A Beginners Guide To Managing A Small Restuarant Business In Today’s World


    Shifting consumer trends and changing lifestyles have led to major thrust in the food business. There is a new food joint opening up around us every other day. More and more youngsters and experienced professionals filled with an entrepreneurial spirit are entering the restaurant business with much gusto. However, not all the restaurants sustain to tell a story of their success.

    The restaurant business is brutal not only in terms of time and money but also in terms of excruciating efforts that go into day to day operational issues. Add to it the regulatory and compliance element, and it can become a nightmare. But for those who are driven by passion, the trouble is worth it.

    If you are one of those who have always dreamt of owning a restaurant, you are going to need much more than just passion and enthusiasm.

    Here’s a beginner’s guide to help you take off your restaurant business successfully and run it like a pro.

    Idea and Concept – Get it Right

    What is in your mind may not necessarily look good on a plate. Get your ideas and concepts right before you plunge into the business. Think of what kind of food you want to serve fast food, cafes, pubs, fine dining, exotic, experimental etc.

    Understand the acceptability and feasibility of the idea. If it is too run of the mill, it may fail to attract the customer. On the other hand, if the idea is too rebellious, it might not be acceptable to a lot of customers. Your idea should also be in sync with the target segment and the availability of capital.

    Target Customer and Location

    Your idea of a restaurant should match your target customer base. Study the location and the customer segment. How much are they willing to experiment with their taste buds? How much are they willing to pay? Is the market already saturated with the idea that you have in mind?

    Understand the demographics of your customer base. For instance, their age brackets, major occupations, lifestyles, spending styles and eating habits. It doesn’t make sense to open a restaurant that serves excellent non-vegetarian dishes in a location that is primarily vegetarian. Similarly, a fine-dining restaurant is a low-income locality is not a wise decision.

    Also, keep in mind the availability of raw material. What you plan to serve should be easily available in the area to keep the procurement costs at optimum.

    Capital – There is no Alternative to it

    The restaurant business is capital intensive. Initially, you may require anything between a few lakhs to a couple of crores depending on your concept. You will also need lots of it to keep a restaurant running. You may want to look for options to infuse capital in the business initially. Banks may hesitate to provide credit facility unless you have considerable assets as collateral.

    Average price per customer (APC) is considered a good way of calibrating your costs. APC gives you a fair idea about pricing and seating capacity vis a vis the cost. Cafes and fast food joints have a lower price per customer, but the turnover (customers coming in daily) is high. On the other hand, fine dining customers will spend more in your restaurant, which means a higher APC, but the number of customers will be limited.

    Depending on your capital requirement, you can choose to use your personal investments for your restaurant, look for loans from banks or a mix of both. You can also explore venture capital investments. However, VCs may invest only when they find the idea feasible. Also, you might have to forego some equity when you bring in a VC.

    Operational Costs

    Operational costs in the restaurant business are high, and there is no easy way to say this. Rent, kitchen equipment, infrastructure and interiors, staff, raw material, marketing, licensing and general upkeep of the restaurant will demand a consistent flow of capital. A small amount would also go into procuring a GST invoice software that you will need to track your sales and purchases.

    Typically, 30-40% of the cost is involved in procuring the raw material. The restaurant business is also prone to losses due to pilferage and unused/expired material. You can explore options and get experts’ help to keep your operational costs under control.

    Licences and Registrations – What all do you need?

    If you are getting into the food business, be prepared to get overwhelmed by the number of licenses you need to procure.

    FSSAI (Food Safety and Standards Authority of India) license is mandatory for all businesses dealing with food. It lays down guidelines regarding hygiene and safety standards for foods. FSSAI license is valid for one year to five years. The fee varies depending on your turnover, issuing authority (Centre/state) and type of food business.

    Eating house license issued by the Police Commissioner of your city permits you to operate a legitimate food serving place within the city limits. The license is typically valid for three years, but this may vary from case to case.

    Trade license is issued by the local municipal authority for running a commercial establishment within the limits of the municipality. The license is renewed every year.

    GST Registration is mandatory for restaurants if your turnover is more than Rs 20 lakhs. You will need separate registration in every state you operate. Ensure that your invoice bill format is GST compliant.

    Shop and establishment license is a mandatory requirement for all commercial establishments across the country. The license is city-specific, and the fee also varies State-wise. The license needs to be displayed prominently in the place of business.

    Fire Safety license is to be obtained from the local fire department. This ensures that you are taking sufficient steps to safeguard people and material from possible fire incidents.

    Liquor license is to be obtained if you plan to serve liquor in your restaurant. Serving liquor without necessary permits calls for a huge penalty and even permanent shutting down of the premises in severe cases.

    Food is a great way to connect with your customers. In spite of the hardships and challenges, seeing your restaurant business prosper can be immensely gratifying. With some basic preparation and meticulous execution, you can realise your dream of running a restaurant.