Lol, did I jump the shark? You know that guy that keeps getting banned is chomping at the bit to jump on this one!

I'm just trying to get as creative as possible in using my location and maximizing revenues. Years ago, I looked into taking over a bunch of vending machine routes, it was surprising how much revenue a bunch if gumball machines could generate

It's Channel 4 actually [/nit]. But yeah it's much better than the US version which is heavy on conflict but light on substance.

If you're in the UK you can watch them here (dunno if this will work in the US):

http://www.channel4.com/programmes/r...hen-nightmares

Are you guys talking about restaurants - with a chef, front of the house, back of the house, sous chef, chef de cuisine, etc, or are you guys talking about milk-it-for-all-its-worth-franchise-frozen-yogurt-joints?

One is opening a hotdog stand. One is an endeavor of excellence.

Not putting much value in the chef is pretty shocking when talking about a restaurant.

Awsome, seems reasonable from my perspective. I'll pass it all along to him

What's a good resource for finding information about starting a food truck?

Is it better to buy a used food truck with the kitchen already built in? or to get a truck and have the kitchen equipment installed?

Are auctions a good source for kitchen equipment?

Valid suspicion & one that lends itself to the explanation of why many decisions in this industry are counter-intuitive to what an outsider (and I'm not suggesting you are) might intuitively believe to be true. Endeavors of excellence are pretty academic in my view & excellence is not something I can deposit in the bank. Lots of people eat hot dogs & that can make for a pretty excellent p&l.

It's a mixed bag so far in this thread, but I don't believe any of the posters are pursuing the type of establishments you are speaking of. If I am wrong & someone is, please clarify that & we can proceed more directly. I have quite a bit of experience in the type of restaurants you speak of. That experience, combined with what my own business goals are, do not make chef driven concepts an attractive option.

Let me be clear that I am in the business to make money, generate wealth, improve my lifestyle & build a company, a large one, from scratch. The hot war of restaurants, the battle of good & evil, takes place on the P&L statement & nowhere else. Doesn't everyone in get into a business for those reasons? No, not really. There are many investors, what I call vanity types, who get into this industry for reasons that are not about making money & I mean 100% about making money. Those investors are very much drawn to chef-driven concepts for reasons I'm sure most of you can deduce. Are they planning on setting quite a bit of money on fire in the process, of course not--but often they do & I can tell you tale upon tale of gm's dealing with investors & chefs who had burn rates that would make internet start-ups from the idealabs days blush.

I know this doesn't really answer your question very well, but I am going to load some content this weekend that addresses chef's in more detail t & would rather just post it all together for the sake of thread harmony.

PS:
I made some friends in the used equipment business, the vultures of the restaurant industry, the people who prey on distressed owners & buy out their dreams for 20-30 cents on the dollar, unscrew and pack-up the light bulbs on the way out the door & then ask much will you take for the door. Who do they want on the other end of the phone when someone is forced to liquidate....#1 a chef, #2 a vanity investor. Their advice to me, one of the few rules of thumb I still follow..."you make money when you buy, not when you sell".

Google, the info is out there. I would first define my concept & then pursue the appropriate truck for that concept. You can buy an empty truck or a fitted one--the choice is yours. Auctions are a good source. Hopefully you will be bidding against equipment guys who like to steal equipment so they can make money on the re-sell, they will not bid up the price without a good reason. If your dealing with an auction with civilians, then be careful--they don't know price well enough to know when to quit & they don't like to get up early on a saturday for an auction & come home empty handed. LOL, worth checking out as many as possible though--you sometimes get to see the inside of a national operator, if you keep your eyes open there is much to learn from that.

This could be taken a few different ways, what do you mean by this?

Missed your post, so sorry for the delay. Great question.

Let's say you found a place to buy that otherwise checks out & you simply wanted to confirm that the place was indeed profitable. Let's assume that the owner is not wining & dining you with the idea that he doesn't report all the income & pockets x$ of cash on a weekly basis.

