Start a Restaurant

By the time you investigate and determine each cost of starting up a bar, you may have spent months on research only to determine that you cannot profitably operate in the way you had envisioned, sending you back to square one. Avoid this possibility by starting with an expert (and preferably more than one) who can help you create a top-down estimate.

Start With Your Network

The first place to look is with friends, family, or contacts of your friends and family who are willing to speak with you from their experience of launching a bar. Hopefully they will be willing to do so for nothing more than the satisfaction of you out. Some bar start up costs are similar to those of a nightclub or restaurant, so consider speaking to individuals with those experiences as well.

Non-Competing Business Owners

Bar business owners operating in another city, far enough away that they cannot be considered a competitor, may be willing to help you out by sitting down to describe the costs of launching. Perhaps the consulting fee may be as low as the cost of the business owner’s lunch.

When talking to individuals who have opened bars in the past, be sure to determine whether the cost of doing business and launching in your city will be higher or lower than in the other city, and by how much. Compare prices for some standard items between these markets to check this. Also consider the effect of inflation in the years that have passed since the business owner you spoke with launched his or her bar. Apply the geographic conversion and inflation to the estimates they gave to get a better estimate.

Consultants

Paid consultants with experience helping bars to launch are another means to expert opinions on startup costs. The cost may be significantly higher than speaking with a business owner, but you may gain from their experience working with multiple businesses and the fact that their business reputation rests on their ability to give good advice. As long as you check references carefully for any consultant you work with, you can be reasonably assured of receiving good help.

Conclusion

At the end of the day, remember that all of the experts you speak with can only give you estimates and that the actual costs you may incur will be higher or lower than the total they give. You will eventually have to do your own detailed investigation, but after speaking with a few experts you should have a range can assume you are operating within.

While you are speaking to an expert about start up costs, don’t miss the opportunity to ask about other key challenges they came up against and hearing advice they wish they had received before they launched. Document any knowledge you can gain from their experience.

Commercial loan underwriting guidelines come down to cash flow ( DCR), loan to value (LTV), credit worthiness and property analysis. Although the process to evaluate a potential commercial mortgage is basically the same from one bank the next, their various appetite for both risk and minimum rates of return are what separates one bank from the next.

Underwriting Commercial Loan Cash Flow

Cash flow is paramount to underwriting commercial loans. Within the industry the cashflow analysis is refereed to as the Debt Coverage Ratio ( DCR). For both owner occupied and investment transactions underwriters normally want to see ratio’s above a 1.20. In other words, for every $1 of mortgage debt the property or business has to have $1.20 of net income to meet the mortgage payments.

Debt coverage ratio minimums vary from one lender to the next, property type and occupancy (investment or owner occ). “Riskier” property types such as hotels or car washes will be required to have higher cash flow levels, ie DCR at or above 1.3.

Credit Worthiness

The borrowers personal and business credit worthiness is also important and will be heavily scrutinized. Personal credit scores have become a bigger issues as the acceptance of the three bureau have become widespread. D & B’s as well as other measures are normally used to asses the creditworthiness of businesses that are involved.

Property Analysis Commercial Underwriting
Fair market rent and fair market value is heavily measured. Condition, age, appearance, town population, market trends as well as other more property type specifics are examined.

Commercial Underwriting – Loan to Value

Loan to value is simply the value of the subject property vs the loan amount. I.e if the property is worth $2,000,000 and the loan amount is $1,500,000 the LTV is 75%. This is a huge issue within commercial loan underwriting and a big separator between lending institutions. Some lenders will get very aggressive with this while other will be very conservative.

The property type has a major influence on loan to values that are offered on commercial loans. For example restaurant loans will normally be capped at 65% while more general purpose properties such as retail will be limited to 75%.

Commercial underwriters will give more leeway to buildings that are owner occupied vs. investment properties. Loan to value on purchase can go as high as 90% on owner occupants vs 75% on investments, for example.

Author: Jeff Rauth
Article Source: EzineArticles.com
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Check out Jeffrey, the Espresso Vivace barista who poured that lovely cappuccino rosetta on the back of the t-shirt he’s wearing. It’s the first in a series, says owner David Schomer. “Each time we sell out of a printed run, we will print the next batch with another original latte art image poured by a Vivace barista. Collect them all!”

