Why Your New Business Needs a Lawyer

Many entrepreneurs have an engrained distrust of lawyers. They don’t want to rack up enormous legal fees or wait for a lawyer to tell them all the reasons why they should not do something. While entrepreneurs like to view themselves as problem solvers, lawyers are trained to identify potential problems before they happen.

Even if your company is small, countless legal issues can arise during its early years, ranging from setting up the firm's legal structure to hiring first employees. Laws are complicated, and so is the language that goes with them. A lawyer can help you understand your options and make the best decisions about the complex processes every startup goes through.

A lawyer's advice will also give you guidance about potential situations you hope won’t ever happen. If there’s a fire in your building, you don’t want to realize too late that you failed to obtain proper insurance coverage. If a sexual harassment issue arises, you don’t want to be caught off guard and make a bad decision. Remember: If you mix your personal resources with the business, your own assets (and your spouse’s) can also be at risk.

A lawyer can stop these issues from blowing up into potentially business-crushing ordeals, but you must hire the right lawyer. Here’s how to find the right person:

1. Look for the right qualities. You want a lawyer who is thorough and aggressive enough to fight for you, but you also want someone who’s personable and can relate to your needs. She or he should be willing to work with you and communicate clearly so you can determine how to proceed in any situation. In addition, an ideal lawyer pursues continued education and remains civil and composed despite having a competitive drive.

2. Don’t use your friends. You need to be able to make tough decisions without worrying about your lawyer’s feelings or the possibility of that attorney divulging your faults. Friends can be successful in providing what's needed, but relationships also can become strained during an intense trial.

3. Ask for recommendations. An excellent place to start your search is by asking friends and acquaintances for referrals. Gather a few names, set up some appointments and interview lawyers who have received good reviews from people you trust. Ask about experience, strategies and what the attorney would do to help you specifically.

4. Use online resources. The website LegalMatch is a great way to find a lawyer who is suited to your industry. You select from a directory a specific area of law and enter details about your case that will be posted in the database. Attorney who are using the site and who might be interested in working will respond. This process weeds out lawyers and firms that don’t have the specific expertise.

5. Choose a suitable firm. There are pros and cons to working with both large and small firms. Sole practitioners work one-on-one with you and typically take on smaller cases for lower fees. You might find a more informal experience when consulting with small firms, which can provide more variety in terms of expertise and coverage. Mid-sized and large firms will provide full-service benefits, including all required resources or contacts and an established reputation. Larger firms also typically have multiple locations and have teams devoted to specific categories of litigation.

Making smart choices for your startup comes down to being proactive. If you wait until you’re sued to find a lawyer, the problem’s already occurred -- and you risk being in over your head.

Starting your own business always involves risk, but there’s no reason legal issues need to be included in the list of potential hazards. Hire a lawyer now to ensure your business will be up and running for years to come. 

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Richard Branson on Starting Up

Editor's Note: Entrepreneur Richard Branson regularly shares his business experience and advice with readers. Ask him a question and your query might be the inspiration for a future column.

Q: How can I develop an organizational structure without red tape? -- Cuthbert Tembo, Harare, Zimbabwe

Startups are trying to challenge the status quo in almost every industry and sector, from health care to finance. One of the main obstacles to their success is red tape. Rules, regulations and compliance requirements can bring a quick end to an entrepreneur’s dreams of creating something truly different.

While there is not always a lot you can do about red tape except to find creative ways to fight your way through and around the thicket, you can take action to make sure that your company isn’t creating its own internal obstacles as it grows. Often, the bigger a company gets, the less responsibility and autonomy employees are given; instead, the hierarchy and bureaucracy takes over. Left unchecked, this too can destroy an enterprise.

The secret to fighting both kinds of red tape is to maintain your company’s spirit of curiosity -- keep continuing to question the way people do business. Disruptive innovation is part of a startup’s culture, inherent to how it operates, so hang onto that. We at Virgin have prided ourselves on getting this right over the past four decades.

I have often talked about the need for a business’s founder to delegate day-to-day control of operations so that he or she can focus on the future of the business. You were the person who had the original vision for the enterprise, so you must be the person who takes on the mission of answering basic questions like “Can we do it better?” and “How can we improve?” -- this is what you need to know to move your idea forward.

Delegating also allows you to lead by example, when it comes to avoiding unnecessary internal bureaucracy and paperwork. Hire people you think are fit for the job, and then place your trust in them. Do not micromanage -- allow them to get on with things, without laborious sign-off processes. This will free up your time and is a good management strategy: More often than not, people flourish when they’re given the freedom they need to do their work well. When your people have the authority to solve problems creatively, you’ll be in better shape to tackle the external red tape.

One entrepreneur who is combatting bad regulations right now is Tesla’s CEO, Elon Musk. He is fighting battles in many American states so that his company can sell its electric cars directly to the consumer, instead of through auto retailers. There are laws on the books in many states requiring that vehicle manufacturers only sell through licensed dealers, in order to protect the businesses that the dealers have built. He and his team concluded that auto dealers were not a good venue for electric cars because they would continue to favor gasoline-powered vehicles, which require oil changes, tune-ups and other maintenance that is a source of revenue for them.

The latest battleground is the state of New Jersey, where a recent ruling has effectively ended Tesla’s ability to sell its pioneering cars to buyers directly. Musk countered with a direct appeal to the people of New Jersey, which he published on his blog. Accusing the auto dealer lobby of cutting a backroom deal with Gov. Chris Christie, he wrote that they had “circumvent(ed) the legislative process and pass(ed) a regulation that is fundamentally contrary to the intent of the law,” and he urged New Jersey residents to contact their local political representatives. His team has tried different tactics in other states, from giving politicians test drives to selling the cars online.

Musk and his team have been able to combat all the red tape and regulation thrown at them because of the power of their product. There is no substitute for this. If your idea benefits the consumer and you work with the necessary regulatory bodies to prove this, you will eventually prevail.

