The Dangers of Investing in a Restaurant

It can be difficult to know where to invest your money. There are so many different options, but how do you know which ones are worthwhile? Investing in a successful restaurant can be very lucrative. A profitable restaurant will give you a quick return on your investment and if the business expands into multiple locations, you could stand to make a lot of money. Unfortunately, the catering and hospitality industry is one of the most volatile industries out there; around 60 percent fail within the first year, and only 20 percent make it past 5 years. That doesn’t mean you should avoid investing in a restaurant altogether, you just need to choose carefully when deciding which one to put your money behind. These are some the main things to consider when meeting with potential partners.


Decide if the restaurant business is right for you


There is a big risk involved in investing in a restaurant so you need to be completely sure that it is the right choice for you. Many people make the mistake of thinking that they can be a very hands off investor and still be successful. Unfortunately it is not as simple as putting up the money and waiting for a return. You need to have the time to be heavily involved in the running of the restaurant and you also need to be confident that your finances will still be stable if you do end up losing your investment. If you are looking for an opportunity that doesn’t require as much time, there are plenty of hands-off investment areas that you could consider instead.


Review the business plan


If you are sure that the restaurant business is right for you, the next step is to look at possible investment opportunities. There is no way that you can be completely sure if an investment will come good before putting the money up, but if you assess business plans and projections properly, you can get a fairly good idea. Some of the tell-tale signs of a bad business person can show themselves during the planning stage. One of the key things to look out for is the location of the proposed restaurant. A restaurant with incredible food and service, will still struggle to get off the ground if the location is wrong. Look at foot traffic in the area, public transport links, and the level of competition nearby.


You should also see whether they have considered every detail in terms of stocking the restaurant and getting ready to open. You want to see that they are buying equipment at reasonable prices, without sacrificing on quality. This shows that they are business savvy, but also passionate about the quality of their restaurant. Buying refurbished equipment from places like is a good way to ensure you get top of the range equipment without breaking the bank.


Also consider their staff hiring policy and pay rates. You will not get the best staff unless you pay a decent wage. Although, in the early stages, you don’t want wages to be so high that they eat into running costs.


Working Relationship


The last thing to consider is your working relationship. You might have found somebody that has an airtight business plan, brilliant projections, and some great staff. It all seems perfect, but you need to remember that you could be working with this person for years to come. If you think that you wouldn’t get on, or you have a different idea of where you want to take the restaurant in the future, it might not be the best idea to go into business together.


If you follow these steps, you can avoid the dangers of the restaurant business, and see a good return on your investment.

The Dangers of Investing in a Restaurant