September 25, 2024
Wasabi | Tysons Corner, VA
As a restaurant operator, I went through the rollercoaster of opening multiple spots of our conveyor belt sushi place, Wasabi. Each opening had its ups and downs, but every new location was a learning curve on the road to successful restaurants.
I remember a meeting with investors who specialized in restaurant growth companies when I had three units and was pitching a growth plan. I was laying out that I was ready. They said, “When there is a problem, do you go there?” And I (naively) was like, “Sure, they are only a few miles away.” And they said, “You're not ready.”
The reality is, they were right. As I learned, opening a dozen restaurants around the country (from CA to MA to FL) can feel overwhelming, especially if it's your first rodeo. Loans, leases, locations - they can all play a huge part in whether you make it or break it. Here’s a quick list of 8 things I wish someone had told me before I opened another location of my restaurant business.
8 things to know before opening another restaurant location
1. Be cautious with leveraging debt2. Implement tight systems, recipes, and organizational operations
3. Know your finances inside out
4. Build but balance your brand
5. Consider your capital structure carefully
6. Keep each location as its own legal entity
7. Be smart with your lease agreements
8. Make sure you're giving your managers the right incentives
1. Be cautious with leveraging debt
It's easy to get tempted to load up on debt when things are looking good, but don't forget about the risks. Taking on too much debt can really weigh your business down. So, don’t go overboard with the borrowing. Just because your first location is raking in the cash, doesn't mean the next one will automatically do the same. Keep in mind if you are opening restaurants, and one fails, the debt doesn’t go away, but the expected profits do!
2. Implement tight systems, recipes, and organizational operations
If you're expanding from one to two, or even two to three spots, you've got some wiggle room to manage each place day-to-day. You can kinda be in two places at once.
But when you jump from 2 to 3-5+ locations, things get way more complex. Suddenly, you can't be everywhere at once. That's why getting your operations systems in place early — think inventory, recipes, invoices, training, and so on — makes life a lot easier than trying to fit them in later. Plus, setting up those systems in a store already doing well means you can work out any issues in the best setting possible.
3. Know your finances inside out
It's super important to get your head around your business's finances, compare those key numbers, and really understand what they mean. This stuff is crucial because it guides your big decisions and shows you where you can do better. If your food costs are high in one spot, it might not be too big of a deal, but if they are climbing across multiple units, it gets VERY expensive quickly!
4. Build but balance your brand
When expanding, ensure your new locations are close enough to benefit from brand recognition without cannibalizing the customer base of your existing establishments. Striking the right balance is key to growth without self-competition.
5. Consider your capital structure carefully
When expanding, ensure your new locations are close enough to benefit from brand recognition without cannibalizing the customer base of your existing establishments. Striking the right balance is key to growth without self-competition.
6. Keep each location as its own legal entity
It's pretty normal to have the same investors for all your restaurants, but make sure each spot, even if they're part of the same brand, is set up as a separate legal entity even if wholly owned by the parent corp. This way, you're protecting your whole business from individual problems, like lease headaches or slip-and-fall accidents. It stops one issue from messing up your portfolio and everything you've worked for.
7. Be smart with your lease agreements
Get to know the ins and outs, especially the liabilities, and try to put a limit on them. Don't get trapped into guaranteeing the whole lease amount right when you sign. It's super important to negotiate so you don't end up stuck with a 5-year lease if things go south with the restaurant after just 9 months. Landlords say, “We always get a personal guarantee on the whole lease” - well, I did a dozen and never gave either a personal guarantee or an unlimited guarantee (and my leases were with some small landlords and some giant REITs). Protect your downside of each project!
8. Make sure you're giving your managers the right incentives
The simpler the compensation plan, the more likely it will have an impact! Think about tying their bonuses to how well the store performs - specifically how cash flow is performing. From my experience, when a restaurant is doing great and keeping its staff, it's usually because the managers are being treated right and rewarded well. This gets them really motivated to do their best, which in turn, helps the restaurant succeed. Trust me, without a solid store manager, your chances of success plummet.
About the author
Prior to founding MarginEdge, Bo Davis was the founder of Wasabi. Wasabi has operated a dozen conveyor belt sushi restaurants in seven states over the past 20 years, and is still operating in Northern Virginia. Prior to Wasabi, Bo was in the US Peace Corps serving in Macedonia, earned an MS in Finance from London Business School, and founded an educational software company, Prometheus. Bo also achieved an MS in Data Science from Northwestern University in 2021.
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Food Cost