Reading the Tea Leaves

Like any small specialty store, a tea room requires comprehensive planning, especially when it comes to estimating startup costs

By Karen E. Klein

Q: I'm planning to open a tea room with desserts and some gift items, but I've never been in retail before. Can you give me some ideas of what's important in getting started? -- R.P., Atlanta


The importance of "location, location, location" still holds true for the small specialty store or independent restaurant. First, you'll want to open in a site that gets plenty of daytime foot traffic, has ample parking, and is close to popular establishments that bring in your target customers. With an afternoon tea room, you might look for a cozy space in a shopping center that hosts clothing boutiques, upscale toy and gift stores, antique malls, and other places where women might typically spend weekends and free afternoons.

Once you choose a location, go there first and spend several hours at different times of the day observing how busy it is. Negotiating a lease is another critical area of concern for any startup. Read the lease carefully and make sure you understand all of it. Consult with a real estate firm that specializes in commercial locations and have them negotiate the best deal on your behalf.

Some lease agreements, for instance, require you to contribute separately to "common area maintenance" for the complex, rather than including those costs in your regular payments. A realtor can also tell whether the lease requires you to share a percentage of the property taxes with your landlord.


  Make sure the lease includes an extension provision, with a cap on how much the landlord can increase your rent after the initial agreement expires. You don't want to be caught, five years down the line, with a rent increase that forces you out of a successful enterprise, or a landlord with another client waiting to take over your site. If you plan to make some leasehold improvements to the space, discuss the proposed changes with your landlord and make sure to get an agreement on the changes in writing.

Another important part of getting started is accurately estimating startup costs, including marketing and advertising, and making sure you have more than enough capital to run the business until it has had time to break even. Experts say that far too many businesses go under before they can achieve their potential because they are undercapitalized.

To avoid that fate, you should write a business plan with a solid financial section that lists all your initial expenses, making sure you include telephones, building permits (if you'll be doing remodeling), licenses, equipment, utility deposits, hiring costs, printing the menu, and initial inventory, as well as standard monthly overhead. Then project your sales for the first year, using conservative estimates, and figure out when your business should start turning a profit.


  Later, compare those figures with your actual receipts and determine whether you're running ahead of projections or lagging behind. If the latter is the case, you'll want to secure additional capital before your business hits a crucial cash shortage.

If you can afford it, hiring a restaurant expert to help you set up and choose a location would be a very smart move. A local consultant who knows your market and understands its demographics -- and who boasts a proven talent for attracting customers to a new, independent establishment -- would be invaluable.

If, like most entrepreneurs, you're strapped financially, you can find free or low-cost help from several organizations that specialize in getting startup entrepreneurs off the ground: EntreWorld, sponsored by the Kauffman Center, includes extensive advice for beginning entrepreneurs; the National Restaurant Assn. features more specific information about opening and operating a food service establishment; and the U.S. Small Business Administration has sample business plans, Web links, and financial advice for anyone considering going into business for themselves. It also sponsors Small Business Development Centers all over the country that schedule classes and provide counselors to work with you individually for a nominal cost. Best of luck!

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