"The problems we face cannot be solved at the same level of thinking we were at when we encountered them." ~ Albert Einstein
“What you have done here in just 30 days is simply amazing!”
Rules Of Thumb Sep 15, 2004
What Advantage Does OpenTable Give You? Sep 20, 2009
Six Common Social Media Mistakes Made By Restaurants and Hotels Jun 29, 2010
Top 10 Reasons To Take A Sledgehammer To Your Host Stand Sep 14, 2007
How to Differentiate Your Business Sep 27, 2007
Being at the front-end of designing and opening a new concept, as we are, is exciting work. Except when the ‘perfection’ bug begins to creep into the process.
First-time operators are the ones who usually begin to bog down the process by insisting that every single piece of the puzzle is ‘perfect’ prior to moving on to other areas – whether it’s the perfect logo, the perfect POS system, the perfect exterior signage, table, chairs, tableware, etc… With an extremely limited budget, you really don’t have the luxury of pretending your back in the corporate world, with practically unlimited resources (and someone else’s money) with a project manager insisting that, “…there’s still work to do before we roll this out!.” Which of course, there is, but it doesn’t have to be done right now.
With an extremely limited budget (who doesn’t have one of those right?) the goal needs to be to get everything done that is critical to the success of the concept, just enough to positively impact that success and not spend one dollar more. There are two main reasons to do this. One, you are creating a new concept with imperfect (and incomplete) information about the market’s response to it. So moving forward when it’s 80% ready and leaving the remaining 20% afterward will give you time to make better business decision based on more and better feedback from your guests. Secondly, you can also refine the concept and it’s elements better when you actually have cash coming into the business to work with.
Of course there are areas that require more certainty than others, namely the layout of the permanent pieces of the FOH and BOH areas as well as the mechanical issues like plumbing, electricity and HVAC concerns. But everything else is up for grabs for the most part and having 100% certainty isn’t critical to your eventual success. The point is to build enough into your concept’s story (who you are, what value you bring to your market, etc…) to create enough short-term success that you can go back and fill in or refine the pieces that can help support the long-term success of the project. With limited resources, understanding and executing this process is crucial. Otherwise, you may have squandered resources that would have been needed elsewhere or may need to have been utilized differently in order to accomplish your goals. A new concept is a very fluid situation and lots of changes will occur from the time you open the door for the first time, to the time you are able to replicate your success in other locations.
So being able to prioritize what’s important and understanding how much import it is actually worth at a particular stage of development is critical to maximizing resources as well as your chances for success once you put the key in the door and serve your first guest.
This is the first post of a multiple part series that will take a look at the issues surrounding the marketing of a new restaurant and offer some much needed guidance for those of you who are either in the process of opening your own restaurant or are seriously contemplating it. Read more
By Paul Correa
Using the IRS to help fund operations and growth
Restaurant and hotel owners who have purchased their own building(s) or completed tenant improvements are beginning to discover what large commercial property owners have known for several years – that a little-known, widely misunderstood, and IRS-approved tax strategy called cost segregation can enable commercial building owners to defer tens or even hundreds of thousands of dollars in income taxes.
Cost segregation came into being in 1997, with the landmark tax court case, Hospital Corporation of America (HCA) v. IRS 109 TC 21 (1997). Prior to that ruling, the cost of commercial buildings had to be depreciated over 39 years, regardless of the building type or usage. With cost segregation, owners can accelerate the depreciation of qualified non-structural building components into more appropriate timeframes such as five, seven, and fifteen years. This is a significant tax savings: The owner of a $1,000,000 building can often see as much as $75,000 in added bottom line cash flow.
In spite of its value, most building owners have never heard of cost segregation. Many others have only a vague notion of what it is, and little idea of its benefits. Nor has the IRS tried to make taxpayers aware of this ruling. As we all know, the IRS is not in the business of telling taxpayers how to pay the least amount of tax possible.
Although many CPAs have heard about cost segregation, relatively few have suggested it to their clients. One reason in the IRS wants a type of engineering expertise that is rare within the CPA community. Also, until recently cost segregation studies were prohibitively expensive for all but the largest commercial property owners. Over time, a small number of providers have managed to bring fees within reach of owners of smaller properties. As a result, the engineered cost segregation study is slowly beginning to catch on.
How does it work?
In order to take advantage of the IRS ruling, an owner must engage and apply an engineered cost segregation study. This is the process of identifying the building components that qualify for accelerated depreciation. Depending on the type of building and its use, anywhere from 20 to 50 percent of the purchase, construction or leasehold improvement cost can be accelerated. Types of assets that can be reclassified include portions of electrical, plumbing and mechanical systems and numerous other components. For existing buildings, the owner’s accountant submits a form 3115 with the next tax return documenting the change in accounting method. Any accrued benefit is taken immediately, without having to amend previous years’ returns.
