A Restaurant As a Retirement Venture?

How to advise a client who’s caught the hospitality bug

By Izzy Kharasch

Hospitality is not for the faint of heart, but those approaching 65 – who tend to dine out with regularity – may be looking at the owner of a favorite restaurant and thinking, “They look like they’re having a good time, greeting guests, laughing with customers and buying them drinks and desserts. I could do that.”

The reality, though, is a good deal different. How should you advise a client who’s contemplating a pre- or post-retirement career in the restaurant business? Very carefully!

My career in restaurants and hospitality began when I was 16. I loved it then and, many years later, I love it even more! The industry needs new restaurants and owners with imagination, so I don’t discourage people from entering the business. They just need to go into it with their eyes wide open.

Here are some considerations to discuss with clients.

How deep are their pockets and can they get financing?

Restaurant startup costs can range from $175,000 all the way up to a half million dollars or more. Unless they’re buying an established business, the planning that goes into opening a restaurant takes 12 to 18 months. That’s a year and a half with no income from the business.

What are the costs involved? They have to decide on a concept, write a business plan, build the menu, lease a location, get licenses and permits, design the space, find suppliers and hire staff. Hopefully the building they are leasing will have been a restaurant, with kitchen equipment already in place. Help them avoid rookie mistakes by having them work with an experienced manager or consultant.

What kind of financial advice do they need?

I recommend to my clients that they contract with a CPA who has at least some experience in the restaurant business rather than just a bookkeeper. After decades in the business, I can look at a P&L and tell where the problems lie, such as excessive liquor costs, skimming and too many comps. Your client will want an advisor with those same skills.

Consider referring your client to a colleague who has experience in the hospitality industry, or develop expertise in this area yourself. Restaurant owners are always looking for good CPAs.

Do they have any restaurant experience?

I’ve known plenty of owners who jump into the restaurant business after a career spent in a different industry, but if your client has never worked in a restaurant, tell them to tap the brakes and start out by getting a part-time job as a host/hostess, server or kitchen staffer.

I’ve written about this before. Restaurants are desperate for help, and they welcome even inexperienced applicants who don’t mind working hard. That way, they can get an inside look at the business and decide whether it’s truly for them.

What is their tolerance for risk?

Approximately 60% of restaurants fail within the first year of operation and 80% fail within the first five years. This is after months and years of stress caused by going over budget, getting contractors to show up, dealing with supply chain issues, not passing health or fire inspections, not being able to find the right staff, and a host of other issues.

Good marketing, smart hiring and lean business practices help improve the odds. If they’re not marketing geniuses, your client should work with a marketing firm on developing social media, a website and promotions that will draw in customers.

How hard do they really want to work?

Many of the new owners I work with get to their restaurants by 8 a.m. to open at 11 a.m. The day starts with balancing the previous day’s sales, counting the cash, reviewing the staff schedule for the day, and ensuring the food and liquor orders have been placed. That’s all in the first 90 minutes.

The focus then turns to lunch. The owner needs to create server charts and make sure the specials are in place, the kitchen is spotless and the outside of the space looks great. Though managers and kitchen staff are responsible for these details, the buck stops with the owner. After the lunch rush, it’s time to balance the lunch sales and get ready for dinner service. An owner is lucky to get home by 10 at night and maybe get four to six hours of sleep.

Can they roll with the punches?

There’s nothing like an angry restaurant customer who complains about the food, the service, the noise – you name it.

Ask your client to think about how they would respond in those situations. They must have the mindset that they will make 100% of their guests happy every day — otherwise, they won’t be in business very long. If a customer is unhappy, they must address their concerns immediately in a way that will ensure the customer will continue to come back and recommend the restaurant to their friends.

To my mind, there are few businesses as exciting as the restaurant business. It’s rewarding for those who really understand what they are getting into.

Izzy Kharasch is president and founder of Hospitality Works, Inc., a bar and restaurant consulting company. Over the last 30 years, Izzy has helped more than 700 food service operations worldwide improve their operations and profits. Izzy is currently focused on increasing profitability for all of his clients. He can be reached at 224-688-3512 and [email protected].

 

 

 

Latest news

Losing a Spouse Hits Most Women Hard Financially: Thrivent

Many widowed women had no financial conversations or plans in place before their spouse died, Thrivent's new survey finds.

Schwab Survey Finds Increased Opportunities for Advisors

Americans are most likely to seek financial guidance from an advisor, and three-quarters avoid social media influencers, the survey reveals.

The Sky’s the Limit for CEO Pay

Companies now must disclose how much CEO stock holdings increase when the market rises.

Advisors Boost Allocation to Private Markets as Client Interest Grows

Over half the investment advisors surveyed by Hamilton Lane plan to allocate 10%+ of clients’ portfolios to private markets this year.

Virginia Leads in Personal income, West Virginia is Last: WalletHub

A new WalletHub report lets you see how your state ranks in personal income for the top 5%, bottom 20%, and total population.

FPA: Financial Planners Still Prefer ETFs in Client Portfolios

The FPA and Journal of Financial Planning's annual trends survey also finds advisors are bullish on the economy, but only in the short term.