preparation for startup costs threatened to ruin his young enterprise. The initial $150,000 he used to open the restaurant was depleted by the time he unlocked Amy Ruth’s doors.
With virtually no working capital, he was forced to rely entirely on customer flow to keep his business running. The first day was successful and he raised enough capital to get through the week, cover payroll, and purchase additional supplies. “I relied on the fact that the restaurant would be a popular spot. [I] knew people would come,” says Redding, who lived paycheck-to-paycheck for two months until he was able to cover week-to-week expenses.
Redding says he learned from his mistakes. “I knew how to get by with the bare essentials,” he says. “I tried to do everything myself and wound up falling behind.” He now has 25 employees and estimates 2002 sales at $1.5 million.
Redding’s early money challenges are common in the industry, according to Isidore Kharasch, president of Hospitality Works Inc., a Deerfield, Illinois-based international foodservice consulting firm. Kharasch ranks undercapitalization as the top reason that restaurant failure rates average 30% in the first year, 50% in the second, and 75% in the third. “If you’re 80% of the way to your money goal, don’t even think about opening until you have 100%,” Kharasch says.
With one successful enterprise under his belt, Redding plans to open Amy Ruth’s Old Fashioned Waffles and Cream in early spring 2003. And he recently signed a 15-year lease for a second Amy Ruth’s, which will be located in Bedford Stuyvesant, Brooklyn. The restaurant will open in 2003 on Mother’s Day. In addition, he’s in talks with Foxwoods Resort about opening a restaurant in its Connecticut casino and is working on launching five new restaurants in New York. This time around, Redding plans to have a lawyer and accountant on retainer.
HIS COSTS RUNNETH OVER
Derrick Angus knew that opening a restaurant in Los Angeles wouldn’t be a piece of cake. But he didn’t know how complicated and costly his choice of location would be. An engineer turned catering-business owner, it was his training in the former field that proved most useful.
Before he could open Derrick’s Jamaican Cuisine, Angus learned that he would have to pay the city of Los Angeles a $17,000 sewer line fee. He also had to bring the building up to city code, which forced him to install energy-efficient fluorescent light fixtures that totalled nearly $8,000.
“The location was great, but I had no idea that a sewer line and other infrastructure would cost so much money,” Angus reflects. Additional startup costs included $35,000 for a walk-in refrigerator/freezer, $30,000 to cover the required three-month deposit, and roughly $10,000 for building permits and health department and licensing fees. The startup expenses quickly ate away at the funds he had saved. “I had to go back to myself and my family for more money,” says Angus, who raised $300,000 to start the restaurant.
He made it through the construction crisis by doing most of the work himself. “I