The process of performing a cost segregation study is highly technical, and there are no bright line tests for what components can be accelerated. Internal IRS directives make it clear that only those with expertise in the various aspects of commercial construction are qualified to properly identify components and to determine what depreciable life is appropriate for a given component. The required expertise outlined by the IRS includes understanding construction methods and systems, reading blueprints and engineered drawings, and knowing the relevant court cases and private letter IRS rulings. This skill set is a blend of engineering, legal, and specialized tax expertise. The IRS also strongly recommends that the study provider have an “arm’s length” relationship with owners and their accountants. For these reasons, owners are strongly encouraged to seek out a firm that specializes in engineered cost segregation studies and that meets all the necessary qualifications.
Who can benefit?
The IRS ruling applies to anyone who purchased, constructed, renovated or made substantial improvements to a commercial building after January 1, 1986. Those who did so within the last 15 years have the most to gain. Thanks to a 1999 provision of the code, depreciation that should have been allocated in previous years can be taken as an all-at-once deduction on current-year taxes.
The IRS now considers cost segregation to be the correct method for depreciating a commercial property. Building owners, whether they are individuals, ‘C’ or ‘S’ corporations or LLCs, who own – or would like to own – their buildings may well want to consider an engineered cost segregation study. The result could be a significant and immediate increase in cash flow and tax savings.
I was re-reading one of the newsletters I subscribe to, on the topic of a restaurant’s life cycle and how after the opening the greatest challenge is to attain consistency by reducing all repetitive job processes to checklists and procedures. I could not disagree more.
You must do those things BEFORE THE OPENING! This is bad planning plain and simple and not a very good use of limited pre-opening resources. If followed, this will not only place your operation at risk, but will needlessly increase your costs due to inefficiencies, low productivity, chaos and bad guest experiences!
Just because some openings look like clown school does not mean it has to be that way for everyone. The whole point of the New Store Opening planning stage is to get these processes and procedures down, then train staff to execute them so that your service and production models are able to create that “wow†you need to grab momentum. Trying to do this after the opening amounts to nothing more than having two sets of operating rules for your staff one before opening, and another real set of rules afterward. Which means that now you have to retrain your whole staff! As well as force them to forget the old habits which will linger and cause disruption of your new procedures and processes and slow down any chance you have at being able to maintain any momentum coming out of your opening.
After executing nearly 20 very successful new store openings over 27+ years, it still amazes me how little planning is attempted let alone actually done when it comes to some of the most important items that will mean the difference between success and failure. This does not have to be rocket surgery either! But you will have to devote time and resources to it. Remember, success has to be managed and this involves planning for it – because failure happens all by itself.
It is not undercapitalization and it’s not the economy. It is “sameness”!
Buildings built the same. Menus taste the same. Employees act the same. Managers manage the same. Restaurants marketed the same. Same programs. Same coupons. Same ads. Same processes. Same procedures. Same interior decor. Same! Same! Same!
What’s the USP in being a commodity?!!
Want to answer a truly unique question from a truly different perspective? What is unique about your restrooms?
Also, how much “white space” (an area which lacks any effort to deliver your story! ie…blank walls, the usual “enjoy” and “how is everything here” comments, no effort inside your menu copy, etc…) is there on your walls? Dining room, kitchen and bathrooms? Menu? Conversations you and your staff have with guests? Marketing pieces? etc…
86 the sameness! Add uniqueness before you endure the same fate too.
Co-founder of the 6-unit Flying Star Café, Albuquerque, New Mexico
How would you describe the cafe?
We’re an everyday place that offers easy access to fine-dining food at a fast-casual price point. Everything is made from scratch—we really care about what our customers put in their mouths. And we’re very product-centric; quality and purity drive our purchasing decisions.
How do you source agricultural products?
We spend lots of time working with a variety of suppliers, both large and small, local and national, to bring the freshest, most flavorful ingredients to the table. Sysco is our broadline distributor and we’re high-volume enough now that they try to meet our specs. For example, we wanted to bring in sustainably farmed chickens and since we use a quarter million pounds of chicken a year, Sysco went out of their way to find a supplier for us. It takes some extra effort on both our parts, but once you establish a relationship, it works.
Tell us about your smaller suppliers.
The turkey sausage we use is made locally from free-range turkeys and our sirloin comes from grass-fed cattle. We’re currently getting most of our tomatoes from a co-op in New Mexico, but we also run a small, experimental farm that’s producing limited quantities of vegetables for our restaurants. And we’ve arranged through a broker to buy our coffee directly from the growers and roast it ourselves.
How important is organics?
The economics of organics doesn’t always work for us. Our average menu item is $10 and the price of organic products is often too high to keep our food costs down to 30 percent. I’m more concerned about getting in pesticide- and hormone-free food that’s raised sustainably and humanely. We have more of a “Whole Foods Market†philosophy—offering a mix of organic and all-natural items, always paying attention to our customers’ priority for healthy, great-tasting food. For example, we were trans fat-free way before it became trendy.
