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The reality of starting a F&B business

Updated: Feb 16, 2020

Each year in Singapore, a conservative average of 600 plus new F&B businesses begin and almost the same number of shutdowns.

How is this happening and these new businesses, can they become less likely to be the next shut down?

Licensed Food Establishments - Food Shops in Singapore

Most of us regard F&B business is a quick way to make money as you pay your meal just when you got your food. So it is cash business and no outstanding debt compared to other business. 

Or you are a food lover who just enthusiastic about food, or maybe you and a few friends have some fresh ideas, have money, so let's make it happen. You hire the right people, open a store and you are there, a new restaurant of your own! 

Honestly, that is the best way to fail.

Let's rewind a few steps and have a look at your preparation before opening the shop. And let's have a reality check as below,

  • Have you tested the viability of your idea or concept?

  • Have you calculated the CAPEX and OPEX?

  • How long can you sustain with your investment/cash flow?

  • What are the menu and the supply of the ingredients

The list goes on. 

But most of the F&B startup may skip the step to test the viability of their ideas or concept; instead, their projection is base on success stories or gossip of the "successful people" or to attract investors without the understanding the failing risk.

Throughout my career in F&B, I have seen the majority of investments or proposal that has seriously undermined the pitfall of unforeseen circumstances that could happen and perturb the initial financial planning to sustain for at lease the leasing period agree with the landlord. I can name a few such as change of passed by footfall traffics, change of taste due to media or news, staffing issue, hygiene issue, inadequate or no IT systems such as Point of sale to record sales.

It is unrealistic to rely on sales revenue to bankroll your monthly cost, especially in the first year when the restaurant is new. Your restaurant manager is trying to build a rapport with customers and suppliers, streamline the restaurant workflow and train up the staff. You will need a lot more resources than you planned, and when the money ran out, everything will fall apart, just like Murphy's Law.

The f&b business falling apart.

In the F&B Business, the rule of thumb for one store to be profitable, its idea to have the following cost percentages to have a decent profit. 

Rental + Labour + Cost of Goods Sold + Fix Cost + Variable Cost = 90%

Profit = 10%

So you might ask.

"That much money is going out, but only that little profit?" 

Yeah exactly sales revenue is not profit, and it's a cash collection business, not a cash churning business.

Real planning is essential not to lose money and shut down on your first business model, followed by opening the umbrella through expansion. That is where the profit lies.

So now begs the question: Is the concept structure and targeted location viable to achieve the above?

If you don't have that answer, it is time to reconsider your planning before too late and risk all your hard-earned money evaporate back into the economy.

Good Luck and reach out!

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