The UK’s love affair with dining out is showing no signs of wavering post-Brexit.
A CBI report released in August revealed that spending on services grew over the previous three months. A large proportion of this was attributed to restaurants and bars.
It is a commonly held belief that everyone has a great novel in them. In addition to this many of us now also aspire to start our own restaurant.
It is easy to see the appeal of running your own restaurant. The UK’s relationship with food has become more sophisticated over the last decade, and we are increasingly becoming a nation of foodies. Additionally, concept based restaurants have the appeal of being both creative and having the potential to scale and generate a significant financial return for their owners. A relatively recently acquisition was Byron Hamburgers, first incorporated in 2007. In 2013, the company had scaled to 34 sites and was sold for £100 million to Hutton Collin Partners.
However, despite positive stories in the media running a restaurant is one of the hardest business models to get right. During the financial year 2014/15 1,294 restaurants became insolvent in the UK.
Many of the most commonly cited reasons for failure are due to first-time restauranteurs miscalculating the costs associated with set up and ongoing overhead costs.
The new restauranteurs
Therefore, it is not surprising that an increasing number of a new breed of successful concepts are started up by individuals who are from a finance or business background.
Mark Selby, co-founder of Wahaca, a Mexican street-food restaurant with over 20 restaurants, has a background in corporate finance. Prior to starting Wahaca he worked at Merrill Lynch and for the Capricorn Group developing restaurant models.
Selby attributes his experience working in finance as being pivotal to being able to set up and run a successful restaurant chain:
“[Working at Merrill Lynch] taught me everything about running a business from the finance side. Cash flow, balance sheets and P&Ls…I realised this was really important stuff to understand if you wanted to go into business.”
Jeffreys Henry, a London based accounting firm which specialises in restaurant and hospitality clients have noticed the changing profile of restaurant founders.
Bhimal Hira, a director at Jeffreys Henry, says: “More and more new restaurants are being opened by city professionals, [consisting of] investment bankers and accountants.”
Whilst Hira acknowledges that such individuals are likely to have a thorough understanding of how business works, he thinks that a number of new owners are initially motivated by kudos but underestimate how hard hospitality businesses are to run.
He says, “I think it is a lifestyle thing. They want the glory of owning a restaurant but some don’t understand the pressure and commitment required to make it work.”
The main financial challenges which restaurant owners face revolve around both compliance and the viability of running a profitable business model.
Accountants working in practice and industry, are likely to be familiar with the introduction of The National Living Wage and the roll out of auto enrolment.
Jeffreys Henry recommend keeping control over employment costs by advising their clients for this not to exceed a set percentage of turnover.
However, there are also more nuanced issues specific to the restaurant industry which aspiring restaurateurs will have to grapple with. The issue of how to treat staff tips has been a particularly contentious issue over the last year, with a number of different restaurants receiving negative publicity for how they have historically dealt with them.
Additionally, working out how to price products, break even and calculate profits in restaurant businesses is particularly difficult due to needing to take wastage, allocation of fixed costs, and portion control into consideration.
Non financial challenges
Non financial challenges in setting up and scaling a successful restaurant chain include hurdles such as executing consistency across different sites, understanding a target-market and finding the right sites.
Matt Mollicone, who studied AAT, is the co-founder of 7Bone, a multi-site “better burger” restaurant. The business currently has two sites, in Southampton and Bournemouth, and plans to launch a further six in the near future.
Mollicone has found his background in finance to be particularly helpful in overcoming business challenges.
He says, “Having a financial background helps in terms of discipline and planning. Rich (my business partner) also has a solid business background so our approach is very business orientated.”
Non financial challenges which the business has faced in its journey so far have included coming up with a product that is great enough to sell in high volumes, and pressures on time and management around the businesses growth phase in scaling up.
Whilst running a restaurant business is by no means easy, the rewards are high for those who succeed.
Top tips from Jeffreys Henry include finding a niche market with a high demand, and creating a robust business plan and realistic profit forecasts.
If you have such aspirations, it may also be worth taking the time to work in the finance department of a hospitality business in order to gain specific industry experience, whilst applying and developing your core accounting and financial skillset.
Nick Levine is a chartered accountant and freelance journalist, with a background in fin-tech who has written for Accounting Technician magazine.