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Individuals looking for restaurant investment are usually referring to restaurant investors. Since most individuals looking to start a new restaurant business do not have the financial means to do so, investors can contribute large sums of capital to get the business started. Silent investors do not contribute to the business’ financial decisions, but they may ask for a certain percentage of the revenue. Investors can also be partners, meaning they do play a role in the business’s financial decisions along with obtaining a portion of the profits. When looking to find restaurant investors, many financial websites provide forums or directories that allow individuals to connect to potential investors.

Most partner investors are experienced in the restaurant business. Therefore, they can provide vital information and advice regarding the new business, along with other financial services. Some investors may have experience in accounting, planning, and obtaining funds.

When deciding on a partner investor, it’s best to make sure the owner and the investor agree with the business plans before they are written out and before any funds are invested. While an investor or two can provide the capital and expertise needed to start a new restaurant, too many investors can lead to strong differences in opinion of how the business should be run. If partners cannot agree or compromise on a business plan, it’s best to find a new investor.

Many individuals also look to friends and family members who have the means of financing a new business. These people can provide the same knowledge and capital as other investors, but they can also bring about the same problems.

Find restaurant lender generally refers to a business owner researching and comparing different loan providers in order to purchase a new restaurant. While commercial banks, the Small Business Administration, and independent financial companies usually do not provide loans for the specific use of purchasing a restaurant, they do offer general-purpose loans that can be used for nearly any business expense or activity. However, many companies do specialize in restaurant lending, and they may be able to offer better loan terms.

The best way to find a restaurant lender is to look to the person selling the restaurant. Many times, the seller is willing to finance the purchase, especially if the business is profitable. Before settling on this type of financing, it’s best to go to a lawyer to write out a formal contract that lists all terms and agreements. Most other lenders require contracts, so asking the seller to do this is not unusual. When buying a franchise, individuals can look to the franchiser for restaurant financing. A loan from a franchiser can be different than borrowing from an independent seller, as the franchise may already have set loan terms.

Another way to find a restaurant lender is to conduct online research. Many non-traditional lenders deal exclusively with restaurant loans. Their websites give detailed information on loans, such as requirements and typical loan amounts, interest rates, and repayment plans. Some of these lenders also offer ways to find restaurants available for sale.

Author: Brynn Harveys
Article Source: EzineArticles.com
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For many years restaurants have gotten a bad rap when it comes to perceived risk.  Business experts and people in general are prone to citing “The High Failure Rate” of restaurants as a reason not to invest in or start restaurants.  Most of us are so use to hearing such talk we simply accept it as truth.  If we were to ask those who claim that restaurants have a higher failure rate than other small businesses to provide a references for their claim, they couldn’t.  There aren’t any credible research studies to support this myth.

I recently published an article outlining how anyone can dramatically improve their odds of success at starting a restaurant business.   The same day that the article was published a reader left a great comment, which not surprisingly mentioned the high failure rate of restaurants.    For the benefit of aspiring restaurateurs, restaurant investors, and the restaurant industry, it’s time to set the record straight.

There is no meaningful difference in the failure rate of restaurant start-ups and small business start-ups in general.  According to the Small Business Administration about 44 percent of small businesses are still operating after four years.  Similarly, according to a 2007 study conducted at Ohio State University, 41 percent of restaurants were still operating three years after launch.

As someone who has owned and operated a restaurant in a major city, the enjoyment and social aspects of being a restaurant owner fall just below rock star, local celebrity, and city mayor.  A popular restaurant allows the owner to be at the center of community events.  More importantly, if restaurant owners avoids the trap of trying to “Do-it-All” themselves, they can also enjoy a well balanced lifestyle.

The classic nightmare restaurant ownership scenario of long frantic days is the same for any entrepreneur,  who does not graduates from working in his business to working on his business.  Moreover, if restaurants were failing at the staggering 90% rate that some quote, it is unlikely that the restaurant industry would have been growing at double digit rates prior to the current recession.  

Author: Shed Wallace
Article Source: EzineArticles.com
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