We recently interview Richard Blum on The Inner Circle, an expert restaurant consultant with over 20 years of experience in hospitality. We asked him for general advice on buying an inn with a restaurant or food service of any kind. Keeping reading for his top tips on running a restaurant, great advice whether you are in the market to buy or you are a current restaurant owner wanting to optimize your operations.

professional restaurant kitchen chefs cooking

Organization is the Key to Successful Operations

His number one piece of advice in his restaurant valuations? YOU MUST BE ORGANIZED! It’s the key to a successful operation of an efficiently run restaurant business. As the saying goes, how do you make a small fortune in the restaurant business? Start with a large one! Profit margins are slim and closely watched; thus, highly organized operations are key to survival.  Furthermore, if your inn/restaurant business is in a destination area with few culinary choices, the restaurant can easily serve as the loss leader for driving business to your more profitable lodging space. 

outdoor wine bar seating with cheese plate

Get Creative with Your Restaurant Business Model

However, he emphasized if you are an investor and not looking to tangle with the complexities of operating a restaurant, he urges creativity to reimagine the space. Consider an event venue with on-site catering or converting the space to a tavern or bar with a very limited menu. To highlight this consideration, Blum noted that your food and beverage sector should be securing a profit of at least 18 to 23%. Food costs should be under 30% and labor costs for the kitchen should not be over 18%. Overall costs, including management, should be under 30%. And buyer beware – the labor pool today for even small town restaurants are fetching starting wages of $20 per hour and up for servers. Because the trend is also toward part-time work, tackling labor issues in the restaurant portion of your inn business may not be worth the trouble. With both inventory and food costs skyrocketing, you have to factor in daily forecasting of labor budgets. Even if your newly-acquired property serves only breakfast, the key is to cost out each food item, determine its profitability and decide if you, as the new owner, will be taking on the critical task of short-order cook. If you are looking to buy an inn, be very curious about the management structure in place. Who is running it? The owners? Are they the face of it? Are they the ones running the operation because, as the buyer, you have to ask yourself if you are willing to do it? Can you pull it off as well as they do?  If you are not willing to do it, how much is it going to cost you?

Chef owner working on restaurant business plan

Create Systems to Help Control Your Expenses 

On the flip side, if you are more than ready to sell your restaurant and ride off into the sunset, before sipping your margarita poolside, what can you do now to improve your bottom line? Again Richard stressed organization! Carving out time to get your systems in order and organized is the #1 task toward improving your overall financial picture. Richard will often look at payroll first and if he discovers you are spending most of your labor dollars on restaurant operations, he will work with you to consider other ways that money could net you a higher asking price. His first order of business is to often break the restaurant out of the P&L (Profit and Loss Statement) to identify the true cost of your day-to-day expenses. Keep in mind, however, that if you just break even and you are in the middle of nowhere, guests aren’t going to stay without also dining with you. It’s when there are scores of restaurants in a town and you aren’t profitable that you really need to reconsider.

Chef and cook cleaning kitchen

F&B Challenges You Need to be Prepared For

Lastly, we asked Richard about the 3 main issues he sees when conducting a restaurant valuation. Lack of organization and a proper structure is #1 as many owners don’t have efficient processes in place. #2 is the ongoing labor problem all restaurant owners must contend with as it’s often the leading factor in bleeding cash. The third item is not having food costs under control. If you aren’t controlling inventory costs, your cash flow will dry up. Richard wisely advises inn and restaurant owners to start at least 3 years in advance of selling by putting things in place to make the restaurant and inn suitable for your desired selling price.

Join The Inner Circle to See The Full Interview

A well-run restaurant can be an excellent draw for business and a profitable revenue center for a hospitality property… or a major drag. Watch our specialized interviews with Richard for current owners and buyers to gain even more insights on running a restaurant by joining The Inner Circle, a free educational platform for current or aspiring hospitality property owners. Register online for instant access and become part of our circle!