5 ms·

I don't know where it's like where you are, but around here, there's a dozen established eateries, and corners of strip malls that get new restaurants every 8 m

I don't know where it's like where you are, but around here, there's a dozen established eateries, and corners of strip malls that get new restaurants every 8 months or so. There's gotta be a solid profit in selling loans to people who have a dream of owning a restaurant (or bar, or eatery, or whatever), but haven't the faintest clue how to run the business.

dmurray 8y ago
Generally lenders prefer to lend to a business that will succeed.
- Damogran6 8y ago
  You'd think that, but the percentage of failure I've personally witnessed tells me there's profit in the write-offs, too. ETA: In the venture capitalist realm, I hear you fund 10 businesses with the hope that one of them strikes it rich.
  - Ntrails 8y ago
    VC is equity not debt, and very very few restaurants raise money via equity. Often they'll take out large loans secured on both house and business, along with a chunk of their own (or investor/friends) money to get things started. The lenders get to stick nice chunky rates on the whole thing and generally have limited downside because collateral. I don't mean to imply the banks are doing anything wrong, just that the business model is based on managed downside rather than "striking it rich"
    - wgerard 8y ago
      Minor nitpick which I can't let go because it's been on my brain lately: VC is not always equity, especially in the early stages of a company. Convertible notes are debt instruments (and SAFEs are warrants). They convert to equity eventually, so you are of course correct in the long run (and why it's a nitpick). But until that happens your investors are debt holders.
      - aml183 8y ago
        Correct, but I would say it's next to impossible to find a VC who treats a SAFE/Convertible Note as debt. Nobody wants it paid off, the VC will always choose to convert to equity because that is the VC's model.
      - Ntrails 8y ago
        It's a nitpick - but both valid and interesting (I've never worked in startups and did not know that VCs commonly bought convertible notes)
namibj 8y ago
Not loans. Things they pay with other people's money. Just need to make sure you get paid, and that's it.
marak830 8y ago
The statistics thrown around are 75-80% of new restaurants won't last the first two years.[1] That day want terribly surprise me, as I spent a sizeable portion of my career travelling around fixing restaurants. Biggest issue I've seen is people creating a restaurant because they think it will be fun, or high profit margin. (Spoiler: it is neither). (Source: chef for 18 years). [1] I don't have a source to back this up, it's just been repeated so many damn times. I think it would be closer to 60-70%
- ksec 8y ago
  >think it will be fun, or high profit margin. Quite possibly the complete opposite. Especially when today's asset / property prices are being pushed up to a ridiculous level by QE, rent eats into profits, And most restaurants owner I know has thin profits margin and lots of long hours working. >The statistics thrown around are 75-80% of new restaurants won't last the first two years. I guess it depends on location, but 50%+ of new restaurants changes hand within the first 3 years.
  - marak830 8y ago
    The standard costing for a restaurant meal is 25% food cost. It approx breaks down as: .25 food cost .25 staff cost .25 rent and gas/elec etc .25 profit. That's not real world though, that last .25 is going to be eaten into. I personally prefer to try and run at .21 - .22 It may seem like an awfully unbalanced profit margin, (in relation to me saying low profit margin), but you need to add in wastage on top of this, both due to staff error(eg keeping by too much stock on hand), unexpected quiet periods or even supplier sending lower quality produce. There's also the matter of variable prices for ingredients as well. This is one of the biggest things I had to drill into clients, it's not just about making good food and slapping a fee on top, it's a strict regieme of training, control and excellent book keeping on top of a passion for food and a desire to make people happy. As to your last paragraph, I believe that's covered by closing, I should have clarified on that point, my apologies
    - ksec 8y ago
      Interesting. When I first got into the industry, knowledge pass down to me as 30% Food Cost, 30% Staff, 30% Rent / Electrics, and 10% Profits. Again this differ from places, City and non City restaurants. And This is mostly in Asia, HK, Taiwan and China. ( Not Japan ) When I left the industry, Food Cost are now pushing down close to 20%. Staff Cost and Rent made up of nearly 70%. With Rental taken nearly 40%. Since Staff Cost, and Rent are mostly fix cost, the only way they could improve Revenue was to becomes fast food alike, i.e faster table turnover. ( A trend I really dislike ) >This is one of the biggest things I had to drill into clients, it's not just about making good food and slapping a fee on top, it's a strict regieme of training, control and excellent book keeping on top of a passion for food and a desire to make people happy. This. So Much. I still wanted to get back into Food and Hospitality business someday. I think Food is a topics that connects with everyone. And I still think there is lot of innovation and tech could help with the industry, it is rather unfortunate no one is taking a look into it.

dmurray 8y ago

Generally lenders prefer to lend to a business that will succeed.