Another company that is seeing success at fighting existing regulations is Airbnb, a company that helps travelers connect with people who have living space to rent. The traditional hotel sector has fought Airbnb at every point in their development. To counter the critics, the company has gone out of its way to pay hotel taxes across the United States and comply with the rules of each state; in New York, it has requested permission to collect the $21 million in taxes that would be due. Such a tactic is a mark of success for a company that has opened up a new, adaptable and affordable way for people to travel.

When a new product or service turns an industry on its head, regulators are forced to play catch-up. If you are the disruptor, it’s important that you stand your ground. Play fair, but be prepared for others to play dirty -- and don’t let them drag you into the mud.

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Start-Up Business Plan

Editor's note: This article is excerpted from Rule's Book of Business Plans for Startups , from Entrepreneur Press

For a startup business, creating a business plan is like creating a game plan in sports. You need to scout out all the information to create a winning strategy for the game. While business plans for existing companies may have a special focus, such as setting overall goals, reviewing specific operations, evaluating new products, assessing new technology in the industry, or some other specific purpose, the business plan for a startup company is the blueprint for its formation, its operation, and its success. A business plan exposes a new company's strengths and weaknesses. It reveals ways to capitalize on the strengths and minimize the weaknesses, uncovers every facet of the business that can be developed, and points to the best method for that development. It provides a structure for the company's pursuit of the winner's trophy.

Even though creating a business plan takes time, thought and effort, and may seem like an impediment to getting on with opening or growing your new business, it is imperative in today's competitive business climate for you to have all relative information available and evaluated before opening your doors. With a thoughtfully prepared business plan you will enter the business world prepared, ready to run your business and ready to compete.

Although researching and writing your business plan may seem like a monumental task, with preparation it can be quite painless. As you go through the process, you will develop your knowledge and understanding of your business, improve your chances of success, and diminish your risks of failure as a startup owner.

Prior to writing your business plan, there are several issues you must resolve. It is beyond the scope of this text to cover all of these in depth; however, a basic checklist with a few recommended reference books is provided, so you can explore some of the subjects more thoroughly. As an entrepreneur of a startup company:

• Are you prepared to operate a business?

• Have you already decided upon your product(s) or service(s)?

• Have you investigated other types of businesses? Have you explored the broad economic business sectors: manufacturing, wholesale, retail, service ...? Have you considered other industries within the sector of your choice? Have you thought about what types of businesses are strongest now and for the future?

• Have you checked out franchises? To check out the possibilities and benefits of becoming a franchise outlet owner or franchisor, read Erwin Keup's Franchise Bible and my books,No Money Down: Financing for Franchising and The Franchise Redbook.

• Do you have a location in mind? Have you researched the principles of site selection: physical site needs (address, neighborhood, interior lot, corner lot), cost effectiveness, interior space, exterior space, visibility, traffic volume (which side of the street and times of the day), and accessibility? Are you familiar with the advantages and disadvantages of types of sites, such as freestanding buildings, storefronts, regional malls, and many others? Are you familiar with the principles of lease negotiation? See Luigi Salvaneschi'sLocation, Location, Location.

• Have you located the necessary business consultants--accountant, attorney, banker, and others? One resource is The Small Business Insider's Guide to Bankers by Suzanne Caplan and Thomas M. Nunnally.

• Do you know your financial position, your credit rating, your investment costs? The author's No Money Down: Financing for Franchising covers these topics in detail for any business, not only franchising.

Before going forward, it is assumed you have done the basic homework for each of the elements above and that:

• You are ready to go into business
• You have your basic business concept
• You have decided on your basic product(s) or service(s)
• You have your location and facility
• You have a business accountant and attorney
• You understand your financial position and your investment costs

While you may have already explored the following business concepts during your startup stage, you will be reconsidering and reevaluating these as you develop your business plan:

• Vesting
• Business objectives
• Mission statement
• Keys to success
• Industry analysis
• Market analysis
• Competitor analysis
• Strategies
• Marketing plan
• Management
• Organizational structure
• Operations
• Financial pro formas
• Break-even analysis
• Financial requirement

Don't be concerned if you aren't familiar with all of these concepts. Writing a business plan for your new business is a straightforward process that you can move through step by step to completion. The whole process can be accomplished in two to four weeks, depending on your business.

In surveying many successful business plans, you will find that no one format fits them all. Depending upon the nature of the business, certain topics take precedence over others. Often the owners write their business plans, since they know the most about their business operation and management and they have learned what elements to include to make the best impression.

A complete business plan for a startup company is best organized according to the logical development of the business and is comprised of at least 12 basic components.

1. Executive Summary: By definition, to summarize the elements of your business

2. Company Description: For identification, to introduce your readers to your company and your business concept

3. Industry analysis: To provide a picture of your industry and of the position of your business within the larger framework

4. Market and Competition: To evaluate what you are getting into. While some business plan proponents separate market and competition, it takes an examination of both, together, to come to one very important final conclusion: your market share. Consequently, it is best to examine and present them together.

5. Strategies and Goals: To analyze the market and your competition in order to determine how and where your company or products or services fit and to maximize your position with your target market

6. Products or Services: To describe your products or services and how they match your findings of your strategies and goals

7. Marketing and Sales: To market your products or services with the best positioning and to forecast your sales based on the findings of categories four, five, and six, in that order

8. Management and Organization: To present the management and personnel who will run the show. This section can be separated into two sections for more complex companies.

9. Operations: To explain how the business is run

10. Financial Pro Formas: To forecast successful financial performance for all activities

11. Financial Requirement: To present the type and amount of financing needed, based on the previous sections, to accomplish the whole plan

12. Exhibits: By definition, to close the plan and separate any supporting materials that would otherwise interrupt the flow of the story

A professionally written startup business plan has all 12 of these basic sections presented in the order of the outline. Most of the segments listed will also be reflected in the same order of presentation, although there may be slight variances depending on your type of business. When your business plan is written to obtain financing, the financial requirement section may be tailored either as a loan request or as an investment offering proposal, and then titled accordingly.

The saying, "There's no second chance to make a good first impression," is highly appropriate when it comes to the opening sections of your business plan and its overall appearance. With current desktop publishing, business plans are looking more professional--prospects are competing for neatness and an impressive presentation that sets them apart.

