However, the world of property is littered with pitfalls and building a business from a single unit into a healthy multi-site business capable of winning a place on Restaurant magazine’s R200 list of the biggest groups, is not for the faint of heart.
Simon Chaplin, director at property agents Christie & Co, has plenty of experience helping businesses grow into groups, as well as aiding those that have overstretched.
Chaplin says one of the key things that comes up time and time again are businesses that make the mistake of expanding beyond their established heartland, meaning they often take their concept or offer to an area that it simply might not suit.
“Many people just don’t do their homework,” says Chaplin. “You need to find an area the same as where you are to ensure it suits your offer.”
If you get this wrong you’ll quickly find yourself pouring your energies into sites four and five in a bid to make them work, while your bread and butter units start to suffer from neglect, tipping the entire venture into distress.
Get your support network in place and know your offer
Chaplin says that getting your support network in place as your business grows is vital. Good operators can run two or three outlets successfully themselves but move to four or five units and you’ll need to have a good accountant, managers and maybe some administration support in place, unless you plan to spend more time doing paperwork than running your business.
“When your business reaches eight to ten units there’s usually a second hump to get over,” says Chaplin. “Suddenly you need an area manager and human resources support, which comes with a cost, so at this point you need a plan in place to move the business to the next level, say 16 sites, pretty quickly.”
Richard Negus, executive director at Fleurets, says Chilango is the perfect example of a business that took the time to get everything in place ahead of the launch of its original site in London's Fleet Street (see our Chilango Business profile for more), with the operational team and supply lines all ready long before opening day.
Of course before you build your team and construct your network it pays to have your concept clearly defined in your mind, as surprisingly not everyone does.
“We generally have someone phone us each week with the funding in place to roll their concept out to 50,” says Negus. “But so many aren’t clear about what exactly their product is. What’s the offer and why is it different to the rival brands already out there?”
Rapidly growing cocktail chain Be At One puts its success down to doing one thing very well, for example, so do be single minded in your vision while knowing when and when not to compromise.
The property market has cooled somewhat during the recession but most of the large groups are continuing to expand in major locations. Go up against Gondola Holdings, owner of Pizza Express, and they’ll price you out of the market, but there is an opportunity to establish a profitable business in secondary town locations and suburban areas.
Chaplin says that location is most certainly key and if you can establish your business ahead of the bigger players entering the area there’s also potential to sell your business onto the ever hungry national chains when they arrive.
Make sure your rent is affordable
It may sound like a no-brainer but making sure your rent is affordable goes without saying. “Don’t be too optimistic about how your business will perform,” says Chaplin. Landlords are being more realistic and offering rent reductions and some assistance but if you commit to a steep rent you’re likely to become another business failure.
Paul Hardwick, director at property agents Fleurets, agrees and urges potential purchasers to think long and hard about what they deem to be affordable. “You need to take a step back and decide what profit you want to take home to justify the risk of taking on an additional property.”
Build a business with someone else’s brand
Of course in the hotel market there’s lots of larger players, such as InterContinental with Holiday Inn, Hilton, Marriott and Accor, which are very keen on selling you their name via a franchise deal to put above your door.
Hardwick points out that the wrong brand in the wrong place will still fail but if you’re looking to raise funds for another property a well known name can open doors.
“Banks like big name brands as they view it as a positive sign and understand the offer. Investors often feel more confident as well,” says Hardwick.
Keep your options open
Even the biggest names don’t always get it right when it comes to new sites. A bodged opening for a neighbourhood restaurant or pub can prove fatal. Likewise if a site is failing to perform there’s little to be gained from pouring all your energies into trying to turn it around at the expense of the remainder of your business.
“Sometimes you have to bite the bullet and get rid of a site that’s not performing,” says Negus. “You may be able to insert a break clause into your contract at year five, but it is difficult and landlords of prime sites won’t give much away.”
Read more articles in this series here.
For more on buying your first property see our latest Ask the Experts.