Investing in a Restaurant

If you love food and you are a social butterfly, investing in a restaurant may have always been a dream of yours. You might be looking forward to choosing a theme for your restaurant, helping to design the menu, or creating an extensive wine list for your future customers. After a few months of intense planning and hard work, you can welcome throngs of guests into your new hot spot.

Unfortunately, it is extremely unlikely that this scenario is how your restaurant investment will play out. In fact, most new restaurants close within three years of opening. That certainly is not because all of these restaurants were serving bad food or were not creating a pleasant environment for guests to dine in; it's because running a restaurant is extremely difficult. Even for experienced restaurateur , knowing how much food to buy when there is no telling what kind of business you will get is borderline impossible, and pricing the menu low enough to attract new business but high enough to cover costs is an incredible challenge. Plus, for a restaurant to succeed and turn a profit, there is also an element of pure luck. In all likelihood, your restaurant investment will result in you working incredibly hard while watching your money disappear.

If you have your heart set on investing in a restaurant, though, and you are willing to accept these risks, you could be in for big rewards. According to food writer Bruce Palling, investing in a new restaurant is a bit like drilling for oil. Most new restaurants either take off almost immediately or crawl along towards slow deaths after opening their doors. You should take every precaution you can to make sure that the restaurant you are investing in has a chance to succeed.

The most important step to take to ensure that your restaurant has a chance is to only invest with people who have experience in the business. If you are putting money into a restaurant to help a family member's dream come true, you may want to reconsider your investment. While helping a loved one to achieve a dream is a nice thought, you really need to think about whether your brother or your cousin or your aunt is qualified to open a restaurant, and how your family dynamic will be affected if the party in question loses all of your money. If your brother has ten years of experience managing someone else's restaurant and he has a business plan that is well thought-out and seems viable to you, then the investment could be a good idea. Otherwise, you not only risk losing your hard-earned cash, but you also risk damaging your relationship with your family by investing.

Once you find a restaurateur with experience and a good plan, you need to agree upon what sort of role you will play in the business. You could be a silent partner, which means that you pony up the cash, sit back and hope for the best. Maybe you want to collaborate with the restaurateur and offer your own ideas and input on how the business should run. If this is the case, you had better come to an agreement about how final decisions are reached before you hand over any cash.

Do not forget that you may not be the only person investing in the restaurant. If there are ten other investors, you will need to know what role everyone is playing, so as to avoid any conflicts down the road.