Attention Aspiring Food & Bev Business Owners: Do These 4 Things Right Now

For great chefs, bakers and mixologists, the challenge in turning passion into profession isn’t talent — it’s training. Unlike becoming a doctor, journalist or financial analyst, there’s no straight line to becoming a successful entrepreneur. 

What does exist, however — and what any future entrepreneur should develop — is a plan: specifically, for raising capital; knowing how much capital you’ll need; and negotiating a lease that you can afford.

F&B 101: The Crucial Steps You’re Probably Skipping

• How do you go about raising capital? 
• How do you know if it’s enough? 
• What if you need more? 
• How much equity would you need to give away to raise that capital? 
• If you had two million dollars (already raised) and saw the perfect space, in the location of your dreams, could you afford it? 
• How would you know? (Even amongst experienced operators, many of them don’t.)

In my 20-plus year career, I have opened, operated, managed, licensed and consulted with more than thirty F&B venues. I am a board advisor and ex-dean of the Institute of Culinary Education, and I currently instruct students in culinary management and act as executive director of industry relations at ICE. Additionally, I’m an active consultant who has raised private and public funds for myself and others. 

Through all of this, I have learned several things about what you’ve got to get right before launching any venture.   

4 Moves to Make Before You Cut the Ribbon

#1 Business Plan

Before you do anything, ask yourself, “Why am I doing this?” and “Why am I passionate about it?” Additionally, think deeply about your venue’s location; desired demographic; goals; marketing efforts; and performance tracking.

After that, spend considerable time on your plan’s executive summary. It is, arguably, the most important part of your business plan, and it needs to both excite your reader and make clear why they should favor your plan over others they may be reading. Your executive summary is “you” on a page — so if it doesn’t ring true to your reader, you won’t get their attention, much less their partnership, investment and support.

#2 Sales Projections

Sales projections are the “1.b.’ to your business plan. To set them, many entrepreneurial hopefuls think about costs then work backwards. This, however, is misguided.

Instead, start by forecasting future sales — then review both your fixed and variable costs to see if they can fall in line. You can’t know, for example, if you can afford a space, if you don’t first know your projected revenue.

#3 Operating Agreement

Most new entrepreneurs (as well as many experienced operators) do not understand the power of this agreement, which sets the tone for how your venue will run for the life of the LLC. (An operating agreement is a legally binding contract that outlines the ownership, management structure, financial arrangements, and operating procedures of a Limited Liability Company — LLC. It also protects personal assets, sets rules for profit distribution, and establishes procedures for resolving disputes, partner exits, or business dissolution.) 

As an LLC operator, you decide who has a say in your business dealings; how funds are distributed (there are myriad ways); how or if ownership can be transferred; if additional funds may be raised; and much more.

Your operating agreement is your corporate playbook, and it’s critically important if and when issues arise. Make sure it says what you want it to. A good lawyer or consultant can help. Too often, it’s referred to after the fact, when it’s too late to make any amendments.

#4 Lease

Critical to any venue is this all-important contract. If you don’t understand it — and if things go sideways — you could find yourself personally liable for the remainder of your lease. 

For example: If you signed a 10-year lease at $10,000 per month, that’s $120,000 per year (or 1.2 million over the course of the lease). If business falls off and you decide to close in year two, you could owe upwards of 1 million dollars. 

Often, this makes prospective tenants gun shy about taking additional years. This, however, is a critical mistake. In the F&B world, it can easily take five years to begin seeing ROI (Return On Investment), so you really want as many years as you can get — so long as you work the right contingencies into your lease.

While these contingencies are numerous (too many to discuss in this article), here are a few you should always aim to negotiate. If you get them, commit to 20-25 years:

• Community Board Approval and / or SLA (State Liquor Authority) Approval – If you require a liquor license, community board and SLA approval are critical to success. (Where I’ve found myself involved in ventures that lack these approvals, I recommend immediately withdrawing from the lease.)
• Assignment Clause – This clause permits you to assign your lease to others of similar background (experience and financials) without being unreasonably denied or delayed.
• Good Guy Clause – This addendum absolves you from responsibility (damages aside) so long as you give 90 days’ notice and forfeit your deposit, which is typically 3-6 months’ rent). While this may sound painful to lose, it’s certainly preferable to losing 1.2 million.
• Scaffolding Clause – While scaffolding is erected in front of your venue, you’re likely to lose 20 to 25% of business. In New York City, Local Law 11 states that facades on buildings of six stories or more must be inspected every five years. This means that, over the course of a ten year lease, you will have scaffolding erected on your storefront two times. Smart entrepreneurs negotiate a discounted rent during this period.
• Pandemic Clause – Over the life of your lease, it’s wise to plan for extreme disruptions that are beyond your control (especially if the span of your lease is 10-25 years). Should any local, city, state or federal agency cause you to shut down, you should pay rent equal to the percentage you are allowed to be open. For example, if 20% occupancy is allowed, you pay 20% of your rent. 

There are, of course, so many more factors to consider when opening and/or investing in a Food & Beverage venture. These are just the beginning – but in locking them down, you’re already two steps further along than most.

📈 For in-depth F&B business training and education, check out ICE’s Restaurant & Culinary Management program.