I have two major goals in my financial life: become a real estate owner (both for my personal home and investments) and to own and operate a business. The problem is, the business I want to own seems to change in my mind every few months (laundromat! yoga studio! green juice bar!) and I need to really start getting serious about my analysis because paying off my credit cards is actually starting to be a foreseeable reality, even in my dangerously short-sighted mind. And since I love thinking about businesses and my friends are sick of me talking about them, I’ll consider the pro’s and con’s of each of the business I’m considering in a new series I like to call: BILO.
BILO: Business I’d Like to Own
Just like a MILF, which stands for Mother I’d Like to…., uhhh, you know, BILO is an acronym for a Business I‘d Like to Own. And there are so many of them! And one of the ones I have always thought is a good idea is a seasonal restaurant.
What is a Seasonal Restaurant?
The seasonal restaurant is a mainstay of places with a busy season. The most successful seasonal restaurants I have seen are up and down the Eastern Seaboard, from Maryland to Maine. Think of the lobster place in Maine, a casual food joint in Rehoboth or Ocean City, Maryland, and all types of restaurants in the beach towns of New Jersey and New York. In places with temperate weather and tourists visiting year-round, like California, few restaurants are only open for the summer. The population in California really doesn’t swell in the summer the way East Coast beach towns do, especially on the holiday weekends from Memorial Day to Labor Day. Vacation and tourist towns all over the country from the Outer Banks to Block Island have tons of thriving seasonal restaurants. I’ve met the owners and managers of a few of these restaurants in the past 6 years.
Pros of Owning a Seasonal Restaurant
1. You are only in business part of the year. ….Obviously. This is the number one factor that makes this business attractive. For anyone who gets antsy in one place or could see the burnout risk factor in operating a high-volume, successful restaurant 12 months a year, imagine the possibilities and rewards of a full-time income packed into 5-7 months of the year. Of course, the “season” is hardly just one season of exactly 3 months. One of the restaurants I know best is a seafood place in a New Jersey beach town (not Seaside Heights). The restaurant owners are back in town in early March and the restaurant starts operating on weekends around mid-April and stays open through the end of October or first week of November. They’re open 7 days a week from June to September, with their busiest season from the 4th of July to Labor Day. So that’s 7 months of operations plus at least one month of preparation and closing down at the bookends of the season. But if you manage your cash flow well, you have 4 months before you need to open the restaurant again!
2. Your expenses are minimal during the offseason.
While you’re still paying your lease, you aren’t operating on days where you have a full staff and no customers in the dining room. It costs a restaurant $X per day just to open their doors in terms of payroll, operating expenses and food costs, and if you are only open when the population of your town swells between 5 and 10 times the off-season population, you are going to have a full house more often than not. You’ll also be paying little or nothing in utilities when the restaurant’s doors are closed.
3. You have the off-season for planning ahead, making changes, recruiting staff and reviewing the past season’s strengths and weaknesses.
If you’ve ever worked full-time in a busy restaurant, you know there is little time for sitting around with your staff to discuss challenges and opportunities. You might get 10 minutes to discuss which meals to recommend that evening but the rest of the evening goes by in a quick succession of tables, meals, meltdowns and closeouts. Everyone is exhausted and ready to go home (or out to party). But while your season will be even busier and more harried, the off-season will give you time to do a thorough analysis of food costs (and menu plan around more profitable dishes), meet with vendors when they are in their own off-season, review staff needs and anything else related to the business. Having been away from the action will allow to see it with a different perspective and make better decisions as well.
Cons of Owning a Seasonal Restaurant
1. You’re working when everyone is having fun.
Restaurant ownership is hardly passive income. And most of the seasonal restaurants I am considering are dinner-only spots where you will be working very late and on every holiday. 4th of July and Labor Day may well be your biggest weekends. Every Thursday, Friday and Saturday night are nights when you need to be working and you may not want to. There’s no time for ladies night or guys night or maybe even date night because you need to be at the restaurant.
2. Banks and lenders are wary of your business.
Turns out banks are not dying to lend money to small business owners in cash-based, seasonal businesses. Especially if you are buying a restaurant at a 3X multiple of 12 months’ net income (the max that most banks want to lend), and you need a loan for a majority of that purchase, the bank wants to receive the same amount on a monthly basis and may not feel that you have the ability to provide that. Personal funds, private investors or family loans may be the easier options to obtain, but could be more expensive or place a strain on relationships. Or maybe you would like to put real property up as collateral for that bank business loan?
3. You might not like working in a restaurant.
I would never buy or start a restaurant without an intimate understanding of food service and the restaurant business. That 9 out of 10 statistic might be off, but 60% of restaurants close or change ownership within the first three years. So not only do you need to really know your business and have experienced managers and chefs in place, but will you be able to handle the work, day in and day out for seven months of the year? This last one is the biggest question for my own situation. I’ve worked in restaurants for a few months at a time when I was younger, and it’s physically demanding and requires a thick skin. Nobody is sending you emails like “When you get a chance, please be sure to fold the napkins for tomorrow. Thanks so much for all your hard work!” It’s more like “Yo- napkins, now” and you get to it. Of course as an owner/manager, you’ll be in charge of making sure everyone is showing up for work, doing their work, hopefully not on too many drugs and keeping the customers happy. You’ll work with the same group every day and become intimately acquainted whether you want to or not. Some of your staff will come from the fringes of society. Are you comfortable with that? Can you handle working with all kinds, not just middle-class people with more or less the same lifestyle as you? On the other hand, can you treat all of your guests with the same level of service, whether it is the billionaire in town from NYC or the locals? Sure, you appreciate the billionaire taking care of your waiters but do you know how to take of your regular customers who can come to make up a large percentage of your business?
So that’s BILO #1. I am still interested in the seasonal restaurant model. If you go into business with owners with current, successful restaurants or acquire a restaurant with an established presence in a seasonal town, your odds of success are much better. With really strong market research and concept development, restaurants can be an excellent business. But it’s no easy job, it’s still risky even when you think you have a market on lockdown, and you can lose popularity quickly if a new player comes into town.
If you are interested in small business, would you consider owning a seasonal restaurant? What about any other type of seasonal business?