I made my first investment in restaurants as a young lawyer with no money. My contribution was some legal fees and a small amount of cash. The restaurant stayed around for 10 years and I never got a dime back. We closed the restaurant with a great party and all agreed it had been a fun 10 years. And that was how it all started.
Since then, I’ve been involved in owning, managing and promoting hundreds of restaurants with numerous concepts. I enjoyed it most of the time as both a lawyer and owner, and now as a father of three sons who are involved with me in the restaurant industry. (My daughter, the smart one, has a 9-to-5 job in health care.) It’s an expensive hobby, but it’s my passion, or perhaps some kind of addiction, and I wouldn’t trade it for anything.
For those of you in the same boat, I have some guidance based on the mistakes I’ve made and mistakes I have seen others make in my 40 years of practicing law. Here are my 10 rules for investing in restaurants:
1. Always look at the basics. Does the concept have good cashflow at the unit level? Does it have two-to-three-times sales to investment? Does it have reasonable labor costs? Does it have multiple revenue sources, such as take-out, delivery and events? Today, you need more than one way to make money.
2. How’s the location? Choose a strong location where the occupancy cost is in line, something in the neighborhood of 6% of sales. It’s not a hard and fast rule, but it’s an important measurement. The restaurant doesn’t necessarily have to have high volumes to make money if all the other factors fall in line. Develop a personal relationship with your landlord so when there’s an issue such as COVID or a disruption in the flow of customers, they will be willing to help out.
3. Localize your concept, even if you are a franchisee. You need to appeal to the one- to four-mile radius around your location, depending on whether you’re in a suburban or urban area. That means local menu items, networking and supporting local causes.
4. Hire people who “bleed” hospitality. You want passionate people who can create a culture of outstanding hospitality, particularly if you are not going to be actively involved as an owner. Your managers have to develop a culture that motivates employees and inspires guests to return.
5. Give yourself flexibility with financing and the overall costs. Choose a bank that understands restaurants. Don’t finance things that should come out of current cashflow, which includes normal capital expenditures and remodels. Those are necessary parts for keeping a restaurant fresh.
6. Listen to your customers. They will tell you what you need to know. Be active in social media and respond to comments, both negative and positive, right away. Look at your product mix regularly to see what is selling and what isn’t. The things that aren’t selling should be taken off the menu unless there is some compelling reason to keep them. Since customers are vital to your business, you have to like people. I’ve seen restaurateurs who are not social and probably should reassess their reason for investing in restaurants.
Now here’s a list of don’ts:
1. Don’t overextend yourself.
2. Don’t tap into your 401(k) and don’t invest money you can’t afford to lose.
3. Don’t think you’re going to get rich, or that you’ll be able to take money out right away. And don’t think there’s going to be a ready sale. Restaurants are cashflow investments, so plan what you expect that reasonable cashflow to be. Is it a 10% return? 10% store-operating profit? Or a 10% EBITDA? Those are all different numbers and you need to know the difference.
Realize you may not be able to live off your restaurant investments. A low-volume restaurant is great for someone who is the owner, chef, host and treats the restaurant as his full-time job. But if you are doing it as an investment, you must have enough volume to hire competent people. So don’t think you can get away with minimal investment or bootstrap it.
4. Lastly, make sure you have fun. Go to your restaurant, be involved and don’t be that investor or owner who micromanages—that’s why you hired good people. Get to know the employees and let them know you care about them and that you have their backs. The same goes for your guests, if you want return customers.
Restaurant ownership isn’t for the faint of heart or the hobbyist. But if you’re smart about it, you can build a long-term successful business and have a little fun along the way.
From the April 2026 issue of Restaurant Finance Monitor