1. Do they have a point of sale system in place? Then audit it & don't be shy about asking to do so.

2. Request tax returns for every year operation, not just the past 3 or 4 years. People can be devious & it's not unheard of for someone to start over-reporting their income a year or two in front of a sale. If your suspicious that the returns have been altered, there is a way to request copies of tax returns filed with the IRS & have them sent to your accountant or lawyer. The owner will have to comply & sign off on it. Use your accountant or lawyer for cover so you can keep it friendly. Tell him your guy will only review returns that come from the IRS.

3. Request all of the establishments P&L's & invoices from his major purveyors of food & liquor. We are going to use the invoices to confirm the sales. For example, he is not doing 10K per week no matter what he says if his purchases are 2K. Hopefully he is buying too much, there is waste or theft & you can profit from correcting that. In an earlier post I noted trying to define something he is doing wrong that you can fix. This is one example of that.

4. Start driving by, 7 days per week at different times & try to make some sense of the parking lot load.

5. Have lunch or dinner or some drinks at different times of the same day & try to get your friends or family involved in doing the same. I like to do most of this work as an unknown. Get receipts. Most receipts generated by a POS will have a unique check number assigned to it. If you go for lunch & the check number is 21 & then get a receipt for the same day near closing & the check number is 121, we can do the math & start getting an idea of how many checks he is generating on a daily basis. For some places it will be even easier because they reset their check numbers on a weekly basis.

6. Be wary of a stack of cash deposit slips for the bank. It wouldn't be difficult for someone to deposit some random amount of money each day & then withdraw it the next day & then re-deposit it again & so on. Thank him & ask for the bank statements.

I meant owning the real estate. If we are thinking of the same kind of dive, you can run these places for most of the operating hours with just one bartender who hopefully isn't ripping you off too much. I don't mind the low ROI if I am dealing mostly in cash, paying down a mortgage & controlling a liquor license in the process. If your dive is located in a so-so part of town, your in a good spot if & when it turns around, You will own a commercially zoned property & depending on your liquor laws, a valuable license.

So true, applies to my construction business as well, looking back over the last 20 years of building, I never lost a dime because I always bought right (except when I bought into the stock market in spring of 08'--puke!)

Is there are any interest here in my sharing a detailed outline of a concept I have some time invested in, but does not yet involve investors? Since it's unattached, I am free to share all the details, with some very minor exceptions that won't really impact anything too much. I am hoping it might spur some good discussion & perhaps address some issues that will otherwise not be brought to light. I am not 100% on proceeding with it, but would like to get a sense of the interest in doing so. Either way, I will still be loading content this weekend beginning with failure & failure rates.

Also, here's some light reading that is an absolute must read for anyone seriously pursuing an investment.

http://www.econ.ucsb.edu/~tedb/Cours...urantsfail.pdf

I'm interested

I'm down in Austin, Texas checking out all the food trucks down here, there's a lot of them, let me know if there's any interest in uploaded pics and if I can figure out how to do it from my iPhone, I'll load some pics of the trailers and some of their food

**not to derail**

^^im in Austin too, moved down 6 months ago. lmk if you ever wanna grab dinner / talk investments :-p

Bring it on! I am interested.

Fair enough. Its just when you say restaurant I don't think of what you guys are talking about. I don't consider a burger king or a frozen yogurt place a restaurant - even though they are technically.

Just saw your reply, I'm leaving tommorrow am but love it down here and plan to come back and maybe we can meet, in the mean time, shoot me a Pm and we can start talking about investment stuff

I'm from Dallas and man it's lame compared to Austin

I agree, what should it be called?

Not sure if they have these stateside, but they are fairly prevalent in Japan. You pay for your food by buying a ticket, which you then give to the restaurant employee. Staff have no need to deal with cash.

How would you structure a partnership agreement with someone who brought you a good idea, could run the food prep and manage the day to day ops, schedule employees, open and close, etc?

