In 2018, I saw an advertisement that said “Established Cocktail Bar in Tanjong Pagar for sale.”
Getting involved in F&B was something I had been interested in for awhile. In high school, I worked at McDonalds and Häagen Dazs along with various fast food stalls in university. The work was tough, no doubt. But I always thought it could be great to have my own establishment.
I clicked in and saw that it was one of the bars I frequented; I was working in the CBD back then.
After speaking to the then-owner, and negotiating on the terms, I took the plunge and purchased the business (for a tidy sum).
To be absolutely honest, I thought it would be an easy business to run. I could make some money, and have a convenient place to meet friends. It’d be fun – what could go wrong?
Four years later, I now have a definitively clear answer to that question.
Look, you probably know it’s not all fun and games. But it’s easy to underestimate the intensity it takes; given that the industry is often portrayed as eating and drinking all day long.
Here are some of the biggest struggles you’ll face as a new F&B business owner.
The startup phase
In Singapore, numerous restaurants close quietly in under a year.
One of the biggest challenges is the intense competition. Customers are spoilt for choice when it comes to places to eat. In turn, this means that brand equity is extremely important.
Brand equity is a fancy way of saying that people know about your business and that you build a customer base around people who enjoy your food/drinks/service.
Once this is established, your brand can grow via word of mouth or social media (Hopefully in a good way that brings in more customers).
Running events, having special menu items or a great ambience will definitely help with this. Often, the marketing functions of a new F&B business will make or break it.
It is precisely because of this reason that I decided to buy an existing business with established branding and customers, instead of starting one from scratch.
Yes, the original investment was not insignificant for sure, but I thought I could potentially skip this fatal stage of the business.
This brings me to the next point.
You will worry about cash flow and margins
The sight of restaurant crowds on Friday nights might make you think that F&B owners make a lot of money. Don’t let that fool you.
True, a restaurant might make thousands in revenue on a good night.
However, on bad nights this could be in the hundreds or even close to zero, which happened more than once during the period when only 2-pax dining was allowed.
In a good month (like December), you could be making a 15% profit.
However, COVID-19 and its regulations have been absolutely punishing for F&B businesses. Most months we are barely breaking even, sometimes even operating at a -10 to -20% loss.
For reference, we need about $100,000-$120,000 a month for our restaurant to be profitable as a business. This is what the revenue breakdown looks like:
|Item||% of revenue|
|Profit/Loss||-20% to +15%|
(At present, labour costs don’t reflect what you see above. They’re closer to 50-60% of our total revenue.)
The exact breakdown of costs depends significantly based on your type and size of business, as well as location. There are many trade-offs to consider.
For example, hawkers might hire fewer people, but they might not earn as much revenue due to lower prices.
On the other end, restaurants may be able to charge more for their food, but they need more service staff to maintain the quality of service.
With so many expenses, having a good overview of your cash flow is important. It’s entirely possible to have an extremely popular restaurant on the verge of collapse, simply because of cash flow problems.
For that reason, I keep track of the cash flow via a cloud-computing accounting system, Xero.
Entitled customers are a painful reality
It is said one of the truest ways to determine whether a person is kind or gracious is how they treat people they assume are powerless against them.
In my experience, service staff, and in particular F&B staff often endure rude and unreasonable behaviour from people who take ‘customer is king’ to the extreme.
Don’t get me wrong, treating customers well and with respect is important. Good service is important, and there are plenty of friendly and wonderful patrons.
However, there are always “entitled customers”, who can both be unreasonable and rude.
This demographic often takes ‘customer is king’ to the extreme, insisting on having their way; even if it goes against regulations, or negatively affects the experience of other diners.
However, our responsibility is to provide all customers with an equally enjoyable experience. For this to work, individual customers cannot always have their way.
However, many people fail to understand this, and end up writing negative reviews of restaurants online. F&B has had a hard time these past couple of years, and reviews like these can be pretty damaging to a business.
Lastly, as an owner, what’s sad to see is how people treat the service staff, including me when I’m helping out at the restaurant.
