You know how often eating out is a voyage into the unknown. Armed only with a restaurant guide or a critic's comment and a modicum of optimism, you invest an evening and a decent amount

of money in gastronomy. You may be in for a memorable experience, but quite often you're just in for a memorable bill which bears only limited resemblance to what you expected to pay, even when you've seen the menu. Restaurants hold many mysteries, among them, 'How can they produce something so fabulous for that price?' 'How can they charge so much for that?' and especially, 'Have they included the date in the price or what?' As Lord Bradford steers his bill to abolish the service charge through its third reading, we offer two or three courses of demystification What a difference pounds 25 makes In 1994 a Shaun Hill dinner cost pounds 50 a head. Not it's pounds 25. How did he do it? If you have any brain, starting even a little restaurant will soon make you wonder whether it is in prime condition. Despite the seemingly huge sums charged by restaurateurs, small-scale catering provides modest returns for the labour involved and a glance at the bankruptcy statistics will show you why banks aren't keen to provide finance. The search for some suitable spot to ply our trade began in the spring of 1994, when I gave notice to quit as head chef of the illustrious west country hotel Gidleigh Park. I had spent nine years at the stoves cheerfully sauteing scallops and grating whi te truffle over some fine - if, at pounds 60 or so a head, rather expensive - lunches and dinners. But an element of routine was creeping in, which is anathema to real creativity or even excitement in the kitchen. It was time to move on. By the summer, a talented replacement, Michael Caines, was ready to start at Gidleigh Park. But I still hadn't found the right place for my own restaurant. Location was important, but not for any reasons connected with Conrad Hilton's famous three-part dictum. My wife Anja and I wanted to live somewhere attractive, where we would have a decent lifestyle as well as the possibility of luring a few people from the surrounding countryside to part with modest sums for dinner. The Welsh Marches - the borderland between Wales and England - was the area we favoured. It is beautiful and unspoilt, but has a big enough population to support a small restaurant. The first motivating factor, however, had to be the food itself. There are those who want to use their ingredients as a vehicle for interesting bits of technique - souffleing artichokes with slivers of foie gras, maybe, or spinning great clouds of sugar to make a multicoloured turban for a scoop of ice-cream. I am more fascinated by the produce itself: a round of Evesham asparagus that I know will ta ste marvellous, or some shining, fresh red mullet with hard scales and bright eyes that only a complete Philistine could turn into a bad meal. For me, what appeals are cooking styles to show off the produce sympathetically. The pleasure will be in finding a fresh bass, and maybe some dill or flat-leaf parsley, and steaming them together so that the flavours and textures blend perfectly. This is the kind of thing that pushes people towards the delights of restaurant-keeping. Very rarely is it the arithmetic of profit and loss, cash flow forecasting, or little charts that show you how much the chicken livers should cost if correct margins are to be made. In any case, such considerations are of limited value in a small business. The price of fresh fish can double in bad weather: large scallops cost 70 pence each last week and are up to pounds l.20 this morning. You would need to update yo ur calculations every two days, or start buying the sort of stuff that doesn't fluctuate: pre-cut portions of chicken, frozen shellfish, never-ending broccoli and carrots. The choice really is between swallowing the difference, and changing the menu. So long as you bring in more than you spend, all will be well. Both accountant and bank will shout loudly if the desire to chop lobsterinto fish soup overcomes you too often. So much for desire. What about logic? We had no capital other than the house we lived in, so nothing on a grand scale, requiring pots of dosh to set up, was on the cards. Nor had we had any wish to front up some larger or fancier venture owned by others - a route that has been travelled by several chefs. Better to make our own mistakes, we argued, than have a committee make them for us. And our ambitions are not bound up with any empire-building. If the Merchant House is a success, we shall not be opening a chain of them across the country. If it should turn out to be a failure, the house could return to its previous function as a home, and I would get a job. The first big hurdle for the hopeful restaurateur is that away from big towns there aren't that many restaurants for sale. Inevitably, you will need to buy something currently used as a house, pub or shop, and hope to gain planning consent for change of use. We found the Merchant House by chance - a lady lived in it alone - bought it straightaway for pounds 150,000, and moved up from Devon in