• Format. As to format, the norm is to bind your business plan in booklet form with high-quality materials. Better ones have quality report covers in dark or rich colors and are labeled on the front. The title page serves better than a label if laminated or positioned behind a windowed cover or behind a full clear cover. Most types of binding are available at copy centers: Ibico and GBC presentation bindings, Wire Bind, and Velobinder are a few of the better ones. Some businesses go the extra step to have printed covers or printed binding strips. Three-ring binders have been used for years and are still acceptable, but you improve your odds for making that favorable first impression by using the latest and most professional-looking, high-tech materials available.

• Page layout. Make sure the layout of each page is balanced and artistically pleasing, with a lot of open or negative space--paragraphs, lines, and characters should not be too closely spaced. With desktop publishing, many types of fonts are available. The text is generally easier to read if you use a font with serifs, such as New Times Roman, Charter or Garamond, and the margins are justified. For a professional quality, use a sans-serif font, such as Arial, Modern or Verdana, for titles, sideheads, tables and outlines. Choose one of each and stay consistent throughout the presentation.

Using the latest software printing design tools, such as boxes, borders, shadow lines, and enlarged and bold characters, can add a professional look if correctly done without drawing attention to their use and stealing the show from the material itself. Color printing, judiciously placed, is being used more all the time.

• Tabs and titles. Each subject, with titled heading, should have its own section and be separated with indexed partitions keyed to the table of contents. Tabbed index partitions make it easier to locate information, especially during a personal presentation. Another feature is to use colored partitions, preferably muted or soft colors that coordinate with the color of the cover and with the colors of any charts or graphs inside. Instead of custom tabs, some plans are assembled with printed tab indices with miniature plastic covers, but if you have access to preprinted laminated tabs, they are preferable. Avery has Index Maker dividers for ink-jet and laser printers that you can customize with basic desktop software. A recent innovation is hidden tabs that protrude past the pages but not the cover.

Within each section, set off subsections or segments with crossheads usually set bold in a sans-serif font. When these are justified to the right or left margin, they are referred to as sideheads.

• Color and charts. Charts, graphs, and illustrations are commonly acceptable if appropriate to the text. Color is often better than black and white; however, choose reds and blues, not chartreuses, yellow-oranges, or some other unusual color. In fact, if you are going to use extensive colored charts and graphs, choose a theme of three or four rich colors and use them consistently throughout the work. Reserve photographic prints for the exhibits. Even then, they should be presented in protective sheets or converted to color copies and labeled or captioned in font styles consistent with the rest of the business plan. If needed in the main body of the business plan, pictures look more professional when scanned and merged into the layout.

• Printing. Use laser or ink-jet printers to print on paper of stationery quality. Paper should be the brightest white you can find, laser quality, or one of the muted color r�sum� stocks in soft gray or ivory. Staying consistent by using the same type of paper for text, graphs, charts, and illustrations yields a quality professional look. Using bits and pieces of different paper gives the impression the plan was thrown together.

• Proofreading and copyediting.Have your figures checked by an accountant and the text proofread by an editor or proofreader. An accurate, easy-to-read, and well-organized text will convey professionalism and credibility. Too often this important step is avoided or forgotten: despite all the work that has gone into creating an impressive presentation, typos, missing words, poor sentence construction, and figures that don't add up become a significant part of that first impression made on a reviewer.

Important Points to Remember

• An accurate, easy-to-read, and well-organized business plan conveys professionalism and credibility.
• You improve your odds for making a favorable first impression by using the latest and most professional-looking, high-tech materials available.
• Don't necessarily try to balance the material from section to section. Place your emphasis in the proper perspective and accent the features that are most important for your business.
• Always include a cover letter with your business plan, because it may get passed on to other staff members who won't know about your venture.

Excerpted fromRule's Book of Business Plans for Startupsby Roger Rule, from Entrepreneur Press

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Start a Restaurant

As increasing numbers of consumers want to dine out or take prepared food home, the number of food-service operations has skyrocketed from 155,000 about 30 years ago to nearly 900,000 today. But there's still room in the market for your food-service business.Shifting demographics and changing lifestyles are driving the surge in food-service businesses. Busy consumers don't have the time or inclination to cook. They want the flavor of fresh bread without the hassle of baking. They want tasty, nutritious meals without dishes to wash. In fact, the rise in popularity of to-go operations underscores some clear trends in the food-service industry. More and more singles, working parents and elderly people are demanding greater convenience when it comes to buying their meals.

Though the future looks bright for the food-service industry overall, there are no guarantees in this business. Even the most successful operators will tell you this isn't a "get rich quick" industry. It's more like a "work hard and make a living" industry.

A hard reality is that many restaurants fail during their first year, frequently due to a lack of planning. But that doesn't mean your food-service business has to be an extremely complex operation. In fact, the more streamlined you can make it, the better your chances for success. Robert V. Owens, owner of RV's Seafood Restaurant, a casual seafood restaurant in Nags Head, North Carolina, observes, "The restaurant business is a simple business that people make complicated." His formula for success is quality food, good service and great people--an approach that's worked for him for nearly a quarter century.

To help you get started, we've compiled this thorough, but easy-to-digest, guide to starting your own food business. Whether your dream is to open a traditional American diner, a New York-style pizzeria, a Chinese buffet, a deli for busy lunch-goers or a local coffeehouse/hang-out spot, start your business research here.

Target Markets

No single food-service operation has universal appeal. This is a fact that many newer entrepreneurs have trouble accepting, but the reality is that you will never capture 100 percent of the market. When you try to please everyone, you end up pleasing no one. So focus on the 5 or 10 percent of the market that you can get, and forget about the rest.

With that said, who is eating at restaurants? Let's look at the main market categories of food-service business customers:

• Generation Y. This generation, also tagged the "millennial generation," the "echo" or the "boomlet" generation, includes those born between 1980 and 2000. Generation Y is the most ethnically diverse generation yet and is more than three times the size of generation X. They are a prime target for a food-service business. Members of Generation Y go for fast-food and quick-service items. About 25 percent of their restaurant visits are to burger franchises, follow by pizza restaurants at 12 percent.

