Your Questions About Investing In Restaurants Return

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Chris asks…

How long should it take for an investment to return itself?

If I were to invest $100,000 in a restaurant, how long should it take for the restaurant to return that $100,000 or pay for itself for it to be considered a good investment. I thought that I once read that it was supposed to only take two years, but I’m thinking that it may have been five.

Thank you

financi4 answers:

There’s no firm rule. A grand a month back to you is 12% return if the amount owed stays at 100k.
There is no reason why the restaurant should pay less interest than any one else. It should pay more than a t-note, certainly, because t-notes are much less risky than a restaurant.

Robert asks…

A friend has asked for me to invest in his restaurant, what shape will my return on investment take if ?

..he is successful?

As a 1/3 ownership share how can I expect my return? Quarterly, yearly, or what?

financi4 answers:

Depends on the type of restaurant and location. Level of interest in that type of restaurant in the area. Also if you guys are social types and good with people.

Don’t look for an ROI for the first year and maybe not even until the 3-5th yr.

Your friend will have to pay expenses PLUS you’d be amazed at the Operating Expense.

However, ask him for a Business Plan like any other investment so you can see how organized his thoughts are. It’s also a great map along the way as things progress.

Also, has he been successful in any other business? Some people have the magic touch and know how to bring the people and the traffic to make it happen. You know – the golden touch.

I have a friend who has 3 cafes and a restaurant. All do well – but i up at 4 am and in bed by 10p. He works it and is great with people. He also has reliable management and a supportive family.

Think about these factors and no matter what be a good friend.

John asks…

I am going to invest $2000 to help a friend run a restaurant/bar What return should I expect? When? etc.?

The bar is a turn key operation, and the friend will be running it, with additional people I trust working it. I will be providing only financial investment for some of the initial costs (which are low in this case, luckily) and some expertise in certain areas. There is potential for a considerable profit margin, and I am wondering what I should ask for or expect as a return on investment. Though it is a small amount, it will fund a good amount of the startup needs. Any advice is greatly appreciated, as there seems to be little out there relating to this type of an investment.

financi4 answers:

My opinion, you can do this two ways.
1. Treat it like a loan. Collect interest, compound it yearly. So 5% a year, for example, per year of whatever the balance is. If business goes bad, they still owe you.

2. Treat it like a percentage of ownership (almost like you would a stock). What percentage of the total start up cost is your $2000? Then that is the percentage of you profits or ownership in the business regardless of how much you work. If business goes bad, you lose as well.

A way you can do this, if others are putting in time but not money is the people who work the business should either get paid a salary or per hour, and no percentage of the company. Or they can own a percentage in the business but not get paid. Or whatever mix you all agree upon but you understand the point.

Good Luck.

David asks…

What is ROI and how does it work in investing?

I am writing a business plan for a restaurant and want some clarity on how ROI (return on investment) works. What is a good ROI to offer an investor. When I have investors, how do I maintain control of my company? What if I have 10 Investors each at $10,000 including myself as one–do I only retain 10% of control and owners shares?

financi4 answers:

What is ROI
rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage rather than a fraction.

How does it work in investing

In reality, most organizations use one or more “financial metrics” which they refer to individually or collectively as “ROI”. These metrics include:
Payback Period. The amount of time required for the benefits to pay back the cost of the project.
Net Present Value (NPV). The value of future benefits restated in terms of today’s money.
Internal Rate of Return (IRR). The benefits restated as an interest rate.

William asks…

Can I file an investment loss on my income tax return?

I invested $30,000 in a restaurant (Oct 2011) and did not make any money from it in 2011. Can I file it as a loss on my income tax return, and if so, how?
The restaurant has not gone bust – I put in $30K as part of a $350K start up. I am also listed as an owner, but not as the primary.

financi4 answers:

And I would suggest to you that you should take your information about you situation to some that you can meet with face to face and talk to that is experienced in investment income and losses for this purpose and time in your life and especially a restaurant as a type of investment for the tax year 2011.
Hope that you find the above enclosed information useful. 06/01/2012

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