the economics of running a tiny restaurant?

[talentdeficit]

i know the economics of large restaurants are ridiculous, and the failure rate is absurd, but i have read little on the economics of smaller restaurants. i mean 10-15 tables small. more of lunch places really, or late night casual type places. anyone with any experience in this field?

[lippy]

No experience, but I would think overcoming start up costs would be hard.

[Frinkenstein]

I would think that you would need to either charge a lot per meal, or have extremely high throughput to make any sort of money. Otherwise you're just buying yourself a job.

[goat_beard]

My uncle and aunt own a restraunt with 12 tables together. It is right next door to publix and they serve lunch and dinner except sunday morning when they serve breakfast also. There is a constant flow of cash, and its a nice place. The only problems with it was the startout. Initial costs to open and run where underestimated to the extreme and they had to take out another line of equity. The first month they lost money and were considering cutting their losses then. The second month there was a considerable increase in revenue although they had not yet broken even. 2 years later they are making very good money and it is one of the best places in town to stop bye for a quick good meal. Restraunts are like poker, you need some skill in running them and then luck is also a factor. Something like 75% of all restraunts close in the first 5 years, so good luck.

[beeyjay]

i think a college town is ideal for a place like this. as long as the food is somewhat interesting or unique it seems you can turn a huge profit at bar time and then anything you make during the day is just icing on the cake.

i think it is important to have a product that can be taken away so that you are not limited to serving only as many people as can be seated at your small number of tables.

[UncleSalty]

[ QUOTE ]
i think a college town is ideal for a place like this. as long as the food is somewhat interesting or unique it seems you can turn a huge profit at bar time and then anything you make during the day is just icing on the cake.

i think it is important to have a product that can be taken away so that you are not limited to serving only as many people as can be seated at your small number of tables.

[/ QUOTE ]

This is so true. There is a little convenience store on the Hill in Boulder that I'm convinced makes at least 50% of their revenue selling cheesesteaks and falafel between 9 pm and 2 am to drunk college kids.

[cbloom]

[ QUOTE ]
i know the economics of large restaurants are ridiculous, and the failure rate is absurd, but i have read little on the economics of smaller restaurants. i mean 10-15 tables small. more of lunch places really, or late night casual type places. anyone with any experience in this field?

[/ QUOTE ]

I've always been interested in this. Especially the idea of buying one of those little buildings where you live on the top floor and the restaurant's on the bottom. Should help reduce the cost.

[godofgamblers]

College cities should have a easy time at least breaking even, anywhere else is incredibly hard. My parents own two places such as you describe, but they rented it out to small restaurant owners and they are not doing well at all. It is a standard chinese restaurant you'd find in small cities.

Just interesting, many restaurants around my campus close during the day and only open at night to do drunk business/ delivery.

[spex x]

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The only problems with it was the startout. Initial costs to open and run where underestimated to the extreme and they had to take out another line of equity.

[/ QUOTE ]

Starting a restaurant of ANY size is VERY expensive. I've written business plans for two small restaurants, and I've never been able to structure the idea in a profitable way. Here are the major problems:
1) Restaurant equipment is incredibly expensive, although you can save $$ buying used stuff. Don't forget furniture, it is BIG bucks.
2) Location is a major problem. Almost no property in a good location is ready for a small restaurant. You'll almost surely need to do some construction on the property to get it ready for a restaurant. And good locations are VERY expensive. Very few people will go far out of their way to find your little place. So you've got to put it where people already are, and this costs BIG bucks.
3) Financing of any sort is nearly impossible to get unless you've got an excellent business plan, and/or a proven track record. You'll most likely end up putting your house on the line. NOT a good idea.
4) You won't be able to believe the insurance costs.
5) The restaurant business is VERY VERY competitive. Just opening won't guarantee anyone will come. You've got to advertise, and this can get very expensive. Remember that you're competing against companies that are well established in the community, have deep pockets, and whose staff likely represents hundreds of years of collective experience in the restaurant industry.
6) In the best case scenario, you get really lucky, everything goes great and people flood in the doors. Now what? You have no room to grow the business (except maybe toward catering), and you won't be able to make enough to create a passive income for yourself because hiring out the management will be too expensive for the money you can make. I don't know about you, but running a greasy restaurant for the rest of my life don't sound too appealling. So you've put everything on the line to become a restaurant manager. NOT a good idea. Not to mention that you'll be working like 12 hour days.

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Something like 75% of all restraunts close in the first 5 years, so good luck.

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Well, if you are set on this idea, you should remember that most restaurants go out of business because they are undercapitalized from day one. You should expect to make NO money for a MINIMUM of one year. Planning to lose money for two years is better, but three years is ideal. Your financing needs to incorporate your living expenses for AT LEAST one year. My rule of thumb is to add up all the expected opening costs and then double it. IMO, the reason why you don't see a lot of small restaurants is because it doesn't cost that much more to open a big restaurant.

[cbloom]

What if you could buy into a location where a restaurant went out of business? Seems like that would save a lot of startup cost.