What costs are included in 'Pre-opening expenses' for Benihana restaurants?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
nsurance and travel expenses. Certain centrally managed general and administrative expenses are allocated specifically to restaurant locations and are reflected in owned restaurant operating expenses and include shared services such as reservations, events and marketing. We expect general and administrative expenses to be leveraged as we grow, become more efficient, and continue to focus on best practices and cost savings measures.
Depreciation and amortization. Depreciation and amortization expense consists principally of charges related to the depreciation of fixed assets including leasehold improvements, equipment and furniture and fixtures and loss on disposal of fixed assets.
Pre-opening expenses. Pre-opening expenses consist of costs incurred prior to opening an owned or managed STK or Kona Grill restaurant at either a leased or F&B location. Pre-opening expenses are This document was downloaded from franchimp.com. All the information on this website is published in good faith and for general information purpose only. FranChimp.com does not make any warranties about the completeness, reliability, and accuracy of this information. Any action you take upon the information you find on this website (FranChimp.com), is strictly at your own risk. We will not be liable for any losses and/or damages in connection with the use of our website.
comprised principally of manager salaries and relocation costs, employee payroll, training costs for new employees and lease costs incurred prior to opening. Pre-opening expenses also include payroll and travel costs associated with our new restaurant opening training team. Pre-opening expenses have varied from location to location depending on a number of factors, including the proximity to our existing restaurants; the amount of rent expensed during the construction and in-restaurant training periods; the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the relative difficulty of the restaurant staffing process; the cost of travel and lodging for
different metropolitan areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining necessary licenses and permits to open the restaurant.
Other Items
EBITDA, Adjusted EBITDA and Restaurant Operating Profit. We present EBITDA, Adjusted EBITDA and Restaurant Operating Profit to supplement other measures of financial performance. EBITDA, Adjusted EBITDA and Restaurant Operating Profit are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America ("GAAP"). We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, pre-opening expenses consist of costs incurred before the opening of an STK or Kona Grill restaurant, whether it is owned or managed, and located in a leased or F&B location. These expenses primarily include manager salaries, relocation costs, employee payroll, training costs for new employees, and lease costs incurred before opening. For the years ended December 31, 2023 and 2022, pre-opening costs for company-owned restaurants were $8.9 million and $5.5 million, respectively. In 2023, $1.8 million of the pre-opening expenses were related to non-cash pre-open rent. In 2022, $1.1 million of the pre-opening expenses were related to non-cash rent.
These pre-opening expenses can vary significantly from one location to another. Factors influencing these variations include the proximity of the new restaurant to existing Benihana locations, the amount of rent expensed during construction and training, the size and layout of the location, the number of employees required, the difficulty of staffing, travel and lodging costs, the timing of the opening, and any unexpected delays in obtaining necessary licenses and permits. The FDD also mentions that pre-opening expenses include payroll and travel costs for the new restaurant opening training team.
For a prospective Benihana franchisee, understanding these pre-opening costs is crucial for budgeting and financial planning. The variability of these costs means that franchisees should conduct thorough due diligence to estimate expenses accurately for their specific location. It is also important to note that franchisees are responsible for all expenses incurred in connection with the Initial Training and In-Restaurant Training, including wages, travel, lodging, meals, and other expenses for their employees.
Typical cash pre-opening costs are $0.6 million to $0.8 million, excluding the impact of cash and non-cash pre-opening rent. These costs are expensed as incurred prior to a restaurant opening for business. Franchisees should be prepared for these initial investments and understand how they can impact the overall profitability of their Benihana franchise.