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

HIS COSTS RUNNETH OVER

Derrick Angus knew that opening a restaurant in Los Angeles wouldn't be a piece of cake. But he didn't know how complicated and costly his choice of location would be. An engineer turned catering-business owner, it was his training in the former field that proved most useful.

Before he could open Derrick's Jamaican Cuisine, Angus learned that he would have to pay the city of Los Angeles a $17,000 sewer line fee. He also had to bring the building up to city code, which forced him to install energy-efficient fluorescent light fixtures that totalled nearly $8,000.

"The location was great, but I had no idea that a sewer line and other infrastructure would cost so much money," Angus reflects. Additional startup costs included $35,000 for a walk-in refrigerator/freezer, $30,000 to cover the required three-month deposit, and roughly $10,000 for building permits and health department and licensing fees. The startup expenses quickly ate away at the funds he had saved. "I had to go back to myself and my family for more money," says Angus, who raised $300,000 to start the restaurant.

He made it through the construction crisis by doing most of the work himself. "I designed and installed most of the equipment and handled my own electrical and plumbing work," he says. "I wound up saving a lot of money." Angus' efforts paid off in February 2002 when the doors to his 100-seat establishment opened. Billed as "fine Jamaican dining with a healthy twist," the restaurant offers skinless, boneless jerk chicken, jerk tofu, grilled vegetables, and seashore salmon. "Our service is excellent," he says. "We offer a complete dining experience, as if you're in the islands." He expects the establishment to generate $800,000 in sales for 2002 and close to $1 million for 2003.

"There's a much lower failure rate in buying an existing restaurant location than building a new one," says Cannon, who is president of Birmingham, Alabama-based consulting firm Restaurant Operations Institute Inc. He notes that choosing a non-restaurant location is a mistake many restaurateurs make.

Angus continues to cater from his new, four-employee location and has an eye on expanding into fast-food later in the year. But when expansion time arrives, he says he'll look for a pre-existing restaurant: "The laws, regulations, and codes that come with converting existing space into a restaurant can kill you."

A RECIPE FOR SUCCESS

Most people know the reasons restaurants fail: bad food, bad service, and poor advertising. Cannon believes that high failure rates are due to poor financial habits, bad decisions early in the startup process, and unrealistic expectations on the entrepreneur's part.

According to Cannon, the U.S. has almost 844,000 restaurants and adds 13,000 to 17,000 each year. Roughly 81% will eventually fail, he says, adding that most go astray on the cash management side. "New owners often go out and spend the cash without realizing that, in 30 or 60 days, they have to pay their staff, their vendors, and their land-lords," says Cannon.