Things You Should Know Before Opening Your Own Venue
Apr 27, 2018
Walter MacCallum, a Director with Aitken Lawyers, looks at what is driving talented venue operators and chefs out into the country and gives his five top tips for opening a successful regional venue.
The insanity of property prices and leasing arrangements in major cities like Sydney and Melbourne is driving population and restaurants into Australian regional areas. Towns like Daylesford, Birregurra and the Mornington Peninsula in Victoria; Yass in New South Wales; South Australia’s wine regions and Tasmania (thanks to a spike in tourism) are home now to some of the country’s finest award-winning restaurants and cafes. All up, around 120 regional dining establishments qualified as part of Australia’s top restaurants this year.
As news of this shift in successes spreads, and the Australian economy pivots to a greater dependence on tourism, dreamers (and serious players who will compete with them) will move to set up their own gustatory venues, often looking to feature organic produce, locally sourced wines and other delights within the cosy atmosphere of a retro venue with a small intimate bar. Paddock to plate has greater resonance when the venue is regional rather than in one of our big cities.
But, for new entrants, this is a world of risk and hard work often rationalised by the hope that it just might pay off.
Getting a licence to run a small bar with a capacity to serve alcohol, up to 100 people from midday to 2am in New South Wales is a relatively simple affair, which will cost around $2,000. It may require that you submit development consent from the local council, a floor plan and a community impact statement. Similar requirements exist in other states and are not difficult to negotiate.
Other questions, regarding location and the aesthetics of a fit-out are also very important, but, from a purely business point of view, business structure, supply contracts and employment arrangements are crucial for the survival of a new regional business.
No.1 Nail your business structure
Probably the most important to start with, is deciding the correct business structure. A lot of people forget this until they’re way down the track, the business is doing really well and they want to minimise tax and/or protect the dream that they have created, but getting it right from the outset can be critical – should it be a partnership, should it be a company, should you run the business via a trading trust, or should you hold your interest in the business via a family discretionary trust? All these questions are often ignored early on, and, when it does matter, there can be significant tax consequences if you try to make changes.
No.2 Find talented staff
While starting a business in regional areas is exciting and provides great opportunities to engage the local community, particularly through the employment of local talent, often a big name chef from the city is the ticket. But how are you going to fund that talent?
There are many ways to hire staff and keep them engaged, both emotionally and financially when the fledgling business is cash poor. Bonus plans and employee share plans often provide great incentive for talented staff to pick and stick as the business grows. On the other side of things, no one wants the negative publicity that George Calombaris recently experienced and a sound knowledge of the applicable awards and pay conditions is an absolute must.
While staff can be your biggest headache as a business owner, they can also be its greatest asset, none more so than in the hospitality industry where service is king. Picking the right staff and keeping them engaged and properly remunerated is essential to the success of any start up business.
No.3 Let your cash flow
The sad statistics indicate that a large proportion of small businesses, particularly in the hospitality industry, will not survive the first 12 months. The main reasons behind this are firstly, poor management and secondly, cash flow.
Maintaining positive cash flow is obviously essential and how you contract with your suppliers will have a huge impact on cash flow. Often suppliers will readily offer you credit on 30 day or 60 day terms however, this may not always be beneficial for cash flow and can often end up in a situation where, on periodic monthly points in time, significant amounts of money are required to repay suppliers. Don’t be too quick to enter into credit agreements and try, however possible, to pay your suppliers with cash until you are confident of revenue coming in. A healthy balance between cash and supply on credit terms will assist you in maintaining positive cash flow.
More often than not, credit supply agreements come with an obligation to provide personal guarantees and this in turn can create great stress on the business where the business owner’s assets are put at risk, unnecessarily. Again, the appropriate business structure will protect you and your assets if you have to supply a personal guarantee.
No.4 Market your business
The truism that “cream always rises” applies more readily in regional areas, where the opportunity to stand out and generate a loyal following through word of mouth is often stronger. Nevertheless, even in the regional areas, an online presence is essential. A savvy online marketing plan is a must, but it needs to comply with the current rules in the legislation in relation to privacy and advertising. A paid advertorial in the regional paper may land you in hot water if the payment is not disclosed. Consider contracting a social media expert, remunerated on the number of visits to, or bookings made via your website in order to keep staffing costs down.
All in, it’s more work than most realise but the rewards of responsibility for your own enterprise are well worth it. Just be sure to get the business fundamentals in place before you begin.