• Generation X. Generation X is a label applied to those who were born between 1965 and 1977. This group is known for strong family values. While earlier generations strove to do better financially than their parents, Gen Xers are more likely to focus on their relationship with their children. They are concerned with value, and they favor quick-service restaurants and midscale operations that offer all-you-can-eat salad bars and buffets. To appeal to this market group, offer a comfortable atmosphere that focuses on value and ambience.

• Baby boomers. Born between 1946 and 1964, baby boomers make up the largest segment of the U.S. population. Prominent in this generation are affluent professionals who can afford to visit upscale restaurants and spend money freely. During the 1980s, they were the main customer group for upscale, trendy restaurants. In the 1990s, many baby boomer were two-income households with children. Today, those on the leading edge of the boomer generation are becoming grandparents, making them a target of restaurants that offer a family-friendly atmosphere and those that provide an upscale, formal dining experience.

• Empty nesters. This group consists of people in the age range between the high end of the baby boomers and seniors (people in their early 50s to about age 64). Empty nesters typically have grown children who no longer live at home, and their ranks will continue to increase as the baby boomers grow older and their children leave home. With the most discretionary income and the highest per-capita income of all the generations, this group typically visits upscale restaurants. They are less concerned with price and are more focused on excellent service and outstanding food. Appeal to this group with elegant surroundings and a sophisticated ambience.

• Seniors. The senior market covers the large age group of people age 65 and older. Generally, the majority of seniors are on fixed incomes and may not often be able to afford upscale restaurants often, so they tend to visit family-style restaurants that offer good service and reasonable prices. "Younger" seniors are likely to be more active and have more disposable income than "older" seniors, whose health may be declining. Seniors typically appreciate restaurants that offer early-bird specials and senior menus with lower prices and smaller portions, since their appetites are less hearty than those of younger people.Restaurants are classified into three primary categories: quick-service, midscale and upscale. Quick-service restaurants are also known as fast-food restaurants. These establishments offer limited menus of items that are prepared quickly and sold for a relatively low price. In addition to very casual dining areas, they typically offer drive-thru windows and take-out service.
  When people think of fast-food restaurants, they often think of hamburgers and french fries, but establishments in this category also serve chicken, hot dogs, sandwiches, pizza, seafood and ethnic foods.Midscale restaurants, as the name implies, occupy the middle ground between quick-service and upscale restaurants. They offer full meals but charge prices that customers perceive as providing good value. Midscale restaurants offer a range of limited- and full-service options. In a full-service restaurant, patrons place and receive their orders at their tables; in a limited-service operation, patrons order their food at a counter and then receive their meals at their tables. Many limited-service restaurants offer salad bars and buffets.
  Upscale restaurants offer full table service and do not necessarily promote their meals as offering great value; instead, they focus on the quality of their cuisine and the ambience of their facilities. Fine-dining establishments are at the highest end of the upscale restaurant category and charge the highest prices.