Damogran6 8y ago
You'd think that, but the percentage of failure I've personally witnessed tells me there's profit in the write-offs, too. ETA: In the venture capitalist realm, I hear you fund 10 businesses with the hope that one of them strikes it rich.
- Ntrails 8y ago
  VC is equity not debt, and very very few restaurants raise money via equity. Often they'll take out large loans secured on both house and business, along with a chunk of their own (or investor/friends) money to get things started. The lenders get to stick nice chunky rates on the whole thing and generally have limited downside because collateral. I don't mean to imply the banks are doing anything wrong, just that the business model is based on managed downside rather than "striking it rich"
  - wgerard 8y ago
    Minor nitpick which I can't let go because it's been on my brain lately: VC is not always equity, especially in the early stages of a company. Convertible notes are debt instruments (and SAFEs are warrants). They convert to equity eventually, so you are of course correct in the long run (and why it's a nitpick). But until that happens your investors are debt holders.
    - aml183 8y ago
      Correct, but I would say it's next to impossible to find a VC who treats a SAFE/Convertible Note as debt. Nobody wants it paid off, the VC will always choose to convert to equity because that is the VC's model.
    - Ntrails 8y ago
      It's a nitpick - but both valid and interesting (I've never worked in startups and did not know that VCs commonly bought convertible notes)

namibj 8y ago

Not loans. Things they pay with other people's money. Just need to make sure you get paid, and that's it.

marak830 8y ago

The statistics thrown around are 75-80% of new restaurants won't last the first two years.[1] That day want terribly surprise me, as I spent a sizeable portion of my career travelling around fixing restaurants. Biggest issue I've seen is people creating a restaurant because they think it will be fun, or high profit margin. (Spoiler: it is neither). (Source: chef for 18 years). [1] I don't have a source to back this up, it's just been repeated so many damn times. I think it would be closer to 60-70%

ksec 8y ago
>think it will be fun, or high profit margin. Quite possibly the complete opposite. Especially when today's asset / property prices are being pushed up to a ridiculous level by QE, rent eats into profits, And most restaurants owner I know has thin profits margin and lots of long hours working. >The statistics thrown around are 75-80% of new restaurants won't last the first two years. I guess it depends on location, but 50%+ of new restaurants changes hand within the first 3 years.
- marak830 8y ago
  The standard costing for a restaurant meal is 25% food cost. It approx breaks down as: .25 food cost .25 staff cost .25 rent and gas/elec etc .25 profit. That's not real world though, that last .25 is going to be eaten into. I personally prefer to try and run at .21 - .22 It may seem like an awfully unbalanced profit margin, (in relation to me saying low profit margin), but you need to add in wastage on top of this, both due to staff error(eg keeping by too much stock on hand), unexpected quiet periods or even supplier sending lower quality produce. There's also the matter of variable prices for ingredients as well. This is one of the biggest things I had to drill into clients, it's not just about making good food and slapping a fee on top, it's a strict regieme of training, control and excellent book keeping on top of a passion for food and a desire to make people happy. As to your last paragraph, I believe that's covered by closing, I should have clarified on that point, my apologies
  - ksec 8y ago
    Interesting. When I first got into the industry, knowledge pass down to me as 30% Food Cost, 30% Staff, 30% Rent / Electrics, and 10% Profits. Again this differ from places, City and non City restaurants. And This is mostly in Asia, HK, Taiwan and China. ( Not Japan ) When I left the industry, Food Cost are now pushing down close to 20%. Staff Cost and Rent made up of nearly 70%. With Rental taken nearly 40%. Since Staff Cost, and Rent are mostly fix cost, the only way they could improve Revenue was to becomes fast food alike, i.e faster table turnover. ( A trend I really dislike ) >This is one of the biggest things I had to drill into clients, it's not just about making good food and slapping a fee on top, it's a strict regieme of training, control and excellent book keeping on top of a passion for food and a desire to make people happy. This. So Much. I still wanted to get back into Food and Hospitality business someday. I think Food is a topics that connects with everyone. And I still think there is lot of innovation and tech could help with the industry, it is rather unfortunate no one is taking a look into it.