I thought I had it all figured out.
My second restaurant was humming along, cash flow was strong, and I was already eyeing location number three. In my mind, I was on the path to becoming one of those multi-unit operators I’d always admired.
What I didn’t realize was that I was about to make nearly every mistake in the book.
Over the next few years, I learned the hard way that successful restaurant expansion isn’t just about replicating what worked before. It’s about building the right foundation, making smart structural decisions, and—perhaps most importantly—getting the right advice before you need it, not after you’re already in trouble.
Recently, I had the chance to sit down with John Hamburger, founder and president of Franchise Times Corporation, which publishes Franchise Times, Restaurant Finance Monitor, and Food on Demand. John has spent decades watching restaurant brands rise and fall, and he’s seen the same patterns repeat over and over again.
His words hit close to home because I’d made almost every mistake he described. The difference is, I learned about them the expensive way—through trial and error, failed locations, and missed opportunities. You don’t have to.
Mistake #1: Trying to Do Everything Yourself
This was John’s first and most emphatic point when I asked about the biggest structural mistakes founders make: “I think they try to do everything themselves and they’re afraid to spend the money for the right advice.”
I get it.
When you’re running on thin margins and every dollar matters, paying for professional advice feels like an unnecessary expense. You’ve gotten this far on your own, right? You figured out how to make great food, manage staff, and turn a profit. How hard can growth really be?
The problem is that the skills that make you a successful single-unit operator are completely different from the skills needed to scale a restaurant business. And the cost of learning those skills through trial and error can be…bad.
“You know, accountants and lawyers can seem like Debbie Downers at some times, but you know, it probably would have been good for you at that time to have someone challenge your assumptions,” John told me, referencing many growth struggles he’s consulted on over the years.
That hit home because I realized how many mistakes I could have avoided if I’d just been willing to invest in the right expertise early on.
The restaurant operators who scale successfully are the ones who recognize early that building the right team of advisors—experienced restaurant CPAs, attorneys who understand the industry, and consultants who’ve been through the growth process—is an investment, not an expense.
Your job as a founder is to be great at running restaurants. The mistake is thinking that automatically makes you great at corporate structure, financial modeling, lease negotiations, and investor relations. Let the experts handle what they’re experts at, so you can focus on what you do best.
Mistake #2: Winging Your Business Structure
“Early organization documents and shareholder agreements are given short shrift. And this manifests itself later on, either if the business is performing well (and you can’t replicate that growth strategy) or if it’s performing poorly (because you didn’t do the organizational legwork),” John explained.
This hits close to home. When I was putting together my first operating agreement, I was so focused on getting the restaurant open that the legal documents felt like annoying hurdles to get around, not strategic tools to build with.
Our first operating agreement didn’t even address intellectual property ownership. I figured we’d cross that bridge when we got there. After all, we were just trying to make one restaurant work—why complicate things?
That “we’ll figure it out later” mentality turned into an absolute nightmare when we tried to expand.
What I didn’t realize is that as soon as you start thinking about growth, intellectual property becomes critical. Your recipes, your brand, your operating procedures, your marketing materials—who owns what? How do you license it to new locations? What happens if partners split up?
And as soon as you get your multi-restaurant-rose-colored glasses on, they are tough to take off.
John mentions another concept that many small restaurants forget about: roll-ups.
With a roll-up, you take multiple separate restaurant entities and combine them under one corporate structure. It sounds simple, but it’s incredibly complex when your locations have different ownership structures, investor groups, and legal agreements.
Your early legal documents should anticipate growth scenarios: multiple locations, new investor rounds, management changes, partner exits, and yes, even failure. The best time to negotiate these terms is when everyone’s optimistic and aligned, not when you’re in the middle of a crisis or opportunity.
Mistake #3: Generic Financial Reporting That Turns Off Investors
“I think the biggest and most important thing if you’re going to go out to talk to lenders or investors is you have to have good financial reporting,” John emphasized.