  Selecting a Food Concept

  Restaurant patrons want to be delighted with their dining experience, but they don't necessarily want to be surprised. If you're anticipating a family-style steakhouse (based on the name or the décor of the establishment), but you find yourself in a more formal environment with a bewildering--and pricey--gourmet menu, the surprise may keep you from enjoying the restaurant. Concepts give restaurateurs a way to let patrons know in advance what to expect and also to provide some structure for their operation. Here are some of the more popular restaurant concepts:
  • Seafood. Quick-service seafood restaurants generally offer a limited range of choices, often restricted to fried seafood. Midscale and upscale seafood restaurants offer a wider selection, prepared in ways other than fried, such as baked, broiled and grilled. Seafood can be a risky area on which to focus, as prices are always changing, and many kinds of seafood are seasonal. Also, quality can vary tremendously. When shopping for seafood, make sure the items are fresh and meet your standards of quality. If you are not happy with what a distributor offers, you can be sure your customers won't be, either.
  • Steakhouses. Steakhouses are part of the midscale and upscale markets. Midscale steakhouses are typically family-oriented and offer a casual environment with meals perceived as good values. In terms of décor, comfort is emphasized and Western themes are popular. Upscale steakhouses offer a more formal atmosphere and may serve larger cuts of meat that are of better quality than those served in midscale restaurants. Upscale establishments also charge higher prices, and their décor may be similar to that of other fine-dining establishments, offering guests more privacy and focusing more on adult patrons than on families.
  • Family-style restaurants. As the name implies, these establishments are geared toward families. Since they charge reasonable prices, they also appeal to seniors. They offer speedy service that falls somewhere between that of quick-service places and full-service restaurants. Their menus offer a variety of selections to appeal to the interests of a broad range of customers, from children to seniors. Family-style restaurant prices may be higher than those at fast-food restaurants, but these establishments provide table service to compensate. The décor of family-style restaurants is generally comfortable, with muted tones, unremarkable artwork, and plenty of booths and wide chairs. Booster seats and highchairs for children are readily available.
  • Casual-dining restaurants. These establishments appeal to a wide audience, ranging from members of Generation Y to Generation X to baby boomers with families to seniors, and they provide a variety of food items, from appetizers and salads to main dishes and desserts. Casual-dining restaurants offer comfortable atmospheres with midrange prices. Many center on a theme that's incorporated into their menus and décor.
  • Ethnic restaurants. Ethnic restaurants enjoy a significant share of the U.S. restaurant market. They range from quick-service places with limited selections to upscale eateries with a wide variety of menu items. Their menus typically include Americanized versions of ethnic dishes, as well as more authentic food. The three most popular kinds of ethnic restaurants are Italian, Chinese and Mexican. Other popular ethnic restaurant types include Indian, Thai, Caribbean, English, French, German, Japanese, Korean, Mediterranean and Vietnamese. An even wider variety of ethnic restaurants can thrive in areas with a culturally diverse population, such as large metropolitan areas.
  • Pizzeria. You have two primary choices when entering starting a pizzeria. One is a to-go restaurant in a modest facility with a specialized menu highlighted by pizza and beer, limited seating and a self-service atmosphere. The other is a full-service pizza restaurant with a menu that features not only a variety of pizzas, beer and wine, but also Italian entrees like spaghetti, ravioli and lasagna, side dishes such as salads (or even a salad bar), and a few desserts. The foundation of a pizzeria is, of course, the pizza. If you don't know how to make a good pizza, hire a good pizza cook who does. Invest in top-quality ingredients and preparation methods, and make every pizza as if you're going to eat it yourself. Do that, and your customers will keep coming back for more.
  • Sandwich Shop/Delicatessen. One reason sandwich shops are so successful is that they enjoy high profit margins. Sandwich shops and delicatessens can also change their menus quickly and easily to adapt to current tastes. For example, with the growing interest in health and nutrition in the United States, sandwich shops and delicatessens have started offering more low-fat, healthy ingredients in their sandwiches, salads and other menu items. In addition, many sandwich shops and delis have been able to keep up with workers who eat at their workplaces by adding delivery and catering to their sit-down and take-out operations. Sandwich shops and delicatessens can be differentiated by the foods they serve. Most sandwich shops serve only sandwiches, possibly with some side dishes or desserts. A delicatessen usually offers a more extensive menu, including sandwiches, prepared meats, smoked fish, cheeses, salads, relishes and various hot entrees.
  • Coffeehouse. With more than 400 billion cups consumed every year, coffee is the world's most popular beverage. But beyond the beverage itself, people frequent coffeehouses and espresso bars for a variety of reasons: to meet with friends, for a quick lunch and a drink to perk up the afternoon, or simply to start off each morning with a great cup of coffee to start off each morning. Most successful coffeehouses have heavy foot traffic and high-volume sales. The majority will serve up to 500 customers per day and manage up to five customer turnovers during the lunch hour, despite having limited floor space and modest seating capacity. Profit margins for coffee and espresso drinks are extremely high--after all, you're dealing with a product that's more than 95 percent water. At the same time, your average ticket amount is around $3, so you need volume to reach and maintain profitability. Besides specialty roasted coffee by the cup, most coffeehouses also have espresso-based drinks (cappuccinos, lattes, etc.), assorted teas, bottled water and fruit juices, along with an inviting assortment of baked goods, a selection of desserts, and coffee beans by the pound.
  • Bakery. With the emergence of strip malls and competition from supermarkets that have in-store bakeries, "bread-only" retail bakeries have almost disappeared from the United States. Bakeries today offer cakes, scones, bagels and coffee drinks, and sometimes even offer full dining menus, including sandwiches, hot entrees, beer and wine. Consumers love fresh bakery goods, but the market is extremely competitive. As you develop your particular bakery concept, you'll need to find a way to differentiate yourself from other bakeries in town.
  • Before you can begin any serious business planning, you must first decide what specific segment of the food-service industry you want to enter. While there are many commonalities among the various types of food-service businesses, there are also many differences. And while there is much overlap in the knowledge and skills necessary to be successful, your own personality and preferences will dictate whether you choose to open a commercial bakery, a coffee cart, a fine-dining restaurant or another type of operation. Then, once you have decided what business best suits you, you must figure out the niche you'll occupy in the marketplace.
    For example, are you an early riser, or do you prefer to stay up late and sleep late? If you like--or at least don't mind--getting up before dawn, your niche may be a bakery or a casual breakfast-and-lunch operation. Night owls are going to be drawn to the hours required for bar-and-grill types of restaurants, fine-dining establishments and even pizzerias.Do you like dealing with the public, or are you happier in the kitchen? If you're a people person, choose a food-service business that gives you plenty of opportunity to connect with your customers. If you're not especially gregarious, you'll probably lean more toward a commercial type of business, perhaps a bakery or even a catering service, where you can deal more with operational issues than with people.
    Some other types of questions to ask yourself include, Do you have a passion for a particular type of cuisine? Do you enjoy a predictable routine, or do you prefer something different every day? Are you willing to deal with the additional responsibilities and liabilities that come with serving alcoholic beverages?
    As you do this self-analysis, think about your ideal day. If you could be doing exactly what you wanted to do, what would it be?
    Once you've decided on the best niche for you as an individual, it's time to determine if you can develop a niche in the market for your food-service business.
    Working in a Restaurant
    Dealing graciously with customers and playing the role of elegant host are only part of a restaurateur's many duties. Food-service business operators spend most of their time developing menus; ordering inventory and supplies; managing personnel; creating and implementing marketing campaigns; making sure their operation is in compliance with a myriad of local, state and federal regulations; completing a wide range of paperwork; and performing other administrative chores. Certainly the financial opportunities are there--as are the fun aspects of the business--but starting, running and growing a food-service business is also hard work.
    Regardless of the type of food-service business you intend to start, the best way to learn the ropes is to work for a similar operation for a while before striking out on your own. Doing so will give you significant insight into the realities and logistics of the business.
    Successful restaurateurs agree that the best preparation for owning a restaurant is to work in someone else's first. Think of it as getting paid to be educated. Certainly you should read books and take courses, but you should also plan to work in a restaurant for at least a few years doing as many different jobs as possible. And if you're not actually doing the job, pay attention to the person who is--you may find yourself doing it when your own restaurant is unexpectedly shorthanded.
    Ideally, you should work in a restaurant similar to the type you want to open. You may find you don't like the business. Or you may find you're more suited to a different type of operation than you originally thought. Hopefully, you'll discover you're in exactly the right place.
