Decisions to Make Before Starting Your Restaurant
Before you even think about opening a restaurant, there are a few hard decisions you’ll need to make. These choices create the foundations of the business that you are going to be building.
What type of Restaurant is Best for You?
Firstly, you need to choose between opening an independent restaurant, or a franchise. If you’re leaning towards an independent business then you need to make the further choice between whether it will be a completely new concept or a pre-owned business.
An overriding factor in this is decision is who you are and what your goals and ambitions are. To this end, you need to weigh up your options and match your choice to your individual preferences.
Buying into a franchise allows a franchisee to purchase the rights to sell a company’s products or services and use its logo for advertising and branding. The restaurant industry is one of the most popular industries for franchising opportunities. Franchises are a softer, more supportive gateway into the food industry.
There are support structures in terms of management training and avenues to find help. Coupled with this are the branding and marketing strategies that are proven and ready to roll out. Being a franchisee means being part of a larger team and oftentimes that is easier than trying to start from scratch.
Opening a franchise also means that there is name recognition and discounted rates on stock due to the larger buying power of the big chains buying in bulk for all their stores.
Franchises do however have downsides. The biggest is that you would need starting capital to buy into the ready-made brand. The amount of capital needed depends on the size and popularity of the restaurant and there is usually a down payment that needs to come from personal, non-borrowed funds.
Another downside is that the franchisee must pay royalty fees to the franchisor and sometimes, even additional advertising fees on top of that. There is also always the possibility of expensive upgrades that can be determined by the franchisor. Finally, if you choose to buy into a franchise, you must be aware of the strict rules and guidelines that you will have to follow.
If you find yourself better suited to the independent restaurant path then there are once again a number of advantages and disadvantages.
On the positive side, there are no royalty fees to pay. With the exception of partners, the profit belongs to the owner. Owning an independent restaurant also allows for unique concepts and ideas to organically grow and then be implemented as you see fit. This allows for exclusivity and freedom of choice.
Furthermore, the restaurant is then able to adapt to the changing needs of the market, or according to the trial and error process, which is inevitable in any start-up business.
On the down side, there are high failure rates. Rob Davies, the minister for trade and industry said in May last year that five out of every seven small businesses started in South Africa would fold in its first year. That is a huge percentage. On top of that are the difficulties in growing your brand so that it becomes recognisable to a market swamped with choices.
Obviously, a pre-owned restaurant has a slightly different set of pros and cons in terms of starting out. On the positive side the restaurant may already have some familiarity to its target market.
Conversely, a pre-owned restaurant might need to have the brand, marketing strategy or even the physical premise overhauled. There might also be need for you to repair or further amp up any reputation that the restaurant previously had in its target market.
Use this restaurant business plan to help get you started.
What to look for in a restaurant location
The next thing to consider is where you will be opening your business or restaurant. For a franchise that choice will be made in conjunction with the franchisor. A pre-owned restaurant will usually have a location. If that premise is rented – the lease will need to be put into your name; similarly it will need to be transferred if you are buying it outright.
As we know, location is very important and in the restaurant industry it can make or break your business. Your restaurant will not be a successful venture if the location is not suited to your intended customers or to the type of restaurant you are looking to establish.
Do not get too attached to the idea of a perfect spot – that will more than likely not happen, rather, focus on these five factors:
- Population base of the area – is it large enough to support your plan?
- Size of your restaurant – too big or too small?
- Available parking – enough for a full night at the restaurant?
- Accessibility to customers – if it’s a pain to get to, people won’t come as often.
- Visibility to motorists and walk ins – same as above, if they don’t see you – they won’t come.
By considering these factors you will ensure that you end up with a location that is customer friendly, visible and it is easy to visit because parking is not a problem. Also – you will have a place that is the right size for your business plan. There is nothing worse than a cavernous space that customers rattle around in. The same goes for a space where you can easily cut the steak for the man sitting at the table next to you.
If you are leasing the property, your local municipality requires a letter of consent from the owner stating that you may trade from the property.
But before you sign the dotted line of your lease agreement when renting, here are a few tips.
Steps to Get Your Restaurant Started
Restaurant Funding Options
At this stage of the process, you will need to consider your options in terms of finding the funding to buy out an existing business, start your own, or buy the rights to a franchise.
As an entrepreneur in South Africa you have a number of options available to you.
- The first option is to use only your own capital, but that is not possible for most.
- Second is to obtain a small business loan from your current bank. If your current bank is not open to giving you the loan, then you may also investigate into other financial institutions including credit unions. Loans in the banking sector can range from small micro-loans to enough start-up capital to launch from scratch. The amount you borrow is largely determined by the institution’s willingness to accept the risk.
But the banking sector is not the only place to obtain funding – especially in a country that is aiming to increase the number of small business owners and entrepreneurs. This means that there are a number of government organisations and agencies that aid in SME funding.
