How to Start a Restaurant and Catering Business

Starting a business can be a rewarding undertaking, but it comes with its challenges. Before starting a business, it is wise to do your research. Ask yourself if you are truly suited for entrepreneurship and understand that significant effort may be required. You should thoroughly enjoy the field you are getting into and you must believe in your service; it may consume much of your time, especially in the start-up phase. There are several issues to consider such as regulations, financing, taxation, managing your business, advertising and much more.

Maintaining High Health Standards

As a restaurant operator or food caterer, your main preoccupation should be to maintain high health standards. Maintaining traffic in your restaurant depends on it, as your restaurant will probably be inspected and appraised. Important steps to take into consideration when dealing with health issues include:

• food temperature control;

• protection of food from contamination;

• employee hygiene and hand washing;

• maintenance and sanitation of surfaces and equipment that come into contact with food;

• maintenance and sanitation of surfaces and equipment that do not come into contact with food; • maintenance and sanitation of washrooms;

• storage and removal of waste; and

• pest control.

Food Safety

To be successful in the catering business, one must produce delicious food that is safe and wholesome. The production of safe foods is your responsibility. Time and temperature abuse of foods contaminated with foodborne pathogens, such as Salmonella, Campylobacter and Escherichia coli O157:H7, will certainly lead to a foodborne outbreak that would likely destroy your reputation and business. Foodborne illness can be avoided if you and your employees follow safe food handling practices.

• Purchase high-quality foods from a reliable vendor. The food should be in good condition with the packaging intact, fresh (not beyond expiration date), and at the proper temperature.

• Store potentially hazardous foods, such as meat, poultry, eggs, milk and fish, immediately in the refrigerator (33 to 40°F) or in the freezer (-10 to 0°F). Dry staples should be stored at 50 to 70°F. Practice First-in-First-Out (FIFO) to insure safety and quality of your menu items.

• Ideally, frozen foods should be thawed in the refrigerator 18 to 24 hours prior to preparation. However, thawing under cold running water.

REMEMBER: Keep hot foods "HOT" and cold foods "COLD."

Reheat all potentially hazardous foods including leftovers to 165°F. Gravy should be heated to a boil (212°F). Discard leftovers stored in the refrigerator beyond 3 days (Gravy 2 days). Leftovers stored in the freezer should be consumed within 4 months.

• Practice good personal hygiene when preparing and handling food. Wash hands before food preparation, after handling raw foods, after using the restroom or at any time the hands become soiled. Gloves may be worn when handling and preparing food. However, gloves can become soiled as easily as hands and should be changed often.

• Take measures to prevent cross-contamination of food.

o Clean and sanitize food contact surfaces such as counter tops, cutting boards, equipment and utensils. One tablespoon of bleach per gallon of water is an effective sanitizing agent.

o Wash fresh fruit and vegetables thoroughly under cold running water. In refrigerator storage, make sure fresh fruits and vegetables are wrapped or stored in containers separately from raw meats.

o Wear clean clothes and aprons when preparing food.

o Do not use the same towel to wipe food contact surfaces that you use for wiping hands.

o Clean storage and kitchen areas regularly.

o Practice good housekeeping.

o Implement a pest control program for eliminating the spread of disease.

Provide safe food for your clients by following and practicing food safety guidelines. Make sure that you and your employees are current with state and local regulatory requirements for food service establishments. This way you can rest assured that the food you provide to your clients is safe and wholesome.

Designing your Restaurant and Calculating Seating Capacity

Depending on your experience, finances, location and customers, you will have to decide on the type of restaurant you want to operate (traditional, ethnic, specialty, coffee shop, fast food, cafeteria, self-serve, etc.), and aim for a practical, useful layout, that will set the mood. It would be good to have all of the following:

• seating/waiting areas, serving room, cashier area, rest rooms, bar (optional);

• one or more areas from which you can view the entire restaurant;

• lighting, signs and obstacle-free traffic flow;

• a variety of seating arrangements: 50% of customers come in pairs; 30% come alone or in groups of three; and 20% in groups of four or more;

• adequate room - the suggested square footage requirements per chair are: 10-20 sq. ft. in traditional restaurants, 10-12 in cafeterias, 7-17 in coffee shops;

• a kitchen that allows efficient and effective food preparation and interaction between staff;

• safety in movement, dry and cold storage, dish washing, an area for staff's personal items;

• convenient delivery zone, ease of cleaning and maintenance, and proper ventilation and lighting.