July. It is a fairly large building, but most of it represents home to Anja and myself; just a corner of the ground floor is given over to a tiny restaurant whose six tables can seat no more than 24 people. This suits us fine, but is unlikely to disturb the movers a nd shakers of the restaurant world. Granada has not made a takeover bid as yet. Once we had found suitable premises, the next step was to apply for change to restaurant use - and watch as the lid flew off Pandora's box. The town planning department did as much as anyone could expect to be helpful and positive, but fire and building regulations demanded all sorts of structural changes, such as rerouting stairways, reinforcing cellars and walls, emergency lighting, shifting the lavatories around - all of which cost money, and some of which caused other problems. In our case a new ent rance was also called for and, as the building is grade 2 listed, a whole new set of consents became necessary. The architect had warned me of all this, but there were other difficulties too. Some local residents took umbrage at our plans and a petition with more than 100 names, along with plenty of objecting letters, landed on the floor of the council. Nothing pe rsonal, I'm told; changes from residential to commercial use are rarely welcomed by neighbours fearful of rowdy late nights and unsightly litter. A year later our neighbours are much more cheerful, and finding anyone who will admit to having objected is quite hard. We did as much possible on a shoestring, so we could still spend a few bob on things like plates and glasses. The structural changes came to pounds 20,000; most of the furnishings, paintings and knick-knacks were already ours so didn't need any outlay. W e chose crockery from Rosenthal, a plain white design called "Suomi", that came to pounds 2,700; main course plates cost pounds 40 each. We had four tables and 20 chairs made locally at a cost of pounds 4,750, picked up a rather fine mahogany coat stand at auction for pounds 270, and bought the least possible kitchen equipment other than a commercial stove and a dishwasher, which totalled pounds 9,000. Good cooking comes from hard work, not contraptions, and the numbers involved in this venture didnot require space-age technology. Similarly, there was neither the cash nor the inclination to hire a designer to put in the standard pseudo-Japanese, Minimalist restaurant decor. In the end, the total cost of converting house to restaurant, including odds and ends such as cutlery, glass ware and linen, came to a tad over pounds 40,000. I financed this as a second mortgage. The most important decision other than the menu is how much to charge; from this most other things follow on naturally. Charge too much, and there will be little or no trade; charge too little, and the menu will be restricted to spicy concoctions ofstar ch and salad, the sort of thing that provides bulk at little cost. All very fine, but not what I was after. I wanted to use top quality ingredients: prime fish such as sea bass, Italian olive oils, free-range meat, organic produce. What emerged was a price of pounds 25 a head for the grub, and a wine list that started at pounds 10 a bottle but generally hovered around the area of pounds 15 to pounds 20. In order to square the need for expensive produce and good wines with whatwas left from these prices, once VAT of 1712 per cent and credit card commission of 2 per cent had been extracted, the mark-up had to be low. That meant little room for overheads: no budget for someone to pour each drop of wine, or hover constantly at table asking if everything was all right. Neither would there be washing-up staff, so I could not be out chatting to the diners once the food was on the table. I don't serve the food myself; Anja and our two helpers, who do, also take turns at cooking. We liked the idea of a fixed price for three courses, rather than an a la carte system. That way, everybody knows how much the meal is going to cost and can then either relax, or go elsewhere if the arrangement doesn't suit. It is a mystery to me that so many restaurants disguise the cost of the meals they serve. Cover charges and, worse, service charges make the final bill an unpleasant surprise rather than a natural consequence of what has been ordered. At the Merchant House, for example, we couldhav e announced our own charges in this absurd style: pounds 21 for a three-course meal plus 50 pence cover charge plus 15 per cent gratuities - but would anyone have been fooled? All decisions having been made, it remained only to write the menu, cook, and get on with it. The part that really counts, in fact. At the moment we have starters, such as pike quenelles with shrimps and dill, and sea bass with Chinese spices, whichI se rve in a broth with spring onions and coriander. Main courses include rack of lamb, and sweetbreads with potato and olive cake combined with a warm mustard and caper dressing. You will have to read dispassionate and independent reviews of these dishes to find out if they are any good, I'm afraid, as I am biased. Or visit the restaurant and try them for yourself