You provide financing, set up the Accounting system, vendor relationships, have final say on all issues

I know this is kind of vague, so let me know what I'm leaving out

Sorry for the delay everyone. It's Mardi Gras time down here, so my GOGO & I have been spending quite a bit of time on the streets measuring foot traffic in front of some sites I have been looking at. As a sidenote, you can often request a report from the city engineer on the traffic counts they record for a particular street or intersection. Sometimes your local public transit company will have the same.
(http://www.amazon.com/GOGO-Counter-H.../dp/B001UDW68U)

I hope to find time to load this thread with some extended content on issues that I believe should be considered in greater detail. Let's continue the Q&A, but if you have a subject you want addressed more specifically please post it the thread. Subjects I wont be expanding upon include: comparing one franchise with another, breaking down a P&L (at least not yet) or should I buy a bbq place or a taco stand. I really want to address preconceptions or intuitions you may have that could lead you to making a mistake with your time & money. If there is something about this industry that strikes you as odd or you are unclear on the logic behind it, no matter how silly you might think it is, please feel free to post it in the thread. I'm going to start with failure & failure rates, how I value chefs, pre-planning a concept & some thoughts about lease agreements.

Failure Rates
Any conversation about investing in a food & beverage operation inevitably includes the subject of failure rates & the perception that F&B investments have significantly higher rates of failure than most other business starts. Do they?

I do know that restaurants are very public investments that generally require a permanent physical location, signage, advertising & usually engage the public more personally & more frequently than a business that sells stationary or jewelery or ceramic figures. People generally eat a few times per day & have to make a decision about where & what they will eat much more frequently than they do about other transactions. I could go an entire year or more before having to visit a jeweler or stationary store, but I have to think about eating every day of the week. (This physical human requirement for nourishment is the primary durable advantage this industry has over others.) My point is that we have a more personal & more frequent connection with f&b operations. The jeweler could have closed up one week after my last visit, but I might not know until a full year later. If your regular coffee shop shuts down, you might learn that in <24hrs. It's also very obvious to everyone when a restaurant goes dark perhaps highlighting these failures over others. The sign comes down & the window wrap goes up, the parking lot is vacant --we can see with our own eyes that they have closed. What about the businesses out of our view? Or the businesses that simply don't have your attention?

Anyway, the below captioned links should answer all of your questions on failure rates & the last one is an absolute must read for anyone seriously considering an investment. Confront these issue & then move on to the more important ones.
http://www.restaurantowner.com/public/302.cfm
http://www.businessweek.com/smallbiz...416_296932.htm
http://www.econ.ucsb.edu/~tedb/Cours...ntsfail.pdflop mburger

As you can probably tell, at this point in my career I don't focus too much on failure rates & don 't expend much effort trying to determine what businesses have the highest or lowest rate of failure. I do have some interest in which models are thriving, but I draw those conclusions more by my own observations & operating knowledge then by specific stats on store openings & closings. It's easy to misapply that type of thinking. Chipotle is doing pretty well. Does that mean that the market for burritos is in general a strong one? Maybe, but imo it likely means that a concept with laser like clarity of offer & focus, strong operations that know the value of managing or controlling most of their inputs, some economies of scale & a brand with a high perceived price/value equation can take sales away from lesser operators. That's really all the info I am looking for. It keeps me focused on drilling down through a concept to find it's true value & not just start selling burritos or coffee or yogurt.

The overall market for people spending money on food & beverage is a strong & reliable one & as suggested above, primarily due to the basic human requirement for nourishment. There is of course much more to the business end of it then just supplying that nourishment. Dozens of factors will determine if a particular customer will choose to spend his money with you. However, it's safe to say that there is not some better, faster, cheaper & acceptable substitute for eating in the form of a pill or shake that will make restaurants & quick serve concepts obsolete—but there are certainly better, faster & cheaper concepts in the works that will provide more value to the customer & better serve them.