To determine the maximum potential of your restaurant and break-even point:

1. determine desired profit - convert to percentage of sales to get sales required;

2. determine number of operating days - divide number of days into sales to get average daily sales;

3. estimate volume percentages for meal periods (breakfast, lunch, dinner);

4. multiply figures in step 3 by average sales per day to get dollar volume per period;

5. determine average check per meal period;

6. divide dollar volumes in step 4 by average check for the number of patrons per period;

7. estimate a) average seat occupation per meal period; and b) time per meal period;

8. divide time per period by average occupation to get seat turnover per period;

9. divide possible seat turnover into number of patrons to get number of seats required per period;

10. take the largest seating requirement in step 9 and add a 20% safety margin for the seating capacity.

Managing Your Operation

Insurance

Insurance needs for businesses vary greatly. It is best to choose an insurance agent or broker familiar with your size of business and, in particular, an agent familiar with your type of operation. If you don't have an insurance agent, it could be a wise decision to ask other business owners in your area to recommend one.

Your local restaurant association may also have information about insurance packages specifically tailored for restaurants. The following list is included to remind you not to overlook the complex areas of business insurance. It is best, however, to discuss your specific requirements with your insurance agent.

Basic insurance:

• fire insurance (extended coverage on buildings and contents);

• liability insurance;

• burglary protection (theft coverage); and

• dishonesty insurance (covers thefts by employees).

Marketing/Advertising

Word-of-mouth advertising and good public relations are often the best ways of promoting your business. Depending on your market and its size, also consider flyers, business cards, brochures, newspapers (especially for holiday promotions), radio, TV, the phone book and the Internet. Also, bear in mind that a satisfied customer is good advertising. Referrals are also a valuable way of making customers aware of your products or services.

A web site is also a good marketing tool. It should have details to describe the location (your address, telephone and fax numbers, and directions on how to get to your establishment), hours of operation, services offered, credentials and anything else you think may be of interest to potential customers. However, once you launch a web site, you should update it on a regular basis.

Participating in community events is another way of advertising your business. You may also want to hold events that will promote your business. No matter how you choose to market your business, it is wise to track how your clients became aware of your establishment - this may help determine your future advertising strategies.

Choosing Your Location

Choosing the right location for your business is important. Considerations include the needs of your business, where your customers and competitors are, and such things as taxes, zoning restrictions, noise and the environment. For most businesses, an appropriate location is critical.

Start-Up Costs

You may choose to start your catering business by renting items to keep initial costs to a minimum. This will allow you to: 1) Build a reputation; 2) develop some capital for investment and expansion and 3) evaluate how much time and money you want to invest and the impact that this business will have on your family.

Furnishing and Equipment

Before you open your restaurant, you will probably want to buy tables, chairs, lighting and decorative items. You might also need a kitchen, a bar and dinner wares. The menu, size of restaurant and kind of service will determine the type of equipment you will require. For assistance in this area, you might want to try to get the advice of a sales representative or consult trade publications and manufacturers' Web sites. An important factor to consider when choosing equipment is the after-sales service and repair and their affordability.

Leasing Equipment - Another alternative is to lease equipment to help keep start-up costs down.

Used Equipment - Consider buying used equipment as a cost-saving measure. Sources of used equipment could be a restaurant that is closing or dealers in second-hand equipment. The drawback to this approach is that, often, there are no guarantees with the purchase.

Planning your Menus

Plan your menu carefully. Try to know what items your customers prefer and how they like them prepared. Try to provide variety while maintaining stable cost averages. Menu prices are a combination of food costs and what is needed to meet expenses and realize a profit. Generally, the price of an item is approximately three times the food costs, depending on restaurant type, operating expenses and competitors' prices. To establish pricing:

• estimate your sales - counter-balance higher cost items tagged with lower mark-up, with higher mark-ups on lower cost items;

• maintain a desired overall food cost percentage, usually 33-40% of gross sales, and a normal margin of profit; and

• balance items ranging in popularity - monitor high demand items which can determine your success.

Developing a Creative Menu for Special Events

Factors affecting menu planning include the type of event, time of event, number of people to be served, available equipment, number of food preparers and servers and the amount of money to be spent.

The menu needs to include a variety of foods that are acceptable to the customer and the occasion. Be able to suggest menus that show a balance in color, texture, shape, sizes, flavor, cooking methods and cost. Plan to include nutritious foods from each of the food groups, including:

• Meat, poultry, fish, dried beans, eggs and nuts;

• Bread, cereal, rice and pasta;

• Vegetables;

• Fruits;

• Milk, yogurt and cheese.

