involved, so maybe you're assuming I'm starting a huge Italian fine dining outfit (which is not the case, this is a very small operation in a very small retail unit.)

Takeaways are a class of restaurant. http://en.wikipedia.org/wiki/Restaurant

Yeah, good point on taxes, I guess it's not exactly a bad position to be in, but I actually just realized that I wasn't incorporating the right weekly rent into that figure, so basically, we'd be lucky to make any money at all (unless we had 20 orders per day before the weekend.)

Well your rent is at least £8,840 per annum - you just told us that, so you going to need 3 months rent in advance £2,210 plus three months deposit £2,210 plus legal fees £1,000 and your spent out already. Even if you can loose the deposit (doubtful) or the three months in advance (highly unlikely you'll loose both, but no harm in trying) that still means you've spent £3,200 and £1,800 isn't enough at all, your going to need more than that just for stock and consumables.

Just read you latest post, unless your employing 16 year olds you can not pay £4 per hour it is illegal to do so. Then remember your PAYE and NI on top, holiday pay, sick days etc.

 

[Gill]

Don't look at not paying much tax as a good thing !

Would you rather earn £170 a week and pay little tax or £5k a week and pay half of it in taxes. I know which I would prefer. You're in business to make a profit, at £170 a week it's not worth the effort/stress......

Whilst I agree with you in part - I too would prefer to pay 2.5k per week in taxes - what if the only way you are going to get to 5k is to begin at £170pw?

Honest days work for an honest days pay and all that, I don't make much from this but goodness knows I have earned every penny and it is leading to more profitable ventures (I have secured four outside catering jobs which are far more profitable) however I doubt I would have them where it not for the cafe. There are other ventures in the pipeline through this too so I believe it to be well worth it, even at the figures mentioned - got to start somewhere!

 

[tricknick]

Yes, that's fair enough, the start up costs were just the equipment and other fees, but I hadn't factored in the deposit.

The start up costs aren't really the issue, the daily running costs are what I really can't overcome, even if we decide to sell a higher priced product/menu we'd still have to factor increased supply costs so it's kinda flawed.

It just surprised me how tight margins are, and how little money there is in the small restaurant trade.

 

[tricknick]

Whilst I agree with you in part - I too would prefer to pay 2.5k per week in taxes - what if the only way you are going to get to 5k is to begin at £170pw?

Honest days work for an honest days pay and all that, I don't make much from this but goodness knows I have earned every penny and it is leading to more profitable ventures (I have secured four outside catering jobs which are far more profitable) however I doubt I would have them where it not for the cafe. There are other ventures in the pipeline through this too so I believe it to be well worth it, even at the figures mentioned - got to start somewhere!

That's a very good point. One of the things I had in mind was outside catering gigs, which would further help us grow the restaurant as well as find additional revenue.

I wonder how hard it would be to do it the other way around?

 

[GeorgeStrait]

It can be done, but it won't be overnight. You'll have to expect to be earning next to nothing for probably at least a year (two or three is not uncommon) while the business establishes itself.

Also no matter how sure you are you have it right at the get go, you will be spending more money changing things from the menu to the take away's layout and shift patterns etc. So that really needs to be factored in as well.

If you can afford to live on very little income for at least twelve months then give it a go, you'll only wonder "what if" if you don't.

And stop calling it a bleedin' restaurant, if your only doing takeaways you are not a restaurant

 

[tricknick]

It can be done, but it won't be overnight. You'll have to expect to be earning next to nothing for probably at least a year (two or three is not uncommon) while the business establishes itself.

Also no matter how sure you are you have it right at the get go, you will be spending more money changing things from the menu to the take away's layout and shift patterns etc. So that really needs to be factored in as well.

If you can afford to live on very little income for at least twelve months then give it a go, you'll only wonder "what if" if you don't.

Yes, I agree.

I think one of the benefits of our plan is that it's a very simple set up, so running it won't be a complex nightmare (although I accept it won't be a walk in the park either.

Having said that, I still can't see how it would make us money, and the more I hear from people in the trade, the more I'm starting to believe that unless you own the property or can mark up your prices massively and get away with it, then it's going to be hard to balance the numbers.

Or of course, you get lots of customers... but I can't see us doing more than we projected.

I suppose there's no real answer on such a speculative level, but I appreciate the insights all the same, this thread alone has been extremely helpful to me.

 

[Deleted member 59730]

Catering works on 1/3rd for ingredients, 1/3rd for overheads and 1/3rd profit.

A modest turnover of £600 a day is £200 profit a day.

 

[GeorgeStrait]

Whilst I agree with you in part - I too would prefer to pay 2.5k per week in taxes - what if the only way you are going to get to 5k is to begin at £170pw?

Thanks Gill, that was my point. £170 a week clear profit for a start up is not bad, and from there you grow

You have to look long term Homer, you can't expect the £2.5k tax bill at the end of your first week.

 

[deniser]

At least you are looking at the potential turnover in a realistic fashion unlike the vast majority of people on here wanting to do the same thing who either totally overestimate their sales or don't estimate them at all.

Apply the same calculations to different locations and different businesses and you will eventually find one which makes more sense.

But do take your time looking.

It took me almost a year to find mine and I still haven't found anything better 5 years later.

 

[Gill]

Catering works on 1/3rd for ingredients, 1/3rd for overheads and 1/3rd profit.

A modest turnover of £600 a day is £200 profit a day.

