Resturants

business_minded

hey all,
thanks for looking, im looking to open a restrant or cafe very seriously and have been using my business plan with the aspect of running on 5% profit margin on turnoever? is this accurate ? I have read them figures in a few places?
is the margins different in a cafe then a resturant?
thanks for all you help

stepbar

5% gross or net profit? Sound like a very small margin to be operation off.

antoinolachtnai

The margin depends on which cafe and which restaurant. Most of them make less than that when all is said and done. The ones that are run well as businesses make more.

In general, cafes are a tough business and restaurants are hardly businesses at all. There is some sort of margin in coffee. There is just not much in restaurant food.

Unless you know an awful lot about food and service or have a partner who does, you should not open a restaurant. Unless you have free rent and/or a few hundred thousand to get yourself established you should not open a cafe. Again, knowledge and experience would be a big advantage.

Trojan

5% sounds very realistic (as in, they're that low) from what I've heard of the restaurant business. Very tight margins, I've heard of a lot lower.

I'd advise you to have a chat with a cafe owner (in a different area than where you intend to startup).

themadchef

antoinolachtnai wrote: »

Unless you know an awful lot about food and service or have a partner who does, you should not open a restaurant. Unless you have free rent and/or a few hundred thousand to get yourself established you should not open a cafe. Again, knowledge and experience would be a big advantage.

+1. Margins on paper are all well and good but its feet coming through the door, bums on seats and return customers that make you. If you and your partner are not well experienced in the trade, (i would suggest one from a business and front of house so to speak aspect, and one from the mechanics i.e the kitchen) then it can be a very risky venture.

drdre

Have you any experience in the restaurant business? It looks easy but its very very tough.My father and my uncle are in the restuarant business for over 20 years and since last year business has been messed up for alot of the owners of restaurants in dublin city centre as rates, rent etc have all gone up.
I would think you dont go into the business.Also it really depends on what type of food you want to do.Becuase theres alot of competition out there.It might not look like it but when you get started you will find out.

business_minded

We do have expereince both in busines,marketing and food industry....The unit is in a excellent location.. Your main cost is staff so running a tight ship is essential.
The best way to maximise prfoits all be it at a small margin is to increase sales.
AS our location is in a busy city spot we will open early to catch hungry commuters & 11am people well use a somple concept of hot drinks (coffee, tea hot chocs)and handy food (bagels panini etc) this way we will only need to pay basic staff that will serve and prepare. High margins and hot drinks as you all are aware.
At luch hour we will change to quick and efficient service in and out in 40 mins with the kithcen now open so chefs will start working from this period. WEll ctach both working hour lunch people and hungry tourists.
The trade tends to slow down in this area (like most between 2.30-4.30).
After 5 a new menu is in use with a semi-formal menu.
As we are already paying all the overheads (except staff) its the best way increase turnover, thus increase profits.
WE HOPE""""

antoinolachtnai

I don't think this will work but it depends on the scale. You can only ship out so many coffees over the rush periods unless you have a lot of staff and a very wide coffee machine. If you are going to make bagels and panini, there is a bit to it, and the margin isn't great.

You have to employ the chef all morning to do prep and to make a decent length shift, not just for two hours.

You are trying to do an awful lot of things.

You can't skimp on overheads, ingredients or quality staff.

If your margins are really going to be as small as 5 percent, you will not get a return on capital and you probably should not open the business. On the face of it, you would be better doing a better quality product for a higher price.

But it all depends on your setup. If you have a biggish premises you might be able to make this work.

drdre

antoinolachtnai wrote: »

I don't think this will work but it depends on the scale. You can only ship out so many coffees over the rush periods unless you have a lot of staff and a very wide coffee machine. If you are going to make bagels and panini, there is a bit to it, and the margin isn't great.

You have to employ the chef all morning to do prep and to make a decent length shift, not just for two hours.

You are trying to do an awful lot of things.

You can't skimp on overheads, ingredients or quality staff.

If your margins are really going to be as small as 5 percent, you will not get a return on capital and you probably should not open the business. On the face of it, you would be better doing a better quality product for a higher price.

But it all depends on your setup. If you have a biggish premises you might be able to make this work.

I agree with you, With expenses on the increase, (wages increasing) its really not worth the risk that said its really your own decision.

--amadeus--

One of teh basics of financial management is that you need to look at the return on your investment. 5% on turnover will mean a lower % return on your invested capital than if you simply left it in a high interest account. With a geared investment and current high interest rates you're facing a challenge.

Your two posts seem a little contradictory - in teh first you talk about a biz plan and looking to open, in the second you say you are already paying the overheads. Is this an add on to an exsisting biz, because that could change things quite a bit.

thefox84

5% is very low your going to need a serious turnover to make this worth your while.

padser

--amadeus-- wrote: »

One of teh basics of financial management is that you need to look at the return on your investment.