    "As I started working in restaurants, I realized this was my passion," says Scott Redler, co-owner and founder of Timberline Steakhouse & Grill in Wichita, Kansas. Redler, 42, got his first restaurant job at 15, opened a Chinese fast-food restaurant at 26 that failed in eight months, and now has five successful steakhouses. He also opened two Freddy's Frozen Custard restaurants. "When you have a busy restaurant and you're watching everything happen as it should," he says, "it's a wonderful feeling of satisfaction."
  • Armed with practical experience, you're ready to put together your business plan--the most critical element of your restaurant. Map out everything on paper before you buy the first spoon or crack the first egg. According to industry expert Rich Melman, chair of Lettuce Entertain You Enterprises Inc., a Chicago-based company that owns, manages and consults with restaurants throughout the country, 80 percent of what will make your restaurant a success will take place before you ever open the doors.
    When you're writing a business plan you should include: a clear definition of your concept; a description of your market; your menu and pricing; detailed financial information, including data on your startup capital (amount and sources) and your long-term income and expense forecasts; a marketing plan; employee hiring, training and retention programs; and detailed plans that outline how you'll deal with the challenges restaurateurs face every day. Including an exit plan in your strategy is also a good idea.
  • Funding Your Business
    How much money you need to start depends on the type of business, the facility, how much equipment you need, whether you buy new or used, your inventory, marketing, and necessary operating capital (the amount of cash you need on hand to carry you until your business starts generating cash). It's easy to spend hundreds of thousands of dollars starting a restaurant, but it's not essential. For instance, when Borealis Breads owner Jim Amaral started his first bakery in Maine, he rented a space that had been a commercial bakery and came complete with mixers, benches, ovens and other equipment. He was able to start with just $10,000 he'd borrowed from family and friends, and used that primarily for inventory.
    Regardless of how much you need, you will definitely need some cash to start your food-service business started. Here are some suggestions of where to go to raise your startup funds:
    • Your own resources. Do a thorough inventory of your assets. People generally have more assets than they realize, including savings accounts, retirement accounts, equity in real estate, recreation equipment, vehicles, collections and other investments. You may opt to sell assets for cash or use them as collateral for a loan. Also look at your personal line of credit. Many a successful business has been started with credit cards.
    • Family and friends. The logical next step after gathering your own resources is to approach friends and relatives who believe in you and want to help you succeed. Be cautious with these arrangements; no matter how close you are with the person, present yourself professionally, put everything in writing, and be sure the individuals you approach can afford to take the risk of investing in your business.
    • Partners. Using the "strength in numbers" principle, look around for someone who may want to team up with you in your venture. You may choose someone who has financial resources and wants to work side by side with you in the business. Or you may find someone who has money to invest but no interest in doing the actual work. Be sure to create a written partnership agreement that clearly defines your respective responsibilities and obligations. And choose your partners carefully--especially when it comes to family members.
    • Government programs. Take advantage of the abundance of local, state and federal programs designed to support small businesses. Make your first stop the SBA, but be sure to investigate various other programs. Women, minorities and veterans should check out special financing programs designed to help them get into business. The business section of your local library is a good place to begin your research.
    • Depending on how much money you have to invest in your food-service business and the particular type of business you choose, you can spend anywhere between $30,000 and $1.5 million on a facility.
    • Not every food-service operation needs to be in a retail location, but for those that do depend on retail traffic, here are some factors to consider when deciding on a location:
      • Anticipated sales volume. How will the location contribute to your sales volume?
      • Accessibility to potential customers. Consider how easy it will be for customers to get into your business. If you are relying on strong pedestrian traffic, consider whether or not nearby businesses will generate foot traffic for you.
      • The rent-paying capacity of your business. If you've done a sales-and-profit projection for your first year of operation, you will know approximately how much revenue you can expect to generate, and you can use that information to decide how much rent you can afford to pay.
      • Restrictive ordinances. You may encounter unusually restrictive ordinances that make an otherwise strong site less than ideal, such as limitations on the hours of the day that trucks can legally load or unload.
      • Traffic density. With careful examination of food traffic, you can determine the approximate sales potential of each pedestrian passing a given location. Two factors are especially important in this analysis: total pedestrian traffic during business hours and the percentage of it that is likely to patronize your food service business.
      • Customer parking facilities. The site should provide convenient, adequate parking as well as easy access for customers.
      • Proximity to other businesses. Neighboring businesses may influence your store's volume, and their presence can work for you or against you.
      • History of the site. Find out the recent history of each site under consideration before you make a final selection. Who were the previous tenants, and why are they no longer there?
      • Terms of the lease. Be sure you understand all the details of the lease, because it's possible that an excellent site may have unacceptable leasing terms.
      • Future development. Check with the local planning board to see if anything is planned for the future that could affect your business, such as additional buildings nearby or road construction.
      Layout
      Layout and design are major factors in your restaurant's success. You'll need to take into account the size and layout of the dining room, kitchen space, storage space and office. Typically, restaurants allot 40 to 60 percent of their space to the dining area, approximately 30 percent to the kitchen and prep area, and the remainder to storage and office space.
      • Dining area. This is where you'll be making the bulk of your money, so don't cut corners when designing your dining room. Visit restaurants in your area and analyze the décor. Watch the diners; do they react positively to the décor? Is it comfortable, or are people shifting in their seats throughout their meals? Note what works well and what doesn't.
      Much of your dining room design will depend on your concept. It will help you to know that studies indicate that 40 to 50 percent of all sit-down customers arrive in pairs; 30 percent come alone or in parties of three; and 20 percent come in groups of four or more.
      To accommodate the different groups of customers, use tables for two that can be pushed together in areas where there is ample floor space. This gives you flexibility in accommodating both small and large parties. Place booths for four to six people along the walls.
      • Production area. Too often, the production area in a restaurant is inefficiently designed--the result is a poorly organized kitchen and less than top-notch service. Keep your menu in mind as you determine each element in the production area. You'll need to include space for receiving, storage, food preparation, cooking, baking, dishwashing, production aisles, trash storage, employee facilities and an area for a small office where you can perform daily management duties.
      Arrange your food production area so that everything is just a few steps away from the cook. Your design should also allow for two or more cooks to be able to work side by side during your busiest hours.
    • As you put together a plan for your food-service business, be aware of some of the trends in terms of menu content and design: These factors could--and, in fact, should--influence the type of food-service business you open.
      Restaurant operators report that vegetarian items, tortillas, locally grown produce, organic items, fusion dishes (combining two or more ethnic cuisines in one dish or on one plate) and microbrewed or local beers are gaining in popularity. Pita dishes and wraps continue to be in high demand, too, as an easy-to-consume alternative to sandwiches. You will also see a strong demand for bagels, espresso and specialty coffees, and "real meals," which are typically an entree with a side order. Consumers are also eating more chicken, seafood and beef dishes than they have in recent years. At the same time, people expect to see meatless alternatives on the menu. Consumers are also demanding "comfort food"--the dishes that take them back to their childhoods, when mothers baked from scratch, and meat and potatoes were at the center of each plate.
    • Menus are also showing a number of ethnic dishes and spice-infused offerings. It's not surprising to find Thai, Vietnamese, Creole, Tuscan and even classic French cuisines on the same menu and even the same plate.
      At the same time, be sure to keep the kids in mind as you plan your selections. If families are a key part of your target market, you'll want a range of four or five items in smaller portions that youngsters will enjoy. If you serve snack items as well as entrees, note that kids are choosing healthier snacks more often than they did a few years ago, thanks to concerned parents. For example, while salty snacks remain popular, yogurt is the fastest growing snack food based on consumption frequency among kids under 13. Fruit cups and applesauce cups are also growing in popularity among children and teens. While most restaurants still offer fixed kids' meals, you might consider allowing your young diners to choose among a selection of nutritious options.