In an ideal world - you must be careful with fresh food - short shelf life - waste is soul destroying (and profit eating) it is a steep learning curve but needn't be an expensive one - I have a waste book (this is really important - you must write down anything that spoils and you have to throw away) and have invested in new cold storage - now my waste is nil most days.

Is this purely takeaway? Sorry if you have answered this already. What is the business premise at the moment? How many customers do you envisage serving? Do you know the area well? Do you have seasonal visitors? Are certain days busier than others/times of day?

I did complete a spreadsheet and really thought we'd covered everything - I had it worked out how many people I needed to walk through the door per hour and how much they needed to spend in order to cover costs etc. As it turned out I was a country mile out however with some tweaking it isn't far off now and I cheer (internally) at the magic number customer!

Take aways are wonderful, ice creams even better - but my favourite are the coach parties - every other Tues and every other Weds I am crowded out with cream teas - not a lot of money each but a lot of them - I love it, really special people it is easy to make a fuss of.

My other favourites are the cyclists - they like their coffee very strong (as do I) and eat lots of billionaires shortbread, carrot cake and flapjack to go!

Are you going to cater for a specific market? Is it a town centre? I am rather particular about my food usually however I do remember eating stuff I wouldn't normally consider after an evening out - there is a Stottie shop in Bowness who does a roaring trade at 3am!

It is a lot of work you know and you can't plan for everything - my laptop was stolen early on and insurance wouldn't pay because there was no sign of forced entry, the dishwasher died 3 days in, the coffee machine has had to be repaired and the coffee grinder hopper fell and smashed - none of which was on my spreadsheet!

Fail to plan? I wouldn't be so hypocritical as to advise you on this as I had no plans to do this at all in February and opened in April! It was a gut thing I went with, spreadsheets and internet research, visiting the competition and then just sleeves up, paperwork and necessaries, clean, paint, stock up and open - and I am glad.

Good luck!

 

[businessfunding]

The good news is that you are setting yourself above the majority of new restaurants, because you are viewing it as a business, not as a hobby (quite serious, restaurants are largely viewed as hobby businesses)

You have been given great input from other members, particularly Gill, which will take you some way down the right path.

With regards to you question how do the survive, the main answers are:

1. They own the freehold and are treating it as a pension.
2. Rich hubby buying his wife a hobby/job to keep her 'out of mischief' (sexist perhaps, but absolutely true)
3. Excessive use of below minimum wage labour (largely family)
4. They change hands more often than you realise.

Take the advice from here and become one of the successful ones!

 

[groovyjon]

on the same street we want to start up on, there are restaurants that are EMPTY almost every night

Why do you want to start up on this street then?

 

[ecommerce84]

Are you going to cater for a specific market? Is it a town centre? I am rather particular about my food usually however I do remember eating stuff I wouldn't normally consider after an evening out - there is a Stottie shop in Bowness who does a roaring trade at 3am!

There is a fried chicken place that we used to usually stagger into at about 3am when the clubs kicked out. Packed to the rafters with people getting 6 hot wings and chips for £2.99.

One day, at a sensible hour, I was walking past and hungry, so i went in and bought my usual. I have never been back. It was the most disgusting 'food' i'd ever eaten. Along the street are lots of these restaurants selling kebabs and chicken burgers, a lot of which is thrown up on the way to the taxi rank.

I bet if most people went back during the day they would be surprised at what they are eating!

Anway, you give great advice Gill, I hope the OP takes heed.

 

[Page]

I worked out that if we're lucky, we would clear just about £170 per week in profit, before tax.

Forgive my ignorance, but that's not great, is it? Considering the work involved in spinning all the plates (no pun intended.)

I know that there are varying factors, but apart from the £5k start up costs, my numbers seem pretty fair and account for all the typical running costs.

Well it depends how much work is involved

£170 a week means about 9K per year with 5K start up costs

That is a very high level rate of return if you look at it in accounting terms

You will get about 1-4% shoving it in the bank versus 200%

 

[cjd]

Congratulations, virtually nobody does the numbers before they leap in and just do it. That's why so many go tits up within 6 months.

It's depressing when you do, because it almost always shows you that it's hopeless - the bad news is that you've almost certainly underestimates your costs because there are ALWAYS more that you haven't spotted yet. As a guide add 30%.

I assume the £170 profit excludes any payments to yourself for wages?

The good news is that although you will have overestimated your revenue, particularly for the first 12 months - if you survive and are very good at what you do, you may make a go of it because in the food business, if you're good people use you. (The bad/good news is that almost evryone isn't good at it.)

 

[Officey]

There's more money in takeaways than you think. Take a Shish kebab as an example.

The ingredients to make 5 portions are
cucumber 15p
tomatoes 30p
onion 15p
lettuce 15p
pitta bread 50p
Meat 3.00

Thats £4.25 to make 5 kebabs that you sell for £5.50 each

 

[DarrenTSO]

Well it depends how much work is involved

£170 a week means about 9K per year with 5K start up costs

That is a very high level rate of return if you look at it in accounting terms

You will get about 1-4% shoving it in the bank versus 200%

It's not a high rate of return though - it's a job, and a low paying one at that based on his numbers.

Only do this if you love being a restaurateur.

 

[Pap_sak]

Just a side note:

I found out from a person in the industry, that for a KFC to be worthwhile, they work on 40,000 customers a month. This is in South Africa, not sure if it the same all over the world.