“I’ve always dreamed of owning a pizza restaurant. Nothing too big. We’ll keep it manageable. It will be fantastic! Maybe a small bar with some cool draft beers. Nothing too crazy. Some nice cozy booths. Families will love it. We can do a few pasta dishes too. We’ll use my grandmother’s old marinara recipe. Everyone has always raved about it. All of my friends and family will have a great place to get together for food and drinks. We’ll be able to entertain here all of the time. It will be like a second home for everyone I know. And hey, it’s pizza. There’s tons of money in pizza, right? Just flour, water, and profits. I know a great guy that works in the pizza business that could run the place in his sleep. He loves me. He’ll come work here in a heartbeat. I have the financial structure all figured out. I’ve been saving for twenty years so I can pay for all of this out of pocket without a bank loan. I’ll continue to work my day job and get paid that way and then I won’t need to draw any pay out for myself. This is financial gold. I know just the spot too. This is going to be a home run!”
Ah, the romance factor of owning a pizza restaurant. Have any of those words ever come out of your mouth or even into your imagination? Many will honestly answer yes. And you know what? You’re right. Everything you imagined is 100 percent possible. All of those ideas and dreams can absolutely come true. But then we read studies that show restaurant startups failing at a rate of 60 percent in the first year and then 80 percent within the first five years. How can that be? In theory, it would seem like the pizza business, given its higher profit margin, would not fall into those categories. Yet it does. Let’s take a look at the other side of the shiny coin and consider some of the factors that may not always be so obvious on the surface.
Location, Location, Location
You have the best spot picked out. You’ve had your eye on the space for some time, and you can just envision it bustling with business. Great. Now let’s look a little deeper into that fantastic location.
If the space is in an urban location, you are probably going to rely on a lot of foot traffic. How many people will walk by that space during lunch and dinner hours every day? What percentage of those people do you need to come in the door during those hours? Do you have a marketing plan in mind that you can comfortably rely on to get those feet in your door?
If you are located in the suburbs, what will be your dining demographic focus? If it is customers dining in the restaurant, you need to be sure that you can easily get them in there. They will need to be able to park and get in the door without difficulty, or they will go elsewhere. Do you have your own dedicated parking lot? Most do not. If you share a consolidated parking lot, look carefully at whom you share it with. Is there a supermarket or maybe a gym in the next building over? Those may cause a lot of congestion at hours when you need those easily accessible parking spaces. If your neighbors are medical or other professional offices, that may suit your needs better. Not only do you have a built-in lunch crowd, but you can rest assured that, come 5 o’clock, all of those people will go home, leaving that lot wide open for your dining guests.
Maybe your focus is more geared toward takeout business. In this case, quick and easy access is key. Nobody minds walking across a parking lot when they are going in to sit down for dinner. Takeout is a completely different animal. Parking spaces right in front of or very close to the door will be imperative. Guests will not be happy with the idea of carrying two large pizzas, a salad, wings, and a two-liter bottle of soda for a thousand feet across a crowded parking lot to the only open space they could find next to the Corvette parked diagonally across three spaces. Location! There is a good reason everyone always says the word three times—it is critical to your success!
Experience vs. Inexperience
Let’s say you’re a dentist who has always loved the idea of one day owning a pizza restaurant. Excellent food, hip decor, great staff, cozy bar, and sports on the TVs. It sounds wonderful. You have the money in the bank to finance the project. No worries there. Jim from XYZ Pizza across town will come run the place for you. Hire a handful of other people, and you will be off and running. The grand opening is a huge success. You’re a hit. You’re the talk of the town. Everybody loves your place. It is going so well that you are even planning on investing in one of those dollar-bill counting machines to help you with all of this money.
Then Friday morning rolls around, and your manager, Jim, gets into a car accident on the way to work. Broken hip. Out six to eight weeks. What do you do? He was the boss. The other guys cannot do his job. Plus, it’s Friday, and you are now a man short. Are you able to go in and cover for him for six to eight weeks until he returns? Maybe you can clear your schedule for the day and trade in your tooth drill for an apron. So now you are in your kitchen. It is going to be very hot and humid for the next few days, so the guys want to know how much to adjust the water temperature for the dough. Huh? Hey, Pete has never made the Bechamel before. Can you please show him how? The new waitress just had someone order a bottle of wine, and she is nervous about opening it. Can you go to the table with her and assist? There is a beer salesman up front, a guy on the phone with a complaint, and the toilet in the women’s room won’t flush. Where is that tooth drill when you really need it?
Experience is key. Oftentimes folks will look at a pizza restaurant as an easy investment that they can enjoy all the fruits of. It can be. But on days when the walls are collapsing, you will need be able to step in and save the day. Anything less is setting yourself up for failure. You wouldn’t let your manager, Jim, handle Mrs. Smith’s root-canal appointment at 3 o’clock, would you? Exactly. This is your business. Others can run it for you, but you cannot let it hold you hostage if your people are not there. Be experienced.
Financial projections must be comprehensive of all liabilities. That must mean rent, utilities, payroll, taxes, food costs, and other miscellaneous stuff on the hypothetical page 2. All too often operators pay careful attention to those big liabilities on page 2, while those miscellaneous expenses on page 2 are often overlooked because they are just a “handful of little things” as compared to the big stuff. This is an area where all too many would-be restaurateurs end up kicking themselves. They did not have any idea just how big that “miscellaneous” mountain would be.
Let’s take a quick peek at a few of those little items that are often not given any consideration or properly accounted for at first.
- Payroll taxes (FICA and withholding match can reach up to 20%-25% in additional payroll cost)
- General liability insurance
- Worker’s compensation insurance
- Federal and State unemployment taxes
- Business Entity Tax in some states
- Accounting and payroll fees
- And the Grandaddy of them all: credit card processing fees
These few items alone can account for thousands of dollars every single month. These are some of the sneaky items that are not always taken into consideration at first and can cause financial peril for a startup pizza restaurant. Oh, and the knife-sharpening guy is here; so is the window washer and the guy who cleans the beer tap lines. They all want to get paid.
Are you single? That may help if you don’t mind your dating app lying dormant for a while. If you are married or have a family, it may be wise to discuss the potential time constraints with them. Many times we see an owner sitting at a table enjoying a beer and conversation with some friends. You may think, “Wow. That looks really nice.” It is. But what you did not see was how that owner got to the point where he could enjoy himself like that.
If he was a startup, then he obviously had to build that business from the ground up and did not always have the cash flow coming in that he has now. Back in the beginning, when he could only afford himself, he had to work a hundred days straight without a day off, through sickness and fatigue. Are you willing to make that type of personal sacrifice if necessary in order to succeed? Do you have a support system at home that would even allow you to do such a thing and still maintain a healthy family relationship? These are questions that need to be asked now and not later when it’s too late.
The goal here is not to scare you. Rather, it is to show you the other side of that shiny coin that is often hidden. Far better to have the information and experience from your peers now rather than learn the hard way on your own. You worked way too hard to earn that investment capital. With proper information and preparation, you can succeed and not be part of that failing statistic. Plan with your head and not your heart. And, by the way, that toilet in the women’s room is still not flushing right!
Michael Androw, a 30-plus-year restaurant veteran, began making pizzas in 1986 and currently owns the award-winning E&D Pizza Company in Avon, Connecticut.