Restaurant Investing 101

It’s easy to sit at a charming restaurant, eat a delicious meal, and then imagine owning the place. Investing in restaurants sounds easy enough to amateur investors. But experienced investors like Jason Sugarman, who is a private equity specialist, cautions against rushing into a restaurant investment, no matter how great it might sound. Mr. Sugarman’s vast investment portfolio includes a number of restaurants that thrive in L.A. Here’s his advice for investing in a restaurant:

Invest Only if You Like It

Mr. Sugarman’s main advice for aspiring restaurant investors is to invest in something you like eating. He has a stake in a grass-fed hamburger restaurant and a chain of BBQ restaurants. Mr. Sugarman invested in these after trying out the menu for himself. If you don’t like what you eat at the restaurant, then assume that others like you won’t either. Therefore, choose a restaurant to invest in only after you try a meal or two there for yourself.

Location is Everything

Like real estate, location is crucial for restaurant investments. A profit-making restaurant will be located in an urban center where it’s easy for people to come and go. Mr. Sugarman’s own restaurant investments are located in Orange Country and downtown L.A. Both are vibrant, metropolitan locations with plenty of tourists and locals looking for a place to enjoy a meal. No matter how good the menu is or how celebrated the chef is, no one will visit a restaurant if it’s located far away. Therefore, pay attention to the location of the restaurant to make sure that the area is where people usually go to find dining out options.

Never be the Lead Investor

It’s highly advisable not to be the lead investor in a restaurant brand or a chain, especially in the beginning. It’s recommended to own a stake or be part of a group of investors to mitigate risk. In the U.S., restaurants go out of businesses often just like tech startups. Therefore, be on the cautious side and never take on a restaurant investment risk alone.

Research the Chefs

The style, tone, and the tastes of restaurants are often decided by the head chef. Investors must know how the chefs are before buying stakes at any restaurant. It’s best to invest in restaurants where the lead chef is experienced, educated, and has a string of successes in his or her professional career. The chef must absolutely have great management skills. It’s often down to the management when it comes to making a profit out of restaurants. Your restaurant investment is more likely to be a success if the chef is celebrated for both culinary and management skills.

Mr. Sugarman’s main advice for restaurant investors is to be prepared for risks. The risks will be present regardless of how big the restaurant is. Even small restaurants with moderate profits incur risks as big as what brand-name restaurants sometimes experience. Therefore, preparation is key. Once you have done your research, it won’t be difficult to make a great profit out of the investment.