Plan for eye appeal by using at least four colorful foods on each menu or food tray. Plan for contrast in texture and flavor. Contrast crisp foods with soft, creamy foods. Use strong and mild flavored foods together. Balance light and heavy foods. Use foods that complement each other.

As a caterer, you will need to decide whether you will make all foods "from scratch," or purchase some convenience foods. If you make all foods, consider your skills, equipment and time as you plan menus. Also, it is important to prepare a quality product of standard consistency. Develop a quality standard for each item. Use "high-tech" equipment designed to produce a consistent product. After considering skills and equipment, compare the cost of caterer-prepared items with purchase costs. Evaluate for cost savings and quality consistency. Do this for each item offered before determining a pricing structure.

Develop an information packet that includes sample menus and prices, other services you provide, and past events you have catered. Develop a portfolio of pictures that shows how food was presented at these events.

Every caterer needs to develop a contract to operate in a professional, business manner. Write the contract in simple language that both parties can understand and state the terms of the agreement. Have an attorney review the contract form. Include the following items in the contract, as applicable. These are:

• Names, addresses and telephone numbers of parties involved (buyer and seller);

• Date of the agreement and date of the event;

• Time of event;

• Location of event;

• Room set-up, decorations, tablecloths, etc., to be used;

• Type of menu;

• Estimated and guaranteed attendance;

• Service arrangements;

• Duration of activity;

• Entertainment;

• Pricing arrangements and potential price increases;

• Deposit required (25, 30, or 50 percent of cost when the contract is signed);

• Discount (if any) for full payment at the time contract is signed;

• Cancellation provisions specifying cases of cancellation because of illness, broken engagement or death. The contract needs to specify how much of the deposit will be retained due to cancellation.

• Applicable taxes;

• Include space for signatures at the bottom of the contract form.

Carefully consider contract terms, write them in simple language, and print them in a size that is easy-to-read. This is to insure that everyone understands the terms of the contract.

Setting the Right Price

Setting the right price can influence the quantities of various items that consumers will buy, which in turn affects the total revenue and the profit in the store. In the end, the right price for the product is the price that the consumer is willing to pay for it. Hence, correct pricing decisions are a key to successful retail management. Systematic and informed decisions regarding pricing strategies must be made while considering a wide range of issues.

A major step toward making a profit in retailing is selling merchandise for more than it has cost you. The difference between the cost of the merchandise and the retail price is called the mark-up. These are the dollars that are now available to pay the operating expenses of the business. When establishing the markup on a product, two points should be noted:

1. The cost of the merchandise used in calculating markup consists of the base invoice price for the merchandise plus any transportation charges minus any quantity and cash discounts given by the seller;

2. Retail price, rather than cost, is ordinarily used in calculating percentage markup. The reason for this is that when other operating figures such as wages, advertising, and profits, are expressed as a percentage, all are based on retail price rather than on the cost of the merchandise being sold.

The following points will highlight issues that should be considered:

A. Target Consumers and the Retailing Mix

In this section, your attention is directed to price as it relates to your potential customers.

Is the price of this item very important to your target consumers? You need to know your customers' desires for different products and whether price is an important issue in their purchasing decision?

Have you established a price range that people will pay for the product? What is the high and low price that the merchandise will have to fall within for someone to buy?

Have you considered what price strategies would be compatible with your store's total retailing mix that includes merchandise, location, promotion, and services?

Will trade-ins be accepted as part of the purchase price on items such as appliances and television sets?

B. Competitor Considerations

This set of questions looks outside your firm to the competitive factors that you cannot directly control.

Do you know what your direct competitors are doing price wise?

Do you regularly review competitors' ads to obtain information on their prices?

Do you do comparison shopping of competitors to obtain information on their pricing strategy?

Have you considered how your competition will react when you enter the market place, and how will you deal with their reactions?

A Price Level Strategy

Selecting a general level of prices, while considering the competition is a key strategic decision, perhaps the most important.

Should your overall strategy be to sell at the prevailing market prices (?) or do you want to work at an above-the-market or below-the-market strategy?

Should competitors' temporary price reductions ever be matched?

Could private-brand merchandise be obtained in order to avoid direct price competition?

Catering

A catering business follows many of the same regulations as a restaurant. You should decide whether you want to run your catering business from your home or from your restaurant.

Source: http://www.cbsc.org, http://www.ext.vt.edu, photo from http://www.mb.com.ph (K Cunanan Catering)