Cooking up success: starting your own restaurant takes a lot of hard work, dedication—and cash - Dream Businesses

Black Enterprise, Feb, 2003 by Alan Hughes, Bridget McCrea

WHILE OTHER CHILDREN WERE OUT PLAYING SPORTS OR raising a ruckus, 6-year-old Carl Redding could be found whipping up pastry batter in his mother's kitchen. Even then, he dreamed about working in the restaurant industry and owning his own eatery.

Some 25 years later, Redding realized his childhood ambition. Thanks to financial backing from prominent members of the Harlem community and family and friends, he raised $150,000 and bought a former fish-and-chips shop on 116th Street in Harlem, New York On Mother's Day, 1999, Amy Ruth's Home Style Southern Cuisine was born. And Redding's longtime dream became a reality.

Redding is one of many African American entrepreneurs who have successfully launched a restaurant. The restaurant industry, which has estimated sales of roughly $408 billion for 2002, employs some 11.6 million people. The industry has an overall economic impact of $1 trillion (including sales in related industries such as agriculture, transportation, wholesale trade, and food manufacturing, according to the Washington, D.C.-based National Restaurant Association, the leading business organization for the restaurant industry.

But while the rewards of owning a dining establishment can be sweet, they're not without risk Startup costs can be high and vary greatly depending on the type of restaurant, cuisine, and geographic location. Leasing existing space can run $2,000 to $5,000 per month while fixtures, equipment, signage, and remodeling average $15,000 to $35,000 per year. Total yearly costs for licensing and permits, including health department and food handlers' licenses and fire department and building permits, are typically $500 to $750. Advertising and promotional costs range from $600 to create and distribute flyers, to $1,500 for quarterly newspaper ads. Other annual expenses include business insurance for around $3,000, and office supplies, which cost from $500 to $2,000.

Then there are the staffing issues. According to Howard Cannon, author of The Complete Idiot's Guide to Starting Your Own Restaurant (Prentice Hall, $19.95), industry turnover can easily be more than 200% for hourly employees and more than 100% for management. Other problems that owners encounter include legal issues, an overabundance of competition, and keeping quality and service up to par.

THE GRILL OF HIS DREAMS

For Redding, the grand opening of Amy Ruth's marked the culmination of years of education, dedication, and sacrifice. "All my life I've been cooking and learning the ropes of the restaurant business," says Redding, 38, who worked as a chef at Wilson's Bakery and Restaurant in New York prior to opening his restaurant. "Many people become chefs because they love to cook, but I was always working toward the ultimate goal of owning my own restaurant." But he found that opening a restaurant is just one ingredient for success. Keeping the doors open and diners in the seats, while operating profitably, can be a challenge.

Redding, a former chief of staff for Reverend Al Sharpton, didn't need an aggressive marketing campaign to attract customers. A few radio spots and some fliers were secondary to word-of-mouth and publicity from appearances on The Today Show and Late Night with Conan O'Brian. However, lack of preparation for startup costs threatened to ruin his young enterprise. The initial $150,000 he used to open the restaurant was depleted by the time he unlocked Amy Ruth's doors.

With virtually no working capital, he was forced to rely entirely on customer flow to keep his business running. The first day was successful and he raised enough capital to get through the week, cover payroll, and purchase additional supplies. "I relied on the fact that the restaurant would be a popular spot. [I] knew people would come," says Redding, who lived paycheck-to-paycheck for two months until he was able to cover week-to-week expenses.

Redding says he learned from his mistakes. "I knew how to get by with the bare essentials," he says. "I tried to do everything myself and wound up falling behind." He now has 25 employees and estimates 2002 sales at $1.5 million.

Redding's early money challenges are common in the industry, according to Isidore Kharasch, president of Hospitality Works Inc., a Deerfield, Illinois-based international foodservice consulting firm. Kharasch ranks undercapitalization as the top reason that restaurant failure rates average 30% in the first year, 50% in the second, and 75% in the third. "If you're 80% of the way to your money goal, don't even think about opening until you have 100%," Kharasch says.

With one successful enterprise under his belt, Redding plans to open Amy Ruth's Old Fashioned Waffles and Cream in early spring 2003. And he recently signed a 15-year lease for a second Amy Ruth's, which will be located in Bedford Stuyvesant, Brooklyn. The restaurant will open in 2003 on Mother's Day. In addition, he's in talks with Foxwoods Resort about opening a restaurant in its Connecticut casino and is working on launching five new restaurants in New York. This time around, Redding plans to have a lawyer and accountant on retainer.