What sourcing advice would you give to others?
Do a lot of research and digging to find the best network of suppliers and establish solid relationships with them. Smaller producers and purveyors can often be better for your bottom line. I also ask a lot of questions when I travel and eat. If I see an appealing product on the retail side, I’ll contact the manufacturer directly. And when we can’t locate what we want, we make it ourselves in our commissary. That’s how our baking mix was created. You have to be willing to go the extra step.
The latest Wells Fargo/Gallup Small Business Index had some real eye openers. Check these out:
- Most Small Businesses start with an average of just $10,000
- Close to three-quarter of businesses (73%) were primarily funded by the owner’s personal savings, while 37% were funded in part by loans and lines of credit.
- Forty-nine percent of respondents said advice from other business owners also would have made their start-up days easier, while 39% said a better understanding of financial management would have helped.
- And ONLY 30% said they started with a business plan.
I always thought that was true — that most businesses start with no business plan. Hey, I have done it several times and have yet to hit a home run — but then again, I usually start a business, like my bookstore, for the love of it.
What’s your passion?
WASHINGTON: The Treasury Department and the Internal Revenue Service issued proposed regulations that clarify the treatment of expenditures incurred in selling, acquiring, producing or improving tangible assets. If adopted as proposed, the regulations should reduce the amount of controversy between taxpayers and the IRS in this area.For many years, there has been controversy about whether taxpayers are required to capitalize certain expenditures as an improvement or take an immediate deduction for the expenditures as necessary repair and maintenance expenses. There has been debate on how to apply the tests used to determine the tax treatment of these types of expenses.
The proposed regulations provide an overall framework that expands the standards in the current regulations by drawing on principles developed through case law. Specifically, the proposal provides exclusive factors for determining whether amounts paid to restore property to its former working condition must be capitalized as an improvement.
The proposed regulations also provide guidance concerning the economic useful life of a unit of property and activities that substantially prolong the economic useful life. Additionally, the proposed regulations provide rules for determining the appropriate unit of property to which the rules should be applied.
To reduce the administrative and compliance costs associated with this section of the tax code, the proposed regulations provide several safe harbors and simplifying assumptions. Although the proposed regulations do not provide a de minimis rule in which small cost items are exempt from capitalization, the preamble solicits comments on whether such a rule should be adopted in final regulations. The Treasury Department and the IRS expect to receive a number of comments on the proposed regulations and will take those comments into consideration before finalizing the regulations.
The Treasury Department and the IRS plan to address in future guidance the treatment of costs related to the development and implementation of computer software and costs required to be capitalized in certain transactions including tax-free acquisitive transactions and stock issuance transactions.
Rock Bottom shares its checklist and low-cost PR is at the top There’s not a lot of media efficiency in advertising, says Marilyn Davenport, director of marketing for the Louisville, Colorado-based Rock Bottom Restaurant & Brewery. So when she mobilizes her team to open a new location, public relations is a huge part of the marketing plan.
“Publicizing an opening is not only important to building local traffic, it demonstrates the growth of your company and reinforces your image,” Davenport explains. It’s crucial to execute at a standard of excellence by planning in advance, communicating a consistent brand message and being extremely organized.”
That’s where Rock Bottom’s checklist comes in, a 14-page tome listing every detail that must be attended to.
One of the first items on the agenda is deciding whether to enlist outside help. When Rock Bottom is opening several restaurants consecutively or entering a new market, it usually opts to partner with a local PR firm to give the chain more leverage and networking abilities.
“In the hiring process, we make sure the agency understands our key messages and how we want to build our brand in that particular market,” Davenport explains. “Then we start working with them intensively 60 days out, speaking weekly, then daily.”
But the majority of the time, Davenport and her team handle the publicity themselves. “The benefit of internal PR is that we know our systems better than anyone else. Plus, there’s a cost benefit, we budget about $8,000 to $10,000 for the publicity portion of a launch, compared to about $30,000 an agency might charge.”
Either way, one of Rock Bottom’s first pieces of business is choosing a local charity partner in the launch market. This partnership not only generates press, it permits Rock Bottom to tap into a potential customer base through the charity staff and its supporters.
Sixty days before opening, press kits are created and circulated. Thirty days out, the Rock Bottom team plans a separate targeted event for each day of opening week. There’s Friends and Family Night, a charity fundraiser, one or two press dinners and a VIP day. Once the guest lists are compiled, invitations are sent out and RSVPs collected, often up to the last minute. Staff training also must be integrated into the plan. “We stage several practice meals during a ‘soft opening’ so everyone’s up to speed for the real thing.”
Follow-up is key to keeping the momentum going. Getting exposure on cooking shows and in newspaper food pages is a priority. The PR team also continues to pitch business editors and regional magazines with stories and liaises with its local charity.
Then it’s on to the next opening, dog-eared checklist in hand.
Checklist highlights
