PowerPoint Presentation

Assessing your Restaurants Feasibility: THE OCCUPANCY COST TEST

INTERNATIONALCULINARY CENTERIS YOUR RESTAURANT PROPOSAL FINANCIALLY FEASIBLE?Revenues > costs = FEASIBLE

Can your concept generate enough revenue to pay for your space?Your biggest fixed cost is what you pay in total to occupy your space

Some costs are mostly variableSome costs are part variable, part fixedSome costs are wholly fixed

INTERNATIONALCULINARY CENTERWhats in your Occupancy Costs?Rent + Property Taxes + Building Maintenance (CAM) + Building Insurance = Total Occupancy Costs

These together should not exceed about 10% of your gross revenues

Rent alone should not exceed 6% of your gross revenues

INTERNATIONALCULINARY CENTERThe Real Cost of Your LeaseMany commercial leases are triple net or NNNThe price quoted does NOT include your share of the buildings maintenance, property tax or insuranceTo estimate the total occupancy costs of a NNN lease, you have to apply a multiplier to the base rent to cover CAM, insurance, and property taxes

Depending on location and lease terms, this multiplier will be between 1.2 and 1.6Other kinds of leases:Modified net or modified gross some of the occupancy costs are covered by your landlordAll-in the price quoted includes all maintenance, taxes and insurance

INTERNATIONALCULINARY CENTERPrimary Feasibility TestTotal gross square feet * (Rent cost per SF * multiplier)

Occupancy cost %

= Total Revenue NeededThe total revenue needed has to be reasonably attainable!

INTERNATIONALCULINARY CENTERDoing the MathFind out the terms of the lease for the space you are consideringIs it NNN or all-in?Compute (or estimate) your annual occupancy costsDivide this occupancy cost by 10% (12% for expensive markets) to get total revenue neededDivide total revenue needed by operating days to get the daily revenue neededDivide daily revenue needed by your average check to get the number of covers you need to sell each dayAsk yourself: is this volume realistic?

INTERNATIONALCULINARY CENTERExample 1450 SF * ($60 * 1.3) 12%

= $ 942,500 in annual sales needed to make this space financially viableProposed restaurant with an average check of $25.00, open six days a week$942,500 / $25 / (6 days*52 weeks) = 120 minimum covers needed every day to make this site financially viable

Probably not feasible!

INTERNATIONALCULINARY CENTERFeasible now? 1,578 SF * ($28 * 1.3) 12%

= $ 478,660 in annual sales needed to make this space financially viable$478,660 / $25 / (6 days*52 weeks) = 61 minimum covers needed every day to make this site financially viable

INTERNATIONALCULINARY CENTER

INTERNATIONALCULINARY CENTER