The first of these is SEFA – the Small Enterprise Finance Agency. SEFA recommends that the entrepreneur has 10% of their own investment to start off with, but can do funding options ranging from R60 000 to R5 million.
Alongside SEFA is the Small Enterprise Development Agency. SEDA aims to grow and support small enterprises through government funded agencies. They offer help in terms of training, support networks and programmes to aid small businesses in finding their feet and their goals.
Related: SEFA Funding
Another channel for financing a SME is government grants. The basic difference between a grant and a loan is that a grant does not have to be repaid, but it does come with strict guidelines for applying and using the funds granted to you.
The final option to find the funding to start your own restaurant is to seek out investors. These can be friends or family members who are willing to help you get started, or larger firms and companies looking to aid an entrepreneur in starting a new business in South Africa.
It is worthwhile to do the research and see who would be willing to contribute. Note that it is standard practice for investors to want shares in your business in return for their capital.
Here’s a quick guide of how to impress potential partners/investors:
- Always be professional
- Build trust in yourself and your brand
- Be creative in your approach
- Have the right information easily at hand
- Know your figures offhand for easy reference
- Always be on time.
How to Register a Restaurant
Once you have decided to go ahead and make a go of this venture, there are multiple steps that need to be followed in order to legally register your business.
Before you get started with registering your business, it is worthwhile to first check that your chosen name doesn’t already exist in South Africa. For more information on how to go about doing that, follow this link .
Register your business with the Companies and Intellectual Property Commission (CIPC). This involves lodging a Notice of Incorporation (CoR 14.1) and a Memorandum of Incorporation (CoR 15.1 A-E). These forms are available at www.cipc.co.za. They take roughly five to seven days.
Alternatively, it is possible to use a service that registers your company for you with the CIPC. These services do of course have their own fees attached.
Business Bank Account
Thereafter, you must open a bank account for your business. Depending on the correctness of the application forms, this only takes a day or two and is free of charge.
For an SME, earning less than a million rand a year, the only form that SARS requires is the IT77C that must be accompanied by a certified copy of your ID and a copy of the company’s registration documentation. The IT77C form is available from www.sars.gov.za. If your employees aged 24 – 65 will be earning more than R5 000 per month, then you will need to register for UIF and PAYE.
To register for unemployment insurance – visit www.labour.gov.za for more information on the process and for the forms.
The final step that takes place in conjunction with the step above is to cover your employees in terms of occupational injuries, diseases or death in terms of the Compensation Fund. This is optional. These forms are available from www.labour.gov.za.
Restaurant Permits and Licenses
Because you will be selling food and alcohol (usually) there are some permits that you will have to apply for before you open to customers.
Firstly, to sell perishable food, a trading license must be purchased from the Business Licensing Department of your local municipality.
Next, in order to sell liquor under a license, an application must be made with the Liquor Board.
How to Equip Your Restaurant
At this point, you have a registered business with funding, a name and a location. Now you need to outfit your space with the necessary equipment, staff, technological necessities as well as look into health and safety regulations and training.
Obviously, the equipment needed for your restaurant will vary according to the style of food you are looking to produce, as well as the space available in your kitchen. Finding the right equipment at the right price can be a nightmare – but there are easier ways, such as making use of South Africa Restaurant and Hotel Suppliers Guide which stream lines the process of searching individually. You can also find a list of approved suppliers here.
The cost of starting a restaurant depends on the size, location and style of eatery you will be kitting out. Also, prices vary according to the finishes you choose and the brand of equipment you purchase.
Below is a list of the basics that your restaurant will more than likely need.
- Shop fitting
- Kitchen equipment
- Dining area (tables, chairs, high chairs etc)
- Crockery, cutlery, linens, and all the kitchen tools
- Sound and Lighting
- A till system
- TVs (if you go that direction)
- And possibly a POS or Point of Sale system that allows for the wait staff to be connected with the kitchen staff.
James Brewer is the owner of six successful restaurants in the greater Gauteng are. After 28 years in the industry he knows a thing or two about opening a new business.
Brewer points out here that “all essential equipment should be bought new because reliable equipment is a must.” Brewer adds that you must always make sure you have tested all your working parts before you open for business.
Branding and Marketing Your Restaurant
An important aspect to your new business is to ensure that you are working with the correct branding and marketing strategy.
When first outlining your brand, remember that you need to develop an identity for your brand – know who you are and stay true to that image. The most successful brands are those that know who they are and where they are going.
Have a marketing plan – use those in the know to help you formulate a plan of attack for what would work best for your target market, your style of restaurant and the food you serve, and for the scale of your business.
Remember with your marketing plan to ensure that you follow the ethos of having an ongoing conversation with your customers. Marketing is there to reach out to the customer and have them respond.
