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This article is the first in a new series about the most common mistakes we see from entrepreneurs launching a restaurant business.
This post will focus on what may be the most common mistake: under-budgeting for a restaurant build.
When we meet customers for the first time who have never opened a restaurant before, they tend to enter the conversation with a preconceived budget in mind.
We have discovered that many of these customers have never consulted with professionals before setting that budget.
Built By Mercury: Zaatar w Zeit
The preconceived notions that customers present to us about restaurant budgets are often out of line with the actual costs for their projects.
You may have talked to friends or other people who have opened restaurants. Or, you might come from the industry and think you have a concept of the costs.
Unfortunately, new entrepreneurs who have never opened a restaurant before dramatically underestimate the appropriate investment required.
What Happens if You Do Not Accurately Assess Your Restaurant Budget?
As restaurant builders, we see the entire process an entrepreneur goes through from the start of construction through to opening. We can see the differences between the groups that do it well and have the best chances of survival and those that do not do it well.
Unfortunately, groups without an adequate budget often become part of a significant statistic of the restaurant industry: not surviving past the first year in business.
Costs That Customers Sometimes Forget When Opening a Restaurant
If you have read some of our other articles here, you will have context for the factors that add to the overall cost of opening a restaurant.
Construction is one of them—that is what we will talk about most. But there are other factors as well that customers often fail to consider in their original budget.
One example is the rent or lease rate you need to pay while waiting for your permits and approval from your municipality.
Your launch, your friends and family pre-opening nights, and your training are more examples. If you do not account for costs like these, your requirement for investment will continue to grow.
We want to be part of the team that helps you determine the total overall costs of launching a restaurant business.
That way, you will embark on your project genuinely prepared for the costs ahead, improving your chances of success.
Built By Mercury: Q Shi Q Japanese Grill
Failing to Budget For Design
Regardless of the size of the project, everyone has a budget.
We see a significant planning error with groups that are have not adequately budgeted. They go straight to a design team, and they design for the stars—and they do this before they ever talk to an experienced contractor like Mercury.
While design, furniture, and the overall look of your restaurant are essential, it is vital to understand realistic budgeting before jumping in with the design phase.
Customers often do not involve us until after this step. As a result, when we attach a price to the desired design, it often far exceeds the original ideal budget of the customer.
This is often the first negative experience of the restaurant building process—an entirely avoidable one.
If you make this mistake, you will have already invested heavily in the design phase and gone through months of effort with the design team and the engineers.
If your contractor has a strong relationship with the designer, they may be able to revisit the design and help rework it within budget. Still, that process is going to be expensive.
Why is it so hard to produce a design that fits your budget if you start by talking to the design team and not the contractor?
Often, design teams do not know the installed price of the labor and materials they have specified. That simply is not their area of expertise. It would be unreasonable to hold them accountable for overshooting your budget if you did not do your due diligence before requesting the design.
So, if you do have a fixed budget amount for construction, it is not prudent to lead with the designer. Instead, it would be best if you led with the contractor. The contractor can help you design backward, starting from your budget.
So, to sum up, there are two ways to go about this:
Option #1: Commission the design and engineering work and then bring your plan to contractors. Once you find out that the price to deliver the design is far exceeds your budget, you bring it back into the design team and spend more money, only to arrive back where you originally wanted to budget-wise.
Now, however, you would have already had to make sacrifices in some of the elements you want, and you may already feel you have had a negative experience thus far.
Option #2: Find a contractor who collaborates with a team to create a design that meets the price you want. A good contractor can be held accountable for designing to a price point because it is the contractor that is responsible for delivering the final product.
Built By Mercury: BJORNBAR Bakery
There are always unexpected issues that can come up during the restaurant design and construction process. However, an experienced contractor should help you with the budget piece to account for contingencies. These include contingencies concerning both materials and time.
One of the most significant elements that entrepreneurs often do not consider when constructing a new restaurant is the time it takes from starting the design phase to permitting and construction.
You may need to invest money in the lease when you are not earning revenue as a new business. So, if you do not account accurately for time, you will also not account accurately for this cost.
Budgeting Constraints Can Hold You Back From a Successful Opening
Another unfortunate side effect of poor planning and budgeting is that many restaurant owners become impatient after experiencing so many setbacks. They want to open a restaurant and start serving customers.
But the problem is that to do this correctly, you have the training to take care of, friends and family nights to host, and you need to work through the menu process.
You cannot simply finish construction and open the next day to the public. Well, you can—but that will not give your business the best chance of success.
In today’s highly competitive foodservice industry, you should make sure your product and service are ready to go. Your execution should be flawless, and what you are offering needs to stand out from the crowd.
Built By Mercury: Milltown Bar
Built By Mercury: El Santo
The worst thing that can happen is to be strapped for cash immediately after—or even before—you open your doors to the public. This is your only chance to make your first impression.
If you don’t have enough money to get through this process or it runs overbudget and you need to raise more, focusing on the details will become increasingly difficult.
The training, the practicing, and the fine-tuning of your business—what it will look like and feel like and taste like to the customers when they first come in—none of this will be what you first pictured when you started planning your business.
The Bottom Line: A Successful Restaurant Opening Starts With Realistic and Comprehensive Budgeting
Find a qualifies and experienced restaurant builder like Mercury Contracting that has an overall appreciation for what it costs to open a business. They can help guide you with a team to ensure you have sufficient capital to invest, giving your business the best chance of success.
Don’t violate one of the fundamental business rules: opening a new retail location with insufficient money.
At Mercury Contracting, we have well over a decade of proven experience opening dozens of restaurants with both new and experienced clients. We would love a chance to guide you through the process and help you plan a successful restaurant construction and launch within your budget.