THE BLOG
10/29/2014 05:32 pm ET Updated Dec 29, 2014

Thinking About Opening a Restaurant? Read These 5 Tips First

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The dream of opening your own restaurant can be quite alluring. You may have considered making this dream a reality for yourself and you may even be working toward that goal now. I cannot blame you, as I took this path when I opened Valentino in Santa Monica 42 years ago, making the restaurant industry my life's work.

It's hard to argue about the glamour. It offers incredible joys, it's social and if you work hard and play your cards right, it can really pay off. This is one of the few industries where you can be invited into people's most cherished and celebrated life moments, so many of which occur alongside memorable meals and fine wine.

Allow me to offer a few words of advice and insight before entering the world of restaurant ownership.

1. Be serious about building your resume

It's important to build your resume as much as possible before opening your own restaurant. This means working everywhere you possibly can and in every role you can. Before I opened Valentino, I washed dishes, stocked the pantry, bussed tables and was a server. Gaining as much experience as possible will only aid you when it comes time to owning your own place, as you will need to be familiar with both front of house and back of house operations.

2. Define your concept

It's hard to be completely original today -- let's face it, so many things have been done. What generally must happen is for you to take a very unique approach to something tried and true. For example, do something popular such as hamburgers or perhaps pizza -- but in a very unique way. Ask yourself what cuisine you're passionate about and then how you can do it differently from the rest? You can be smart here and make sure you follow trends, be sensitive to prices and diet requirements. All of these things will help you to stay ahead of the curve.

3. Be realistic about budgeting

Running a restaurant requires a large amount of capital, and it's important to be realistic about this. While it will vary based on where you are located and the type of establishment you're planning to own, make sure you have more than what you think you may need. Why is this? So many of your costs will hit you before you even open your doors: permits required by the city (operating licenses, liquor licenses, etc.), you'll need to stock up your inventory (and if you're planning on having a wine list, this could get expensive) hiring your staff, and most of all, your lease. Your lease will likely be your number one expense, and unfortunately, you need to make the assumption that your lease will rise year after year. We like to say in the restaurant business that if your rent exceeds 10 percent of your sales, then you will not last. You should plan on your rent taking up no more than 7 to 8 percent.

As for where your capital is derived from, unless you have a wealthy and generous uncle, it's likely to come from a group of investors. Now, it's hard to guarantee a return on investment in an industry where the margins are very slim and the failure rate is high. This is where your experience and expertise will come in, as well as a unique concept that will hopefully differentiate you from the rest. While restaurants tend to be a higher risk investment, remember there is an ego play here -- investors tend to want to be involved in something they are passionate about, to be able to come enjoy a restaurant at their special table whenever they'd like and so on. Try to find individuals that will support your restaurant because they, too, have a dream to own their own restaurant one day -- and that they're willing to go against the odds of the 5% success rate.

4. Plan for endurance

Prepare for there to be some tough days, should you pursue this dream. There will be days when there are very few customers and you wonder how you'll keep the lights on. Remember, tomorrow is a new day. And you will make mistakes, no doubt about it -- but try to only make them once. This business is all about reputation and word of mouth and a customer's meal may be their only meal in your establishment -- so make it count. Try to also budget financially for possible rough patches.

5. Have confidence in your story and build a credible image

I often say the restaurant world is similar to theatre. The art of the dishes you serve and their ingredients are just as important as the presentation, service and ambiance. Have confidence but don't be pretentious. Always keep in mind that you and your team are on a stage and, aside from top food critics who may dine incognito, there are websites such as Yelp, Facebook, Google, Trip Advisor and others that allow all diners to review their experiences. Those reviews may not always be fair but they are now part of the restaurant world. The diners who adore you will be generous in their word choice as well. Just keep in mind that everyone is a critic these days and figure out the best way to handle that. Over time, you will build a rapport with key journalists who cover your business regularly. Positive reviews and awards from important magazines are tremendously important to your brand. Be humble when honors are bestowed upon you and your team. The restaurant world is very competitive. You may be up one year and down another. Always work to achieve positive recognition from your diners and your press even if you are on top. You're never done.

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The bottom line: The restaurant business is full of risks and challenges. But the payoff can be incredible. While I have been candid here with my thoughts, including some cautionary points, I urge you to believe in yourself. Being in the restaurant business will require long hours, dedication and perhaps even luck -- but you'll find yourself meeting extraordinary people, creating magical moments night after night and enjoying one of the most simple and delightful pleasures that life has to offer -- wonderful, memorable meals. For me, it is a way of life and a tremendous joy in pursuit of the American dream. I hope it will be for you, too.