Make use of the platforms and agencies that are there to aid start-up businesses and entrepreneurs. Use them to their full potential.
Embrace social media – it can work wonders at getting your name out in the market.
The POS Sector blog for restaurants and bars has an interesting list of ways to promote your business, keep the customers entertained and keep them coming back. The list includes fun ideas such as hosting a themed dinner party, having wine tasting evenings and even suggests having a happy hour. They also have ideas such as visiting the companies in your area and giving discounts on delivery.
If you would like any road signs near your business, you will need to get approval from the national roads signs committee which falls under the jurisdiction of the Department of Transport.
The trick is to make your restaurant stand out from all of those around you and with the help of an innovative marketing strategy.
Health and Safety
In the food industry there are strict health and safety regulations so as to ensure the well being of your staff and your customers.
One such regulatory body that carries out inspections on behalf of the Department of Health is the NRCS (National Regulator for Compulsory Specifications). They are a internationally recognised and work in close co-operation with other regulators of the Food and Associated Industries (FAI).
It is also good to know that there are a wide variety of courses that aim to train staff in terms of food hygiene and it could be worthwhile to send employees for this kind of training.
Hiring Restaurant Staff
Part of being an entrepreneur is creating jobs. That means hiring staff to fill your books and feed your customers.
With six locations under his direction, James Brewer believes in hiring from existing staff.
“Make sure you survive,” he says, “do not trust anyone and check all CVs.”
When hiring, there are a few more things you need to remember:
- Conduct proper interviews especially considering you are entering the customer service industry
- It is worth your while to follow up on recommendations and references of those you interview
- If you hire foreign nationals – remember to check their work permits.
Under the Basic Conditions of Employment Act, it is a law in South Africa that no matter how small your business is, or whether the employee is part-time, full-time or temporary; you must supply them with a written document stating the details of their employment.
There are bargaining councils for all industries in South Africa. These help solve labour disputes, aid in producing proposals for labour prices and policies and smooth the way for collective agreement. For the restaurant industry it is the Tearoom, Restaurant and Catering Bargaining Council.
Related: 4 Steps to Hiring Killer Sales Staff
Since it was enforced in 2007, there is now a minimum wage that employers must grant their wait staff. For businesses with less than ten employees, the minimum wage is R12.39 per hour and for businesses with more than ten employees it is R13.81 per hour. These figures are applicable from 1 July 2013 until 30 June 2014.
There has been no regulation over whether or not employees may then take a percentage of the staff’s tips – but this is a contested issue.
A Day in the Life of a Restaurant Owner
Until your business is running smoothly, you will need to put a lot of energy and time into it. Starting a successful venture means persevering in the industry.
We asked Brewer to describe his average day from opening to closing in the early years of any of his new restaurants, and he surprised us with a short and concise mantra: “Open at 9 am, do ordering, check stock, sell, sell, sell. Check staff, take stock, close at 3am. Clean all the time.”
A restaurant needs nurturing and attention to detail. And as the entrepreneur you need to be the one who is in control of what is going on inside your business on every level, from stock to staff to products and services and most definitely with your clients as well.
Lessons from Restaurant Failures
We’re not going to beat around the bush and pretend that starting a restaurant is a new concept. This however, holds a bevy of perks because you are able to learn from those who have succeeded before you, and more importantly, from those who have failed.
In general, there are many stories you can glean lessons from. Here is quick list of some of the things to take to heart to ensure your success:
- Never compromise on hygiene
- Never compromise your food or service quality – and don’t let your staff either
- Create and maintain a loyal customer base
- Play to your strengths
- Recognise your deficiencies and rectify them early on
- In the early years, reinvest in your business – it needs nurturing.
Once again, James Brewer puts his 28 years in the industry to good use and gives you these further tips:
- Stick to the basics
- Be in your shop
- Keep control of costing
- Enjoy what you’re doing
- Know that equity keeps your partners happy
- Be positive to your customers
- And don’t forget to look after your staff – they are your future.
Restaurant Industry Contacts
- South Africa Restaurant and Hotel Suppliers Guide – www.sa-suppliers.co.za
- Omni catering Equipment Manufacturers cc – www.omnicatering.co.za
- Premium kitchens – www.premiumkitchens.co.za
- Africa’s Catering Equipment (new and used) – www.acequip.co.za
- Restaurant Furniture – www.restaurantfurniture.co.za
- Hospitality Seating – www.hospitalityseating.co.za
Point of Sale (POS) System Suppliers
- SACA – South African Chefs Association – www.saca.co.za
- RASA – Restaurant Association of South Africa- www.restaurant.org.za
- FASA – Franchise Association of South Africa – www.fasa.co.za
- SGS – www.sgs.co.za