Reader-to-reader advice.
Thought for Food
I've sketched a business plan for an ethnic-food restaurant, and I'm looking for fresh sources of start-up information. Can experienced restaurateurs share their secrets of success or warn me about some of the blunders that novices commonly make?
Name Withheld
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More than 80% of restaurant start-ups fail, and quickly. A saucy concept wrapped in a comprehensive business plan will get you only so far; to succeed, you must place your targeted diners' culinary preferences and satisfaction on a silver platter. If there's a key to long-term success, it's the realization that you're entering the hospitality business, says restaurateur Hayward Spears Sr., president of Hayward's Pit Bar-B-Que, in Overland Park, Kans.
Your first step is to see how the local population responds to your concept. There's no substitute for conducting your own market research. You might sponsor periodic focus groups to give representative members of the local crowd a taste of what you can offer. Ask participants to critique your concept and menu and rate your ideas against what your competition offers.
Such feedback from potential diners will help you fine-tune your menu so you can begin to turn that sketchy business plan into a viable financing proposal. For ways to more accurately project your costs of food, labor, insurance, heat, and lights (so you can determine your pricing strategy), you should work through Peter Rainsford and David Bangs's The Restaurant Planning Guide (Upstart, 800-235-8866, 1992, $19.95). The book includes mock income and cash-flow statements and balance sheets, and explains break-even and budget-deviation analyses.
Bill Fisher, executive vice-president of the National Restaurant Association, in Washington, D.C., points to two mistakes amateurs usually make. On the planning side, he says, they rarely develop alternative marketing schemes (such as home catering) to make up for a sudden loss of regular customers, as can happen if a big local employer shuts down. On the operating side, there's a great temptation among managers to cut volume deals with suppliers for food that often ends up as excess inventory. "Understand that food-inventory turnover -- which happens about 24 to 26 times a year -- strongly influences cash management," says Fisher. If you're no cash-flow whiz, learn some of the basics fast, or find professional help through state and local restaurant associations, listed in the yellow pages.
To gain more insights, order the Restaurant Start-up Kit from the National Restaurant Association (800-424-5156, $10). The organization gives its members discounts on its publications, training videos, and management courses. (Annual membership starts at $125.) Also, Cornell University's campus store (607-255-2934) can send you a catalog of its nearly 400 reference books for hospitality professionals.
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ABC's of DBA's
My husband and his two partners decided that the company they bought was not profitable enough to support three families. The two other owners left, and my husband and I took over the business. Because all the partners were listed on the "doing business as" (DBA) certificate, my husband's former partners were able to change our business address, and they began receiving and cashing checks for work that we did! How can we prevent this from ever happening again?
Name Withheld
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We hate to tell you, but registering a DBA will not protect you against fraud. Any number of companies can file for and receive the same DBA, because most states lack a clearinghouse to determine whether or not a DBA is available for use.
A DBA is a trade name under which a partnership or sole proprietorship conducts business, and it's often different from the name of the owner or the partners' names. The DBA is on file at the county clerk's office to let the public know who's behind a particular company name. A DBA doesn't give you the legal right to use that name, the way incorporation does. Thomas Hemnes, a partner with the Boston law firm Foley, Hoag & Eliot and chairman of its intellectual-property practice, explains that the right to a name arises through use in connection with a particular good or service and that the courts will protect the original bearer against subsequent uses. But in the event of wrongful use by another party, it's up to you to cry foul.
To get you through your problem now, you should file a new DBA and inform your existing clients, vendors, and providers that two partners listed on the old DBA have left and that you and your husband now control the business.
In the future you should draw up a partnership agreement that spells out precisely how the name will be used should the partnership dissolve. Before you commit to paying costly legal fees, try Nolo's Partnership Maker (Nolo Press, 800-992-6656, $129.95), a software program that helps you create your own legal agreement.
The partnership name should be treated like any other major asset. Typically, it belongs to the partnership and not to the individual partners, but sometimes a majority of partners can control it if that is stated in the agreement. Alternatively, one partner might have exclusive rights to the name. You need to work that out and state it clearly in the partnership contract.
For situations in which there is no formal agreement, most states have adopted the Uniform Partnership Act to establish a set of fair rules for governing partnerships. Check with your secretary of state's office to see if the act is in effect in your locale. If yours is a messy split, a receiver can be appointed by the courts to end the partnership, close the accounts receivable, and distribute what's left to the partners.
