KANSAS CITY SMALL BUSINESS SECRETS OF SUCCESS FROM CRAIG GLAZER!!!
TKC NOTE: Our friend Craig Glazer offers some COMPREHENSIVE and FIRST PERSON small biz advice that's certainly worth consideration coming from one of Kansas City's most successful entrepreneurs.
So you want to open your own small business in KC?
‘Money, get away
Get a good job with more pay
And your O.K.
Money, it's a gas
Grab that cash with both hands
And make a stash’ – ‘Money’ Pink Floyd
We hear it all the time, Kansas City wants new businesses to open and flourish. Ah yes, we all have that dream to be the owner, the CEO, the decision-maker, leader and the last word in owning and operating our own business. You also hear this a lot, “Man, I know if I could open my own little restaurant and use my grandma’s recipes, we’d have a line out the door. Nobody has a chili recipe like my family has. It would be a huge success. Besides, we have a ton of friends that would come every week.” Yes most people that have this dream seem to think of it in terms of restaurant, bar and entertainment. After all, it doesn’t seem that difficult. Why not my home town of Kansas City?
“I mean, how tough could it be? The overhead couldn’t be that bad. After all, you find a nice little place to lease for a couple grand a month, you get a couple family members or good buddies to work there. Hell, you can buy used equipment, that couldn’t be that expensive. You get some used tables and chairs, better yet we don’t even need to advertise what with facebook and all the social media available. Heck, that’s free. Lord knows, the cost of the food on our menu is dirt cheap and gosh, a bottle of beer only costs a dollar and everywhere I go they sell them for five dollars or more, we’ll make a killing!”
Really? Let me throw a little bit of water on that dream. The divorce rate in America according to CNN is nearing sixty percent. The death rate for small businesses, especially for bars, restaurants and entertainment venues is over 90%. Most fail in the first two years. Let’s not even talk about retail small business like a clothing store. Why?
First problem is most people that open a small business have never opened or operated a concept at any level. It is true that if you have come up in your business of choice, i.e. restaurant, bar or even retail, that’s a big plus. The number one reason for failure is being under-capitalized. The second reason is corporate America, almost all the time, has already thought of your idea and has opened a boatload of stores just like the one you want to open. They also have a truckload more money, experience, clout and oh yeah, that little intangible called advertising or, in the modern sense, ‘branding’ of their name and concept.
Costs. First off, unless your family has millions of dollars, you are going to have to lease that first location for your dream concept. The first surprise you get is how expensive it is to rent or lease a small space to operate from in any select areas of Kansas City. Take the Plaza for example, even a five to seven thousand square foot location may call for a rent price of anywhere between eight thousand to fifteen thousand dollars a month. That doesn’t include a percentage of your gross revenue being taken as a ‘bonus rent’ by the landlord. Then there are C.A.M. charges (Common Area Maintenance). Usually this includes trash pickup, armed security in the area, marketing the area and the use of parking in the area. This fee can easily exceed a couple thousand dollars a month, even for a small business. Now you have to get approval from the landlord to accept your idea, your concept. Being that you are a local with no track record and you are trying to go into the Plaza, they probably don’t want you in the first place. Why? Because when you go under (that means fail) the Landlord knows it’s very difficult to collect for the years of rent you signed for on the lease because you don’t have any money behind you. Usually, this means that the owner of the small business declares bankruptcy and the landlord gets only a small percentage due, the landlord then keeps the deposit, sues the owner for his personal signature guarantee and it’s just a big mess. That’s why in areas like the Plaza, Legends, Oak Park Mall or Zona Rosa (any of the hot areas) you almost always see corporate businesses like Dave & Busters, Hooters, AMC Movie Theaters, The Gap, Nike and so on. Yes, some of them are individually owned but have the support of a national corporation behind them.
Let’s say you get lucky and you find a nice spot in an area that is popular but not quite so corporate (i. e. Westport, Waldo, Brookside or the Crossroads Art District), your monthly rent will be a little bit less. However, with a restaurant that serves alcohol (which you need to do) or a bar or an entertainment venue that serves alcohol, good luck. You have to have permission from both neighbors for your license, in addition, usually you have to have the permission of those living within a few miles of your location as well. Your lease will be contingent upon getting this liquor license that you may or may not have until you are ready to open. How awful would it be to spend up to a hundred thousand dollars to get ready to open and you don’t get your license approved? That’s happened more times than I can tell you. Now you get to hire an attorney, go to hearings, meet with neighborhood groups all in an effort just to get your liquor license. This is an expensive process.
Let’s say we got past all that. (Remember, some places like the Plaza and Westport have liquor license ‘moratoriums’ and won’t give out new ones unless you are a corporate entity like Hooter’s).
Here are some payments due that you probably never thought about. You will need a computerized accounting and cash handling system (something like MICROS or ALOHA). These little puppies cost several thousand dollars a unit and even a small restaurant, bar or retail store will need more than one unit. Then you have to pay monthly and quarterly insurance and support that will cost three to six thousand a year minimum on top of your purchase. Equipment. Getting used kitchen, sound or bar equipment is harder than you think. Most of the good stuff available comes from corporate restaurants or small businesses, like the one you want to have, that have failed. The good stuff is purchased by corporate wholesale houses that offer the equipment to big time buyers…not you. What’s left is a lot of tables, chairs and extremely specialized equipment that may not work for you in the first place.
Here’s some more bills you need to think about. Approximately ten percent of your gross revenue goes to state taxes. You have Federal taxes and Federal withholding taxes. You’ll be hiring young people off the street with little to no job experience that you will have to train and pay, often as much as eleven to fifteen bucks an hour. These employees are often unreliable and lack responsibility and commitment. Cost of goods will be higher than you expected. Get ready to have a lot of leftovers from your kitchen to take home as the food begins to spoil that you didn’t sell. You planned on that twenty-eight percent food cost, prepare for it to be sixty percent with spoilage, theft and over-proportioning. While alcohol sales are your largest profit center, they also are your biggest target for thieving by servers and bartenders from over-pouring and the late night party at your establishment that you never knew about because your staff didn’t invite you.
There are fees for your phones, your electricity, gas and water. Hey, you’re a newbie so you’ll probably have to make a deposit on these that can be three to five thousand dollars which you don’t get back until you close. When Facebook doesn’t work out, here comes the radio, newspaper and magazine add costs. Any ad executive will tell you it takes at least three thousand dollars a month to be effective. We haven’t discussed your liability insurance or your fire insurance, these can add up to twenty thousand dollars plus a year. Did we mention workman’s comp?
There are another thirty to forty bills you will get we haven’t even mentioned yet. Just for example, ASCAP. Even if you just play the radio or TV, you get to pay those guys a monthly tab. Things break, replacement costs can be expensive. And we haven’t discussed the cost of menus or uniforms.
Yes, as you can see, the cost of opening a small business is double or triple what most people think. Still, in America, the dream can work. It happens. Sadly, there aren’t too many ‘Oklahoma Joe’s’ around. Remember, a line outside the door. We can all dream. That doesn’t cost anything.