I financed several start-up restaurants when I was in the commercial mortgage banking business. All of the non-franchised restaurants failed within the first two years. So I studied the restaurant failures to better understand what it takes to underwrite them successfully.
One restaurant failed after four months because the owner ran out of working capital. Another facility bit the dust because of inadequate parking. I financed a restaurant for a gourmet chef who made mouthwatering food but had no financial management experience. It died too.
I learned not to make the same mistake twice each time one of my restaurants closed down. So I financed a new restaurant for an experienced owner with a history of industry success. But that didn’t work either. He catered to a young and fickle drinking crowd and paid less attention to his food menu. And when a trendier watering hole opened in the neighborhood, my borrower’s customers’ loyalty waned and the business closed. Read full post.