By on Jul 09, 2010 with Comments 0
Common sense has to prevail when choosing a location to operate in this industry. But, through ego, and greed, stupidity prevails. It is amazing how some companies end up opening a business in some areas.
I was driving around the other day and looking at all the restaurants, franchises of course, that are in my town. And lunch time in many of these were very slow. Do we blame it on the economy that has stifled so many business during this downturn or is there more to it?
Honestly, common sense will tell you that there is more to it, and not so much the economy. My area is saturated. Did I say saturated? You betcha! I’ll use the old pie theory. Pretend a pie is the amount of people you can draw to your place of business. Every time you cut the pie, that’s how many are available to come to your restaurant.
First there is one slice. The pie is cut in half, which means that two restaurants split the available customers. Pretty good right? Sure it is. Now cut that pies in fifty pieces. Your slice of available customers gets pretty slim. So as a restaurant developer, mostly a franchise, looks for a location to open up a new restaurant, and see’s the pie is being split up very thin, wouldn’t you move on? I would.
No, their ego gets the best of them and greed comes into play and their competition is there, so they think, let’s build here! We’ll make money! WRONG! They don’t. They will struggle for years and years and if they are lucky they will break even. If they are lucky.
And the ones that don’t want to pay for the best location is a sea of restaurants, and choose the strip plaza behind the main drag, that no one sees, they are really in trouble. In this great country of ours, with all the places available to build, why would you pick a place that was saturated, or too expensive to operate? Common sense would be nice here, wouldn’t it?
Remember what I said in one of my pages, some people have more money then brains. And it’s true. I knew one operator between two locations was losing fifteen thousand dollars a week! A week! I knew another place that was losing three thousand dollars a week at one location, and the company was living on a float. If it is going to be very difficult to make profit dollars in a location, why would you build it. The saying, if you build it they will come was in the movies, remember.
Which brings me to bars and nightclubs. I live in the D.C. general area. And I know that many of these places are struggling. Barely making it. Because common sense did not prevail. Ego and greed got in their way. They will blame everyone and everything about their circumstance, except themselves for making a bad decision.
When looking to open in a city, look around, and use your head. If the numbers don’t work, they don’t work. Period. Move on! And if everyone is doing well in your town, except you, then get off of your high horse and use common sense and reinvent yourself into something that sells. Getting a great location is paramount, along with having parking. But if you have these two and your lease and C.A.M. (common area maintenance) charges are going to kill you, why open there? Sure it would be nice, and sure it would be great, and sure it would be beautiful. But how beautiful would it be when you don’t make any profit?
Open up in a different are of the city, or even a different city. Or don’t open at all. Better to do that then work for nothing. Common sense has to be acknowledged in business. So when you do your business plan, and don’t inflate estimated revenue, and the fixed costs are too high, walk away.
These types of business that open, after three years, 60% fail. You are going into business to make money and not to struggle to pay payroll. If the profit potential is not there, don’t open there. And don’t get caught up in the hype. If you are going to invest a half a million dollars or more, when did you think you were going to see the place paid off?
This isn’t a real estate investment where it is long term investing only to see your investment grow over twenty years. These types of businesses better pay themselves off in a couple of years.
So before you open your place use some common sense. It will take you a long way.
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