ComplianceApril 24, 2017

How to Launch a Successful Restaurant Business

Palbir Nijjar, who turned around a struggling pizza restaurant in California, shares his personal story and discusses what it takes to be a successful restaurant owner. Nijjar also talks about the unique challenges of restaurant ownership and tips for success.


Greg: Hi, I’m Greg Corombos and today we’re going to spend our time discussing the right way to start your own restaurant. Of course some of the same principles apply to restaurants as they do to any small business, but there are some unique aspects to keep in mind for restaurants as well.

Our guest today is Palbir Nijjar who took over a floundering pizza restaurant in California, ran it for six years, and turned it into the hottest pizza place in town. Mr. Nijjar is now founder and president of Smart Path Wealth Management. Palbir, thank you very much for being with us.

Palbir: Thanks, it’s great to be here.

Greg: Why did you decide to jump into the pizza business?

Palbir: I came from a small business background where my father was in the trucking business, and I was wrapping up undergraduate [work]. The timing was during the dot-com bust, and there weren’t a lot of jobs out there. The ones that were out there weren’t paying very well.

So I had the entrepreneur bug, and actually worked at a pizza place throughout college, and always looked at it as something I could do better than the place I was working. One day I was reading through the paper, and saw an ad for a restaurant for sale that I used to visit quite often, and jumped on it. I got some funding from my father who was willing to help me out. I was 22 and got into the restaurant business.

Greg: What kind of research did you do before taking the plunge to both make sure you knew what you’d be getting into and making sure it was for you?

Palbir: The most important part was being honest with myself. It’s a business that requires a tireless work ethic, and you really have to be a people person as you’re dealing with different personalities, and you’re in a service-based industry. So if you don’t like people, then it’s not something you should be in.

Other than that, and I’m in the financial industry now, and I enjoy doing valuation work. When I was reviewing the financials of this business, I saw a lot of value in it. It’s really important to have a good business plan and a pro forma financial statement that will work for you.

So the price was right, and that was a big part of my due diligence. As I understand the market where I lived, there was one restaurant that did really well, and they went through a funk, and I thought there was an opportunity for a turnaround, and that’s what happened.

Greg: So make sure you have the right location, the right person for that industry, and make sure you’re in a market that’s going to be able to sustain that restaurant. You don’t want to open up a high-end steak house in the middle-class, working rural town, but something like a Texas Roadhouse might do gangbusters. That’s all part of the due diligence process.

Of course what you want to provide for the customers is largely what they want from going to your restaurant. They want good food and a good experience, and that’s what you want to provide. However, of course, to be able to do that you need to be able to be doing some building works as well.

Let’s talk about some of the things that you have to get done in order to open your doors in the first place. Starting with an entity, what did you do there, and what advice do you have for anybody interested in this?

Palbir: You can be a sole proprietorship or a corporation. There’s a lot of opportunity for liability in the restaurant industry between labor laws, slip and falls, food safety scares, and so you want to protect yourself with the right amount of insurance, but also I think you want to incorporate your business and protect your personal assets. I would recommend working with a good accountant and making sure you’re structured the correct way, not only for tax savings but also to protect your personal assets. I think corporations is how I’d do it, and that was an important part of organizing my legal structure.

Greg: You mentioned when it comes to financing, you got some help from your father and obviously that was an important part of you taking the move to buy the pizza place. What about folks who don’t have that option, or can explore a number of options? What is the smart way and maybe the not-so-smart way to try and raise money to do something like this?

Palbir: It really depends on what type of concept you’re trying to open, and it can vary. Are you starting from scratch? Maybe open a building from scratch, which can be really expensive, but gives you good flexibility? Are you buying an existing restaurant, or is it going to be a food truck? There’s a big difference on what those cost. I think the average in the industry I’ve heard is about $250,000 to $300,000 to open a restaurant. If that’s the case you have multiple options, you have various SBA (Small Business Administration) loan programs.

There are a lot of loan programs within this. There are opportunities for veterans, and the nice thing about those [programs] is you have an interest rate that stays within a certain range. I think it’s between 6 to 8.5% right now and you can get these loans from big banks or regional banks that you might have a strong relationship with.

The danger, of course, of going into debt is if you miss your payments and being forced out of business. So other options are looking for outside investors and for me that was family, and that can be positive or negative, along with friends or complete strangers. Another thing is going into partnership with someone. You’re giving up some ownership and probably giving up some potential profits, but they have the money and you have the expertise, and that might not be a bad way to go.

If you’re using a lot of your own money, don’t pull your life savings. You want to budget for business losses, and you don’t want to lose everything you have, as exciting as it may be to open a restaurant.