      Though menu variety has increased over the years, menus themselves are growing shorter. Busy consumers don't want to read a lengthy menu before dinner; dining out is a recreational activity, so they're in the restaurant to relax. Keep your number of items in check and menu descriptions simple and straightforward, providing customers with a variety of choices in a concise format. Your menu should also indicate what dishes can be prepared to meet special dietary requirements. Items low in fat, sodium and cholesterol should also be marked as such.
      Safety Regulations
      Though we don't think of food service as heavily regulated an industry as something like medical services or public utilities, the reality is that many aspects of your operation are strictly regulated and subject to inspection. Fail to meet regulations, and you could be subject to fines or get shut down by authorities. And if the violations involve tainted food, you could be responsible for your patrons' illnesses and even death. Issues such as sanitation and fire safety are critical. You must provide a safe environment in which your employees can work and your guests can dine, follow the laws of your state on sales of alcohol and tobacco products, and handle tax issues, including sales, beverage, payroll and more.
      Most regulatory agencies will work with new operators to let them know what they must do to meet the necessary legal requirements. Your state's general information office can direct you to all the agencies you'll need to be concerned with.One of the biggest challenges businesses in all industries face is a lack of qualified labor. As the food-service industry in general continues to grow and thrive, the demand for workers in an already-diminished labor pool is also increasing. Finding qualified workers and rising labor costs are two key concerns for food-service business owners.
      The first step in developing a comprehensive HR program is to decide exactly what you want someone to do. The job description doesn't have to be as formal as one you might expect from a large corporation, but it needs to clearly outline the job's duties and responsibilities. It should also list any special skills or other required credentials, such as a valid driver's license and clean driving record for someone who is going to make deliveries for you.Next, you need to establish a pay scale. You should do research to find out what the pay rates are in your area. You'll want to establish a minimum and maximum rate for each position. You'll pay more even at the start for better qualified and more experienced workers. Of course, the pay scale will be affected by whether or not the position is one that is regularly tipped.
      Every prospective employee should fill out an application--even if it's someone you already know, and even if that person hsa submitted a detailed resume. A resume is not a signed, sworn statement acknowledging that you can fire the person if he or she lies about his or her background; the application, which includes a truth affidavit, is. The application will also help you verify the applicants' resumes, so you should compare the two and make sure the information is consistent.
      Here are some tips to help you find and keep great people:
      • Hire right. Take the time to thoroughly screen applicants. Be sure they understand what you expect of them. Do background checks. If you can't do this yourself, contract with a HR consultant to do it for you on an as-needed basis.
      • Create detailed job descriptions. Don't make your employees guess about their responsibilities.
      • Understand wage-and-hour and child labor laws. Check with your own state's Department of Labor to be sure you comply with regulations on issues such as minimum wage (which can vary depending on the age of the workers and whether they're eligible for tips), and when teenagers can work and what tasks they're allowed to do.
      • Report tips properly. The IRS is very specific about how tips are to be reported; for details, check with your accountant or contact the IRS(or see your local telephone directory for the number).
      • Provide initial and ongoing training. Even experienced workers need to know how things are done in your restaurant. Well-trained employees are happier, more confident and more effective. Plus, ongoing training builds loyalty and reduces turnover. TheNational Restaurant Associationcan help you develop appropriate employee training programs.
      There are several categories of personnel in the restaurant business: manager, cooks, servers, busboys, dishwashers, hosts and bartenders. When your restaurant is still new, some employees' duties may cross over from one category to another. For example, your manager may double as the host, and servers may also bus tables. Be sure to hire people who are willing to be flexible in their duties. Your payroll costs, including your own salary and that of your managers, should be about 24 to 35 percent of your total gross sales.
      • Manager. The most important employee in most restaurants is the manager. Your best candidate will have already managed a restaurant or restaurants in your area and will be familiar with local buying sources, suppliers and methods. You'll also want a manager with leadership skills and the ability to supervise personnel while reflecting the style and character of your restaurant.
      To get the quality of manager you want, you'll have to pay well. Depending on your location, expect to pay a seasoned manager $30,000 to $40,000 a year, plus a percentage of sales. An entry-level manager will earn $22,000 to $26,000 but won't have the skills of a more experienced candidate. If you can't offer a high salary, work out a profit-sharing arrangement-it's an excellent way to hire good people and motivate them to build a successful restaurant. Hire your manager at least a month before you open so he or she can help you set up your restaurant.
      • Chefs and cooks. When you start out, you'll probably need three cooks--two full time and one part time. Restaurant workers typically work shifts from 10 a.m. to 4 p.m. or 4 p.m. to closing. But one lead cook may need to arrive early in the morning to begin preparing soups, bread and other items to be served that day. One full-time cook should work days, and the other evenings. The part-time cook will help during peak hours, such as weekend rushes, and can work as a line cook during slower periods, doing simple preparation. Cooking schools can usually provide you with leads to the best in the business, but look around and place newspaper ads before you hire. Customers will become regulars only if they can expect the best every time they dine at your restaurant. To provide that, you'll need top-notch cooks and chefs.
      Salaries for chefs and cooks vary according to their experience and your menu. Chefs command salaries significantly higher than cooks, averaging $600 to $700 a week. You may also find chefs who are willing to work under profit-sharing plans. If you have a fairly complex menu that requires a cook with lots of experience, you may have to pay anywhere from $400 to $500 a week. You can pay part-time cooks on an hourly basis; check around for the going rate in your area.
      • Servers. Your servers will have the most interaction with customers, so they need to make a favorable impression and work well under pressure, meeting the demands of customers at several tables while maintaining a pleasant demeanor. There are two times of day for wait staff: very slow and very busy. Schedule your employees accordingly. The lunch rush, for example, starts around 11:30 a.m. and continues until 1:30 or 2 p.m. Restaurants are often slow again until the dinner crowd arrives around 5:30 to 6 p.m.
      Because servers in most establishments earn a good portion of their income from tips, they're usually paid minimum wage or just slightly more. When your restaurant is new, you may want to hire only experienced servers so you don't have to provide extensive training. As you become established, however, you should develop training systems to help both new, inexperienced employees and veteran servers understand your philosophy and the image you want to project.Every business needs a marketing plan, and your food-service business is no exception. But even as you consider various marketing vehicles, keep this in mind: Research conducted by the National Restaurant Association reveals that word-of-mouth is still the best method of advertising. More than four out of five consumers are likely to choose a table-service restaurant they haven't patronized before on the basis of a recommendation from a family member or friend. So make the foundation of your marketing program an absolutely dazzling dining experience that customers will want to talk about and repeat.
      Ask every new customer how they found out about you, and make a note of this information so you know how well your various marketing efforts are working. You can then decide to increase certain programs and eliminate those that aren't working.
    • A key question for restaurant owners is this: Do your marketing materials--menus, signs, table tents, ads and other items--send an accurate message about who you are and what you do?
      The first step in creating a complete marketing package is to know your market, and it's not enough to gather demographic information once. Markets change, and food-service businesses that don't change their marketing strategies with population shifts are missing out on a lot of opportunities.
      Next, step back and take a look at each element in your facility. Everything from the parking lot to the interior decor to the printed items contributes to your marketing message--and each should be an accurate reflection of what that message is.
      One cheap and easy way to promote your food-service business is by giving away gift certificates--such as dinner for two, coffee and bagels for 10, or a free pizza. Call local radio stations that reach the demographics of your target market and ask to speak to their promotions manager. Offer to provide gift certificates or coupons to use as prizes for on-air contests and promotions. Your company name and location will be announced several times on the air during the contest, providing you with valuable free exposure, and it's always possible that the winner will become a paying customer.
      You can also donate coupons and gift certificates to be used as door prizes at professional meetings or for nonprofit organizations to use as raffle prizes. Just be sure every coupon or gift certificate clearly identifies your business name, location, hours of operation and any restrictions on the prize.
      Some other promotional methods you can try include local event or sporting team sponsorships, discount coupon books, frequent-dining clubs, menu promotions and contests.