Shaun Hill was awarded a Michelin star last month for the Merchant House

Trade secrets 'Telling you the true cost of a meal would be like a beautiful model stripping off and showing you everything. Some things are best left unrevealed.' Lord Bradford, owner of Porter's restaurant in Covent Garden Do restaurants have a huge mark-up? Profits are not what they seem. The sums work out roughly like this. Food costs should be between 30 and 40 per cent of total turnover. Staff costs, another 30 to 40 per cent. Overheads, rents, rates, loans and taxes, about 20 per cent. There is obvious flux: some restaurants serve costly food from cheap premises; others - in London's West End, for example - cheap food from costly premises. Of the 10 per cent profit left after VAT, roughly 25 per cent will go in other taxes - corporate or income tax, de pending on the structure of the business.

Who survived the boom and bust of the past ten years? Depends on whether they opened before or after the boom. Restaurants that opened in the Nineties may enjoy positively charitable free rent agreements. But as these draw to a close, that pounds 4 Caesar salad starter may become a pounds 9 main course.

What's the going rate for a top chef? At 90 Park Lane, the jewel in Nico Ladenis's gastronomic crown, where the all-inclusive bill could be pounds 80-pounds 90 a head, the head chef earns at least pounds 40,000 a year and the maitre d'hotel pounds 33,000 plus, while the most junior will earn pounds 10,800. There are ten waiters employed in the restaurant at any one time. Staff work five days a week, with two to three weeks' holiday a year and 11 days off at Christmas. Shifts are about 12 hours long and may be split or run continuously. The all-inclusive service charge goes towards the wages bill. So, no tips.

What about the juniors? The minimum wage for junior restaurant staff at the venerable Sharrow Bay Hotel in Ullswater (set lunch, pounds 31.50) is pounds 7,000 a year, with full board and lodging. Luxury, compared to the youngster who earns pounds 1 an hour at a hamburger chain.

Do chefs ever get rich? Some do, but not by standing at the stove. To make real money a chef needs spin-offs, such as consultancies, and TV, book and newspaper deals. This can increase earnings to a scrumptious six figures.

Couldn't I have had this for a quarter of the price at home? Not if you'd had to pay someone to cook it, serve it and wash up, and if you factored in the mortgage, heating, laundry, flowers, pots and pans, you couldn't.

How can posh restaurants afford bargain set-price meals such as the "FT lunch" promotion? Because they increase volume. The profit margins are much smaller than usual but such offers can increase trade enormously, especially during quiet periods, such as the New Year, or in a recession: there tend to be more prix fixe menus around when times are hard. How can I avoid being ripped off? Beware the open credit card slip. If a 15 per cent service charge has already been included and you add 15 per cent on top, you are adding at least 30 per cent to the cost of the meal.

And is wine always overpriced? Depends. Take Frederick's in Islington, where Cherie Blair celebrated her 40th birthday, and where the wine list is recognised for offering quality at reasonable prices. Last week, for example, Louis Segal, the managing director, bought some PouillyFuis se. It will cost the customer pounds 19.95 a bottle. It cost Mr Segal pounds 10.28 a bottle including VAT. On cheaper wines the percentage mark-up will be bigger. On the most expensive it may be as little as pounds 3.

Does everyone love a good tipper? Not necessarily. "Tips in a smart restaurant can be jolly difficult," says Tim Hart, the proprietor of Hambleton Hall country house hotel. "There are show-off types who hit the Dom Perignon and start waving notes around. The staff hover around in the hop e of picking up tips, and other customers lose out." If a particularly delighted client slips the maitre d' at Hambleton a little thank you, it goes into the "petit tronc" and is shared by everyone. Current pickings are about pounds 5 a week each.

Why don't all restaurants include service on the bill? Because to the punter, especially the mean punter who never tips, it makes the bills look bigger. If - and it's a big if - the service charge genuinely goes toward the wage bill, it increases National Insurance, contibutions to PAYE, and VAT. Lord Bradford, who is sponsoring a bill to make charges all-inclusive, believes it's best for the customer, because th ere are no nasty shocks after dinner.

So Lord Bradford is the consumer's friend, then? Up to a point. But he refuses to divulge the cost of producing a meal at his own restaurant, Porter's in Covent Garden. "What I charge is up to me; the customer must make his own value judgement."

Hilly Janes Hambleton Hall country house hotel in Leicestershire is described by the Good Food Guide as "some kind of perfection in the genre". You could have panfried foie gras on a galette potato with cassis onions and a Madeira sauce (pounds 23), followed by half a Scottish lobster with tortellini, garden vegetables and its own cooking juices (pounds 20 ), then simply roasted breast of Mallard duck with a little pie of its leg meat (pounds 23), British and Continental cheeses served with walnut bread (pounds 9.50), and finish it off with chestnut parfait encased in toasted marshmallow with a chocolate ice-cream (pounds 10). Service charges are included and credit card slips closed. The profit margin on pounds 100 of dinner may seem surprisingly small, but in a country house hotel, the rooms often subsidise the restaurant