Greg: Once you do open your doors how would you gauge where you are with profitability and staying in business? What are some guidelines to determine whether this is actually working out for you?

Palbir: You have to have good financial controls, and it’s really important you know what you’re making on a monthly basis. I would have a monthly P&L [profit and loss statement] that I would work on my own, and it really allowed me to stay on top of trends, making sure I’m going in the right direction. Then in evaluating that and having a good accountant you can work with. You want to look at the important parts there when running your business—food and labor costs and operation costs.

Depending on the industry there are certain metrics you want to achieve, and so it’s important to get some industry publications where they share these metrics with you, and you have benchmarks on where you want to be compared to some of your peers.

Greg: What about some other things that might be unique, either unique to restaurants or different than most small businesses, whether its permits, health inspections. What are some of these other regulations, government issues, that you need to wrestle with that you might not think about when you’re thinking about making the best pizza in town or any other type of food?

Palbir: One of the big items is if you’re going to serve alcohol. I mean you have to deal with your local alcohol commission for beer and wine licenses and possibly liquor licenses if you’re going to have a full bar. And there’s often limitations on how many licenses are issued in a marketplace. So you might have a great idea and location, but then you can’t meet the step of getting a license you need.

Often times at a restaurant you have to have a full-time manager or the owner who has to have a food safety course, which is obviously very important in the restaurant business. So you have to pass a test for food safety, and keep that up-to-date. You will have regular inspections by the health and safety department, and I think that’s a good thing. A lot of times people get a little freaked out when they walk through your door, but you have to look at that like the partnership where they can help you improve your operations.

Dealing with the city and getting business licenses, fire department for crowd control, and seeing how many people you can seat in your restaurant. You have to really become an HR expert and I think that’s very important too, in addition to all the other hats you’re wearing. Labor laws are very important to be on top of, especially if you’re hiring kids that are still in school. And you’re going to be doing a lot of job interviews, so know what you can and cannot ask during the application and interview hiring process. Dealing with health care and employee benefits or dealing with terminations. It’s a high turnover industry and you’re dealing with people quite a bit, so you really have to be on top of some of the HR rules.

The lease is another big part, and I guess you should talk to a good lawyer about your restaurant lease because that lease can make or break you. And there’s value to that lease if you ever wanted to sell your restaurant. If you have a good lease, you add value to your business, so I think that’s something many people don’t think about, but it’s very important.

And knowing yourself. I knew I wasn’t a food guy. I can’t create recipes from scratch, and so I went the franchise route, and every franchise will give you a legal document called an offering circular. It has very valuable information in it, and [it’s] something you want to review with your lawyer and accountant.

Often time you want to try and understand sales profitability. The franchise can’t share that number, but there are numbers in that circular you can back into, and a good accountant can help you back into it to know what your financials will be. It also has a list of current owners in that franchise and former owners, so you can contact them and talk to them about their restaurant experience and their successes and failures and try to learn from it.

So if you’re going the franchise route that offering circular is gold.

Greg: From either your own experience or clients’ you’ve had perhaps in the restaurant business, what are some of the most common mistakes folks should avoid as they do the start-up process?

Palbir: People might underestimate the amount of work involved, but also not have systems in place. Having systems in place is very important, and if you lack those systems it just leads to chaos in your restaurant—employees, cleanliness issues, inconsistent foods, not good enough financial controls. I always did a checklist for my employees and that led to an efficient operation.

I think another mistake is being stuck in the back of the house rather than the front, which is where an owner’s job should be. It should be focused on business development where you can hire and train for the kitchen.

Location is another one and rule of thumb in the industry is 80% of your customers come from within three miles of your restaurant. So you want to make sure you are where your customers are.

Greg: And lastly, speaking of that on the sales and marketing front, obviously the best possible sales and marketing is satisfied customers who tell their friends and neighbors about it. What else did you do to make folks understand that this run-down pizza parlor is much different now, and something people should check out again?

Palbir: Yeah, word of mouth is cheapest, especially these days with review sites and Yelp and Google. It’s more important than ever that you have a tight operation and provide a good restaurant experience.

One thing I did and it didn’t cost money, it only cost time, was being involved in the community, especially my demographic was we are a family and so I was involved with the little leagues. There’s time often spent in the kitchen, but if you spend it out there with the community, and sit on some board of directors, and be involved maybe in your local chamber of commerce, that goes a long way and people will pay you back for that. It’s cheap and effective.

Greg: Palbir you’re certainly having a success story of your own, and we thank you so much for sharing it, and best of luck with your current business as well.

Palbir: You bet, and thanks Greg.

Greg: Palbir Nijjar took over a failing pizza restaurant in California, and ran it for six years, and turned it into the hottest pizza place in his town. He is now founder and president of Smart Path Wealth Management.

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