When they find out I’m the owner, their attitude changes immediately to one of friendliness. That kind of “fakeness” is the worst.
Manpower: a perennial headache
Speaking from my own experience, Singaporeans often do not want to work in the F&B industry.
Unfortunately, a large proportion of society here still see it as a job with few prospects; it is one that parents discourage their children from joining.
Because of the lack of local staff, many outlets rely heavily on foreign labour and part-timers when it comes to manpower.
There are challenges with this approach. Part-timers can be unreliable, bailing when you need them the most. I understand their perspective; they don’t see it as a full-time thing so they might not take the job seriously. That said, there are amazing ones too that we’re very grateful for.
However, because of the government’s intention to give Singaporeans priority over foreigners, F&B owners need to have at least 10 Singaporeans hired before we can hire one foreigner via an S-Pass.
The result is one of the largest headaches in the F&B industry here. There are staff we need who might be more than willing to work, but we have to look for the rare Singaporeans before we can hire them.
At present, we have a team of 15 Singaporeans and 1 foreigner.
Here’s the dilemma:
If we were to increase salaries further without increasing prices, then our business would operate at a loss – and not worth the risk.
If we were to pass on the wage increases to consumers, we need customers to be willing to pay; This is unlikely. In Singapore, people are accustomed to affordable food.
PS: While you might think we might be underpaying staff, we pay about $2,000 – $2,500 for the entry-level staff and more than double that for management roles.
TWS: We spoke to several F&B operators in the past; ranging from coffee shop centre operators to restaurateurs. They voiced similar sentiments.
After the latest S-pass regulations in Budget 2022, you can expect to pay a minimum of $3,000 – $3,650 for an S-Pass holder.
Even food is not spared from ‘upskilling’
It is tempting to assume that food is something timeless and doesn’t need to be updated. Yes, cash flow will ensure your short-term survival, but in the long term, adaptation is the game you must play to survive.
Case in point: During COVID, we had to run cloud kitchens when we could not have physical dine-ins.
Instead of serving just our regular food menu and bottled cocktails, we added on comfort food (Curry Fried Chicken and The Ugly Dumpling) that people wanted to tide us through. And, even today, we still serve Curry Fried Chicken for dine-in and delivery!
However, others were not so lucky. More traditional owners struggled to get on food delivery apps and online payments; they endured painful losses and were eventually forced to shut down.
Yes, passion is a big part of F&B, but…
Ask a lot of new or prospective F&B owners, and they’ll say that passion is their special ingredient to succeed.
This is something I believed in the start… and something I still believe today.
Yes, there are few things that bring me as much joy as seeing someone enjoy a good meal with their friends and family. Giving people the space to enjoy themselves is rewarding.
However, the truth is that often, this is simply not enough.
It’s not enough to simply love food. Or drinks. Or even seeing people have a good time, for that matter.
Running a business, particularly F&B, takes far more than that.
For starters, luck plays a big part in it; your sales are influenced by factors beyond your control; the weather and pandemics are just two examples.
It also requires grit for those tough days where you’re being yelled at, or when the numbers look dim.
Finally, careful resource planning and financial management are crucial to make sure the ship doesn’t go down.
Because just like you’ll find anywhere else, passion alone can’t feed you.
Want to run a restaurant sustainably?
Then save some money. Make some plans. Set up good systems. And hope for the best.
Stay woke, salaryman.
Running a business is hard, Xero makes it easier
Having a great product or service is important, but what will truly make or break a business is whether it can keep its financials healthy in the long term. And having the right technology and processes in place is critical.
If you’re on the lookout to streamline and clean up your business’s financial processes, consider Xero, a cloud accounting platform designed for startups and SMEs. Read more about how Jekyll & Hyde uses Xero here too.
With features to pay bills, claim expenses, accept payments, bank reconciliations, invoice issuance and more, you can get accurate accounting and inventory reports that will help you to get a bird’s eye view of all your finances and ensure that your operating costs and expenses are in the green.
Find out more about Xero here.