True

--amadeus-- wrote: »

5% on turnover will mean a lower % return on your invested capital than if you simply left it in a high interest account.

Not quite sure how you work that out. Lets take an example.

I invest €30,000.
I turnover €1,000,000
Make a profit of 5%
Profit €50,000
ROI (€50,000-30,000/30,000) = 66% ROI

That's significantly better then leaving it in the bank.


I think you are confusing return on investment with profit margins - not really the same thing. It's not possible to work out ROI without knowing
a) the initial investment
b) the profit

Since we know neither I think its a little presumptious to tell him he would make more leaving it in the bank.

--amadeus--

padser wrote: »

True

Not quite sure how you work that out...

...I think you are confusing return on investment with profit margins - not really the same thing. It's not possible to work out ROI without knowing
a) the initial investment
b) the profit

Since we know neither I think its a little presumptious to tell him he would make more leaving it in the bank.

Obviously I made a few assumptions but I was trying to make a broader point. Firstly the OP is talking about 5% profit on his turnover. My assumption is that he is refering to markup and that this profit excludes his overheads, soething you're also doing. In a food business these overheads will be substantial and that 5% profit margin will be whittled away fairly rapidly leaving his actual return as a fraction of that. We're also ignoring the cost of any debt he incurs (though this cuts both ways as it leaves him with a potentially highly geared investment, but anyway)

So your scenario might be:

I invest €30,000.
I turnover €1,000,000
Make a profit of 5%
Profit €50,000
Cost of sales €49,000
ROI (€1,000/30,000) =0.33% ROI

Basically the numbers are fantasy so we can stack them any way we choose. I should have said *may* rather than *will* mean a lower return but the balance of probability is that it will.

Secondly it's very improbable that he would be generating anything approaching 1million in sales - that's 20K per week, which would be fairly tidy going flogging bagels!

padser

--amadeus-- wrote: »

Obviously I made a few assumptions but I was trying to make a broader point. Firstly the OP is talking about 5% profit on his turnover. My assumption is that he is refering to markup and that this profit excludes his overheads, soething you're also doing.

Obviously I am assuming that 5% is a net profit rather then gross profit. To assume anything else would be pretty silly TBH.

If someone (in almost any business) was operating a 5% margin they would need to turnover 20 times their costs just to cover there costs. Simply not going to happen. For example, you would need to turn over more then half a million just to employ someone at €30,000 PA. Think about the logic of what your saying.

antoinolachtnai

If you think you can open a restaurant for 30k (including key money, fit, and sustaining a loss for the first 6 months) and be in a position to do 1m euros/year (that's about 300 covers a day) that's quite optimistic.

drdre

My father was in the restaurant business for over 25 years in a top spot in dublin with huge walk in trade and he actually laughed when i showed him this thread.

antoinolachtnai

Well, it's easy to make fun when you know what you're doing. Someone at risk of losing their savings and maybe more is not very funny though.

The reality is that most people (including a lot of people who go into the business)have no idea how expensive and hard it is to make a food venture work.

drdre

antoinolachtnai wrote: »

Well, it's easy to make fun when you know what you're doing. Someone at risk of losing their savings and maybe more is not very funny though.

The reality is that most people (including a lot of people who go into the business)have no idea how expensive and hard it is to make a food venture work.

I agree with you.I am not making fun at him really.I told him in my first few posts to stay clear so lets wait and see what he does.

--amadeus--

padser wrote: »

Obviously I am assuming that 5% is a net profit rather then gross profit. To assume anything else would be pretty silly TBH.

If someone (in almost any business) was operating a 5% margin they would need to turnover 20 times their costs just to cover there costs. Simply not going to happen. For example, you would need to turn over more then half a million just to employ someone at €30,000 PA. Think about the logic of what your saying.

I don't want to get into a "who can pee higher" argument but the OP refered to "5% profit margin on turnover" Quite apart from teh fact he refered to turnover the definition of "Profit margin" is "the amount that the price of a product or service is raised above its cost in order to provide a gross profit." Gross profit is in turn defined as "the trading profit of a business without any deductions for business expenses."

So that's why the assumption is that we are looking at gross rather than net. And I agree, a 5% margin is paper thin. Fine for a 2nd income business but no good at all for a real business which is why anyone with any experience of start ups and / or catering is telling him to stay clear!

(Definitions from here)

padser

I get what your saying - but I am pretty certain that the OP actually meant Net Profit - which is why I interpretted it as such.

Maybe the OP could clarify?

To attempt to use a margin (or mark up) of 5% is so implausible that I assumed that's not what he meant. If you used such a margin on Coffee for instance you would be selling a cup of coffee for 20 or 30 cent for gods sake!