Example: Shallow market analysis
“There are no restaurants/good restaurants in this neighborhood. This is an untapped market.” Too often the reason for this scenario is that the neighborhood simply won’t support the restaurants. And another pitfall to watch for: when multiple restaurants have occupied the considered location and all have failed, chances are that something is wrong with the location. A similar argument applies to neighborhoods.
While there isn’t enough room to walk you through a complete market/location analysis, I will point out a few key items of which you should be aware.
Could zoning laws or restrictions interfere with the business and its expansion? Is parking adequate? Is the parking area you’re relying on an empty lot that might be redeveloped in the future? Is there an urban renewal plan that may impact your establishment in subsequent years? Is the neighborhood deteriorating or on the upswing? While a neighborhood on the upswing is a good sign, it may paradoxically lead to the demise of the restaurant. Property values are likely to increase, thus raising real estate taxes and forcing the landlord to increase rent to a level that may no longer be compatible with your concept and price point.
Now consider the build-out cost, and take great care not to underestimate it. If the restaurant is already built, does the equipment allow you to cook your menu efficiently? If you need to retrofit the establishment, consult with architects and designers who have experience with restaurants and can provide reasonably accurate cost estimates. On many occasions we’ve seen construction costs outstrip the established budget, forcing operators to dip into the cash reserve set aside for working capital. This often leads to dire consequences down the road.
Example: Shallow market analysis“There are no restaurants/good restaurants in this neighborhood. This is an untapped market.” Too often the reason for this scenario is that the neighborhood simply won’t support the restaurants. And another pitfall to watch for: when multiple restaurants have occupied the considered location and all have failed, chances are that something is wrong with the location. A similar argument applies to neighborhoods.While there isn’t enough room to walk you through a complete market/location analysis, I will point out a few key items of which you should be aware.Could zoning laws or restrictions interfere with the business and its expansion? Is parking adequate? Is the parking area you’re relying on an empty lot that might be redeveloped in the future? Is there an urban renewal plan that may impact your establishment in subsequent years? Is the neighborhood deteriorating or on the upswing? While a neighborhood on the upswing is a good sign, it may paradoxically lead to the demise of the restaurant. Property values are likely to increase, thus raising real estate taxes and forcing the landlord to increase rent to a level that may no longer be compatible with your concept and price point.Now consider the build-out cost, and take great care not to underestimate it. If the restaurant is already built, does the equipment allow you to cook your menu efficiently? If you need to retrofit the establishment, consult with architects and designers who have experience with restaurants and can provide reasonably accurate cost estimates. On many occasions we’ve seen construction costs outstrip the established budget, forcing operators to dip into the cash reserve set aside for working capital. This often leads to dire consequences down the road.
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