Monday, January 02, 2006

Lessons in business:

Slate has an excellent article on the misfortunes of cafe owners. I must confess the cafes I frequent seem to have their owners on the premises all the time. This reminds me of a essay about running a new england bed and breakfast. The essay was written by a famed Ivy league economist in the 1950s or so (I'll update this post with the name when I remember it). He loved the B&Bs near his hobby farm; he considered them a great way for the city to donate money to the country. (Emphases mine, the percent breakdown is worth memorizing.)
Bitter Brew - I opened a charming neighborhood coffee shop. Then it destroyed my life. By Michael Idov

The failure of a small cafe is not a question of competence. It is a sad given. The logistics of a food establishment that seats between 20 and 25 people (which roughly corresponds to the definition of 'cozy') are such that the place will stay afloat—barely—as long as its owners spend all of their time on the job. There is a golden rule, long cherished by restaurateurs, for determining whether a business is viable. Rent should take up no more than 25 percent of your revenue, another 25 percent should go toward payroll, and 35 percent should go toward the product. The remaining 15 percent is what you take home. There's an even more elegant version of that rule: Make your rent in four days to be profitable, a week to break even. If you haven't hit the latter mark in a month, close.

A place that seats 25 will have to employ at least two people for every shift: someone to work the front and someone for the kitchen (assuming you find a guy who will both uncomplainingly wash dishes and reliably whip up pretty crepes; if you've found that guy, you're already in better shape than most NYC restaurateurs. You're also, most likely, already in trouble with immigration services). Budgeting $15 for the payroll for every hour your charming cafe is open (let's say 10 hours a day) relieves you of $4,500 a month. That gives you another $4,500 a month for rent and $6,300 to stock up on product. It also means that to come up with the total needed $18K of revenue per month, you will need to sell that product at an average of a 300 percent markup.
It's a great article. Tragically pastries are a money sink. I love pastries.

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