Last thing. It's easy switch our focus from failure rates to success rates. Don't be fooled. As we will discuss further in this thread, there are many factors at play that will distort these numbers & we will learn quickly that many establishments will continue to operate & change hands despite being “failures” & not appear in the stats as a failure, they will likely appear to be successes—and quite often they are not

What is Failure?
Let's assume for a moment that failure is not some absolute condition & perhaps measure failure on a continuum like so:
100% Success----------------------Break-even--------------------100% Failure
Let's also assume:
100% success=operating results that meet or exceed all of our expectations (illogical or not)
100% failure= total loss of investment that results in a bankruptcy filing.

The businesses on either end must be the ones you can identify the quickest and easiest. That's the first instinct we want to develop so we can focus on the middle which is where most of our deals will come from.

100% Failure
In the case of a restaurant going dark, we are likely in the area of 100% failure. By dark I mean an unannounced closing that results in locked doors, covered windows, disconnected phone line etc...etc.... If it is a franchise, it will be often be stripped of all signage or otherwise identifiable markings. Franchisors are very particular about this, they do not want their brands associated with failure. A reasonable business person will try to exit a failing concept with a sale before going dark, not finding a buyer while open & operating is an ominous sign as most of the value is due to ongoing operations. Cliffs: going dark is really, really bad news & you should generally stay away from these deals.

If we are looking to acquire this type of business (and you must be very careful doing so) it's generally to re-concept & leverage some the existing equipment & improvements & hopefully the location.
There's a good chance the landlord now controls the contents, so I am looking to do business with him & him only. Many,many questions need to be answered before proceeding, but in general I am looking to take these places over for $0 in upfront investment & taking over a lease. You can be certain I am using my experience, previous tenant failure & my fresh cash to pay the rent as my primary negotiating leverage.

PS: There ares some things that you may want to strip out of these businesses, customer lists or accounts related to catering or bulk orders—items a failed owner is generally happy to get some cash for. Sometimes it will just be a phone number If your in a quick serve concept that relies on delivery, your phone number is one of your most valuable assets. I have offered thousands for phone numbers and have never been sorry in doing so.

100% Success
Not always the case, but these are generally the businesses that are simply not on the market for sale.
Why would they be? When these types of transactions take place they are often very private with no interruption in operations. If they are listed, it's for a premium price. That price might seem unreasonable to you in absolute dollars as compared to the “cheap” listings you see everywhere. However, those cheap listings often end up being much, much more expensive in the long run. Unsophisticated buyers will pursue a listing for 50K because it's “cheap”, but not pursue a 400K listing because it's “expensive”. I think most of you are wise enough to see the faults in that thinking.
So when someone asks how do I buy a profitable business at a good price, I generally say luck & your checkbook.


I will post the second part connecting failure & expectation later tonight.

If you can hold on a bit, I am likely to post the details of a concept I am working on that will be pitched to hands off investors & I will probably elaborate on what my requirements are to close the deal. It's not going to answer your question perfectly as I only pursue concepts that can be expanded into hundreds of units & part of their investment (what they are really investing in) is the franchisor position & not so much the first couple of operating units.

That said, you will likely have to give up more than what you initially have in mind, not necessarily in real equity. A 40% stake in the profits does not require a 40% stake in equity. And ~40% is the number you need to start with, it could be higher.

Good stuff. The link doesn't work tho

Wow, I thought a 51% controlling interest was an absolute minimum.

In my case, I don't think my person is bringing enough to the table and was thinking of not giving her more than a 20-25% interest plus perhaps a small salary or hourly wage

My hope is that this concept could turn into a 100 plus chain but I don't want to do that work, I want to turn it over to an expert like yourself and keep a passive, smaller interest of a much bigger pie and let the experts do what they do to take it nationwide

What would you need to see from my concept for it to attract you to do your thang?

http://www.econ.ucsb.edu/~tedb/Cours...urantsfail.pdf