The checklist is long and daunting. You know you want to open a new pizzeria, but you don’t know where to begin. And that’s after you’ve already done it once or twice before, let alone if you’re a first-timer.
So, where do you begin? With a plan of action and a realistic attitude, that’s where. For starters, it’s important to come to grip with a few indisputable facts: you’re going to have to do a ton of research; there will be mountains of paperwork; the project will cost much more than you anticipate and will take longer to complete than you estimate.
Sound frustrating? Wait until you actually get started. Your anxiety levels will instantly spike by 200 percent. But while the cost of pizzeria ownership is high mentally and physically, it can be rewarding if you are able to offset your investment risk with good product, service and marketing. But we’re getting way ahead of ourselves here. There’s so much to do before you can open. And none of the tasks that must be completed en route to opening a new pizzeria is more important than getting the funding necessary to get the project up and running.
Assuming you know the type of pizzeria you plan to open, the first step is to figure out how much capital you’ll need. That amount will vary widely depending upon your location and the type of service you’ll offer (full dining, delivery/carryout, take-and-bake, etc). A small, independent delco unit in a small Midwestern town may get started for under $100,000. A 250-seat, full-dining parlor in a large city could exceed $2 million. You can figure out roughly how much it will take to get started by talking to realtors, brokers, equipment dealers, food vendors and consultants. Once you know how much money you’ll need, it’s time to figure out where to get it. Some options include:
Pros: Partnering with investors won’t tie up all of your capital, and it may be the only solution if you lack the necessary investment funds.
Cons: While sweat equity is viable, money talks. Most investors won’t back a project unless the owner puts down 10 to 25 percent of his or her own money. It shows you have a stake in it.
Make sure you have a really good partnership agreement, because most partnerships are based on monetary contributions. Whoever puts up most of the money generally has the most say. You will have to answer to your investors if things don’t pan out, and they could direct you as to how they want you to run your business — or ultimately buy you out of the whole affair.
• Family and Friends
Pros: These are the people who believe in you and may provide funds at little or no interest.
Cons: You’ll lose friends and the support of family members quickly if you lose their money. Always make sure that whatever you borrow can be given comfortably. Explain to them that it is a gamble and that they may never see anything from the money. Personal loans are tricky, so avoid them if you can.
• Venture Capitalists
Pros: This option provides a quick infusion of capital. These people are generally in and out of your business. Or, if you’re looking to grow into a small chain, they would likely be a source for capitalizing additional units once you have established yourself.
Cons: Venture capitalists look for a quick return on investment of two or three years, and they usually invest in someone with a proven track record.
• Small Business Administration
Pros: The SBA has multiple programs available for small business owners. If you are a woman or a minority additional programs are likely available to you.
Cons: Your business plan must be detailed and solid (is this really a con, come to think of it? Shouldn’t it be solid anyway?). The SBA wants to see previous business ownership and employment in the industry. There is a mountain of paperwork to wade through during the entire loan term. Most importantly, SBA money is not cheap. The interest rate often is higher than on conventional loans. That said, the SBA also offers a degree of protection should you find yourself in trouble.
Pros: Loan rates are lower and commercial lines of credit are useful.
Cons: Conventional bank loans are next to impossible to get for a first-time venture. Usually, they simply won’t fund high-risk investments like restaurants.
Your access to capital and investors will depend largely upon your business plan. As previously mentioned, you’ll want it to be as detailed and accurate as possible. It’s important be realistic with your numbers (don’t expect $1 million in sales in your first year or a 20 percent profit margin). In order to arrive at your key figures, it’s going to take a lot of research. You’ll have to eye a site for your location and know its demographics inside and out. What trends are influencing the area? Is the population growing or shrinking? Is the neighborhood in which you’ll do business safe? How many other restaurants and pizzerias are in the trade area? Is there a good business base for catering or to provide a lunch rush? What is the traffic count and pattern like? Is there much foot traffic during the day? What about at night? How many homes are in the trade area? What’s the average age of the area’s population? What’s the average income?
You’ll also need to understand the city’s codes and regulations. If there’s a sidewalk, can you encroach on it for outdoor seating? Are there restrictions on operating hours? Restrictions on signage? How does your concept fit in with the city’s general plan (and every city has one)?
Your chosen source for funding will scrutinize your business plan from every angle and will smell a rat if your numbers aren’t realistic and feasible. So be conservative when it comes to estimating profit. Your best bet would be to project a seven percent profit, but you may be wise to offer three business plans. A conservative one would call for five percent profit and an aggressive one would plan for 10 percent profit. Show your prospective lender all three projections. They’ll appreciate your thoroughness.
Your lender will become one of the many “partners” on which you’ll depend as you seek to get your concept off the ground. Even if you don’t form a true partnership and own the business yourself, you’ll need to collaborate and rely on a host of others: an accountant, a banker, a financial advisor, a business lawyer, possibly a tax lawyer, contractors, designers, possibly architects, city officials, food vendors, equipment suppliers, marketing and public relations consultants … this list goes on and on.
The point is, opening a new pizzeria, even when you’ve done it before, is far from easy. The road to success is ripe with pitfalls. There are hundreds, maybe even thousands, of decisions that need to be made (some menial, others huge). It’s a long trek that can be rewarding, but only the strongest survive.