      Restaurant Startup Resources

      • All Food Business: This site walks you through the steps it takes to get a restaurant planned and started. It offers leasing advice, links for finding financing, tips for hiring the right employees, strategies to promote your business-even suggestions to keep in mind when choosing your restaurant's name, location and concept.
      • How to Start a Restaurant and Five Other Food Businesses:Entrepreneur's official guide describes the ins and outs of starting and running a successful restaurant, pizzeria, coffeehouse, deli, bakery or catering service. Packed with tips on how to keep your restaurant growing and healthy, the book answers most commonly asked questions and covers the essential business basics.
      • The Menu Maker: Having trouble creating that memorable menu for your restaurant? This site specializes in spicing up menus to increase your profits, complement your eatery and reinforce your desired image. It also offers tips for menu presentation and helps determine your menu needs.
      • National Restaurant Association (NRA): Founded in 1919, the NRA is the leading business association for the restaurant industry. Its site offers access to an information service and library, various publications and industry research. It also provides networking opportunities and training, and emphasizes the ways in which local restaurants can contribute to their communities.
      • National Restaurant Association (NRA) Educational Foundation: This nonprofit organization is dedicated to fulfilling the NRA's educational mission. The site offers classes for professionals and listings of U.S. Food Safety Regulatory System laws and training requirements. Where available, county and municipal requirements are also listed.
      • Nextaurant: This site provides an extensive suite of programs, services and tools to help you open and/or run a more cost-effective and profitable restaurant. Check out the tips for avoiding the top five restaurant startup mistakes.
      • PlanMagic Restaurant: This comprehensive package is geared toward startup restaurants. It focuses on methods for writing a successful business plan, and helps you figure out specific financial calculations to beef up your proposal.
      • Restaurant Associations (by State): Find out state-specific information regarding the restaurant and food-service industry.
      • Restaurant Business Plan from Bplans.com: This site is a collection of resources and tools for starting a restaurant, including a restaurant industry report, sample restaurant business plans and a link to a local Small Business Development Center finder.
      • Restaurantfunds: This website allows you to order a package called the Restaurant Success Kit, which includes a restaurant business plan creation tool, restaurant financials creation software, and a complete e-book and user's manual to help answer all your restaurant questions.
      • Restaurant Startup & Growth magazine: Here you'll find resources to help you get organized, increase sales, reduce theft, control costs, improve service, hire better employees, safeguard your cash and much more.
      • Service Corps of Retired Executives (SCORE): To get some practical, real-world advice, contact SCORE and ask to speak with small-business counselors who owned or managed a restaurant. Find offices or counselors in your area by visiting the website.
      • Women's Foodservice Forum (WFF): The WFF is dedicated to providing women in the food-service industry with the resources to succeed. It offers leadership development programs, market research, and a regional partnership program for networking. The site also provides answers to FAQs, advice and a community of peers.

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