If you’re considering in investing for
restaurants, this would be a sensible choice. It’s an excellent avenue to grow
your money, and at the same time, very risky for those who don't have enough
knowledge regarding with the trends, concepts, market, and demographics of the
particular area where the business will operate.
Planning for a restaurant business is a
hard-edged investment. Within three years, bars and bakeries fail, and this is
according to National Restaurant Association and Cornell survey. You can
prevent such failures by creating and following a list of crucial part of
marketing study, and a detailed business plan.
Customer
and Niche Analysis
Restaurant’s customers are the
primordial step in making this analysis. Do people choose this restaurant
because of quality, low price, or convenience? Do people intend to travel to
eat at that restaurants? Try to scrutinize how volume-driven restaurants such
as McDonald flows as well as the rate-driven restaurants.
Demographic
of the Restaurant
Your ideal industry is always blooming
as people need to eat. According to a survey, Americans mostly spend their time
outside to eat that’s why the industry continues to grow. You need to consider
your demographic and determine the needs and wants of your customer.
Review:
Cash-Flow Projections And Business Plan
Investors should consider logic
reasoning to test the numbers of projection’s “reasonableness.” Evaluate the
business plan if it is detailed and well-written. Also, check if there is any
narrative report that makes sense with local projections.
Look if the capital they are going to
raise is good enough with your planned investment. Avoid spending million in
its facilities if it doesn’t have good functional component. Don't forget to consult with a CPA firm before you finalize your
business plan. They'll help you to understand the components in a better way.
Keep in your mind that restaurant industry is one of the sensitive business to
handle but, one of the transparent business models.
Assess
And Comprehend: Projected Rate Of Return
Coordinate with the owner of the
restaurant you want to invest. Mostly, the owner already calculated the cash
flow projections and what would be the rate of return within ten years.
Usually, the capital of the restaurant will determine the percentage you have
to invest. Restaurant industry accepts numerous investors, but they still
consider their equity and cash flows.
Study
the Restaurant’s Scalability
Do not just focus on a single
restaurant. If possible, also consider the capabilities of other restaurants.
Compare and contrast them and choose the perfect restaurant industry that suits
your interest as an investor.
Look for a restaurant with preceding
experience. According to Greg Wank,
the best opportunity for investors comes with an industry who has an operation
done once or twice and wants to build a brand because, at this point, the risk
is not that high. Be sure to pick the perfect restaurant industry.
Figure
Out the Potential Market
If you know the reasons why customers
regularly visit that particular restaurant, you will have an idea who the
customers are. Examine if the restaurant’s operator hits the age or income
demographic before you invest. After knowing its potential, you can estimate
how broad a market needs to survive.
Capital
Allocation
As an investor, you should have the
“get-big-fast” mentality. Restaurants provide restaurant-level operating data
that you can use for your investment idea and estimate the return on invested
capital. Below 12% signifies that the expansion isn’t paying off.
To get the market value per store,
divide the market capitalization of the company by the number of open
locations. If you get a higher number than the cost of opening a new store, this
means the company will continue to grow. You can ask investment advice in any
online financial websites such as Ashe Morgan.
Consider
the Culture And People
Examine the industry if it satisfied
the customers regarding their service including its sales. Observe the
employees if they are motivated that keeps the customers’ attention and keep
them coming back. Ask what type of job training they offer. Include the
background of the restaurant in your evaluation. Question yourself if the
industry has an experienced and skilled manager.
Understand
Its Realities
It’s not strange to see new restaurants
that close within months of opening. National Restaurant Association survey
stated that an average of 60,000 new restaurants opens each year and 50,000
close at the same year. The reality is 60 percent of newly-opened restaurant
fail within its first year, and 80 percent closed before their fifth year of
anniversary. If you have the plan to invest in this industry, be mindful of its
realities before laying your financial toe into the water.
Takeaway
Investing in a restaurant is a very
opportunistic decision but at the same time, very risky. Managing a restaurant
is a tough business between the investors and owners. Knowing where to put
yourself as an investor to ensure the success of your investment, requires few
vital tips. For productive investment, give yourself a time to review the
guidelines above.
