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Top 5 Pitfalls to Avoid in the Start-up Phase

1. Piecemealing your financing

You need a business plan, complete with start-up costs, sales forecasts, and a monthly cash flow analysis. Those costs depend on your menu, the equipment needed to produce the menu, your brand, square footage, and what the space looks like before you start. Compare brand new construction to a second-generation restaurant space—you’re potentially saving hundreds of thousands of dollars with the latter.

Make sure you understand the full cost of start-up, including working capital. You need to be confident that your sales will cover the debt service and then some (and don’t forget to pay yourself!). Too often, I see folks run out of money before they’re open. This leaves them using credit cards or other short-term financing, like equipment leasing, to bridge the gap (or worse, they never open). This might get you to the finish line, but once you start paying the loans back, you will quickly realize the financing wasn’t structured properly and your cash flow doesn’t cover it. Make sure the debt service works for your business. And if it doesn’t, it may not be the right project for you. Be smart enough to walk away.

2. Signing a lease without contingencies for zoning or financing

You can’t get financing until you’ve secured a location. It’s a fine balancing act, looking for both at the same time. Make sure you have good realtor you trust, and a lawyer to look over a Letter of Intent (LOI) or Lease Agreement. Even though there may have been a similar concept in that location for the last 30 years doesn’t mean you have the right zoning for your concept. If the landlord is so confident that it’s zoned properly, they won’t have a problem with the contingency.

If you need a financing contingency, the landlord may not want to work with you. Starting the process with a LOI will buy you time to secure the financing. Bottom line--you don’t want to be locked into a lease if you don’t secure the capital to get started. If they won’t agree to it, it’s not the right deal for you.

3. Entering a partnership without an exit strategy

When you first start a business with someone, things are usually amicable. You like each other. There’s chemistry. You think you’ll always both arrive at a reasonable conclusion. Don’t leave it to chance. Hire a consultant with partnership experience, and a lawyer who can help you craft a functional partnership agreement that spells out all the “what ifs.” I say consultant first because lawyers don’t necessarily have the real-world experience to draw from, although they’re necessary to craft the document. Case in point—I had a partnership agreement drafted by a lawyer that amounted to five years of mediation and litigation when it came time to pull the trigger. Ultimately, it wasn’t very useful.

4. Creating a concept without understanding the market

Marketing 101 – know your target market and how to differentiate yourself from the competition. You may think you have a novel idea but do the research! In what demographic will your concept thrive? Is anyone else doing it? How can you do it better? And don’t try to be everything to everyone. To quote Meredith Hill, “when you speak to everyone, you speak to no one.” Know the market and understand how you will capture it.

5. Thinking you can do it all yourself

If there’s one thing I learned being an owner for 12 years, it was that I needed to rely on people. This business is all about people—employees, vendors, advisors, and the community you’re serving. Build relationships. Learn to empower your employees. Hire for your weaknesses, and delegate, delegate, delegate. Think of yourself as a leader, not just an entrepreneur.


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