“Nothing would turn off a lender or an investor more than late financial statements, disorganized financial statements, financial statements that you don’t understand.”
Most restaurant owners think any accountant can handle their books. That’s a costly mistake.
Restaurant accounting is specialized.
You need someone who understands food costs, labor efficiency metrics, and industry-specific KPIs that investors actually care about. A general practitioner might organize your numbers correctly, but they can’t structure them in a way that restaurant investors can easily benchmark against other deals.
When your financials don’t speak the restaurant industry’s language, you look like an amateur—even if your business is solid. Investors will pass simply because they can’t quickly understand what they’re looking at.
Mistake #4: Expanding Too Fast
There’s real prestige in the restaurant industry around unit count. When you have one or two locations, you look at operators with five, ten, or twenty units and think that’s where you need to be to matter in the industry.
“I think that unit envy makes people make mistakes. They go into another city, the people in that city don’t particularly like the concept as much as people in the first city. That happens a lot,” John noted.
The dangerous part is that there’s never a number that doesn’t have envy further up the chain. I remember talking with industry veterans who’d joke that restaurant owners always want more locations—it’s almost pathological.
“I see this all the time. You know, your first couple, let’s just say your first two restaurants are hits. And now you start to think that anything that you open up is going to be a hit. And you start to think out further. So I’ve signed the lease for the third, the fourth, the fifth,” John observed.
This is where unit envy becomes truly dangerous. Success breeds overconfidence, and suddenly you’re committing to multiple locations simultaneously based on the performance of just one or two units. You’re signing leases before you’ve proven your concept can work in different markets, with different demographics, or even with different management teams.
The math gets scary fast: if your first two locations are cash-flowing well, you assume locations three through five will perform similarly. But what if they don’t? Now you’re carrying lease obligations for underperforming locations while trying to support them with cash flow from your successful ones. Your winners end up subsidizing your losers instead of funding sustainable growth.
Mistake #5: Ignoring Unit Economics Reality
Most restaurants have lofty growth goals (just read mistake #4) and when discussing how to position yourself for that growth, John said,
“It really depends on the unit economics of the restaurants. I have seen over the years people wanting to expand. But when I dug in to the unit economics of the restaurants… I found that they could be doing well with a couple of spots but they wouldn’t make it beyond that.”
This is the hardest truth in restaurant growth: not every successful restaurant concept is scalable.
Your first location might work because you got a great lease deal, you’re personally managing every detail, or you found the perfect market.
But when you try to replicate that success with higher rents, hired management, and different demographics, the economics fall apart.
“I’ve seen this so many times in my career where somebody thought they had a rocket ship and it really wasn’t. And it’s only a matter of time before it comes crashing down if they keep expanding,” John warned.
The brutal reality is that some restaurants are meant to be lifestyle businesses, not growth vehicles. And there’s nothing wrong with that—if you recognize it early and optimize for cash flow rather than expansion.
“You can’t outrun the margins,” as John put it. If your unit-level economics get worse with each new location, you’re not building a business—you’re building a problem.
The Path To Sustainable Restaurant Growth
Looking back, I realize that every mistake I made came from the same place: impatience mixed with overconfidence. I thought that because I could run a successful restaurant, I automatically knew how to build a restaurant company.
I was wrong.
The restaurant operators who truly scale—the ones who build sustainable, profitable multi-unit businesses—aren’t necessarily better at making food or managing staff. They’re better at recognizing what they don’t know and surrounding themselves with people who do.
They invest in proper legal structure before they need it. They build financial systems that speak to investors. They negotiate leases like the long-term commitments they are. They understand the difference between growth and expansion.
Most importantly, they’re honest about their unit economics and patient enough to get them right before rushing to replicate them.
Your concept might be the next big thing. But without the right foundation, you’ll never know.
Partner with an accountant who can be your true growth partner, not someone who just does your books and calls it a day.
