Business Financing For Your Restaurant's Growth
A restaurant succeeds by virtue of its tasty, high-quality food that’s courteously served in a hygienic environment. However, a majority of the smaller restaurant owners often don’t understand that strong financial planning is required to grow and succeed further.
Most successful restaurant owners adopt a highly proactive approach in managing daily cash inflows and long-term finances are always a core focus issue to them and an inextricable part of their growth plan.
This assumes more significance as this is a highly competitive industry where only the fittest survive. The concept of “fitness”, however, also includes a full growth plan, which in turn involves acquiring all capital required to fuel growth. The following steps may be followed in formulating a plan to acquire more capital for growth:
Find the right lender
You begin by first ascertaining if your capital plan is appropriate to fuel growth. Identify a banker or financial advisor who knows the quick-service industry inside out and is an expert not only on cyclical trends and activities that mark this space but knows how to tackle them.
Check out his prior experience in tackling the most recent setback or downturn in the industry and you’ll be able to gauge his worth instantly. The bottom line is that your lender should be someone who works every day with establishments like yours. Many banks have dedicated teams for restaurant lending. They give restaurant owners better counsel and offer multiple financing solutions.
Review existing debt structure
With credit markets being very active today, many restaurants are getting secure financing at much lower rates of interest and on easier terms and conditions. This is largely due to more refinancing that’s taking place. This calls for a review of your present debt structure with your lending bank so that you can save more on loan costs in the long run. However, should your banker not be willing to encourage this, you should consider consulting a specialized restaurant lender which adopts a more proactive approach to help your restaurant grow.
Look for lower interest rates
As you lock in lower interest rates for longer time periods, you also inevitably reduce loan costs and enhance your long-term financial plans. With rising health-care costs, fluctuating commodity prices as also spiraling wages, the chance to lock in interest costs at low rates should never be missed. This way, you consolidate debt and get to tap into more embedded equity, which gives you the opportunity to take ample advantage to acquire an early remodel, for which a franchisor may sometimes offer a reduced franchise fee if your restaurant happens to be a franchisee.
Understanding the operating cycle
Regardless of its size, every restaurant needs to monitor, manage, and deposit cash receipts; make payments; fund purchases; and plough back its profits for further growth. You therefore, need to compulsorily review and understand each step of this cash-flow cycle in order to make your funds work more efficiently.
Review of the payroll process
Paying your employees bi-monthly instead of weekly leads to managing twenty four payroll periods in place of twenty six during the financial year and this makes your establishment more cash efficient.
Buying more time with credit cards
Get into an agreement with your lending bank to establish fruitful relationships with multiple credit card issuers. This will speed up customer payments, while also giving additional flexibility or time for repayment to vendors when you settle your account.
The crux of the matter is that when you establish a strong relationship with an experienced and knowledgeable lender to your industry, the latter will help you set up an efficient loan structure that will inevitably support growth and operational strategies. This will additionally allow you to devote more time to operating your restaurant more efficiently rather than concentrating solely on the financing part.
This is of great importance as running a restaurant and financing its expansion is a matter of the head and not the heart. Remember, it’s the viability of your business that matters most and the more you save by doing things yourself, the better it will be for your overall cash flow.
The homework is important
If the restaurant is a startup, first crunch your numbers and complete the legwork on the prospective project before going fund hunting. Every aspect of the business – labor, rent, equipment, and food should be gauged as a percentage of the total sales volume because usually restaurant margins are relatively smaller. So, if you refrain from applying some common sense by overlooking projected costs, sales and profit, the chances of your being in trouble in the long run are high.
Gauge your funding requirements
Work out objectively, the total amount of funds you need. Don’t over or under estimate the figure. This needs thorough thinking through and the minutest details cannot be overlooked at any cost. This could include detailed calculations on the number of hotdogs that need to be sold during the lunch hour to reach breakeven point, number of holidays to remain closed on, and even the number of napkins a customer may use.
Other things like menu breakdowns, earning forecasts, a pro forma and interest calculations are also of vital importance. For instance, a restaurant that is planning to invest $2 million with 15 percent interest, is actually looking at a sizeable amount that it needs to pay back eventually. Be prepared with these facts before you approach investors. It’s only when you actually demonstrate profitability rigorously that investor confidence in you will increase and they would actually risk their money on you.
Always be prepared for the worst
Look beyond the first year of operations always. This includes signing the longest possible lease and ascertaining first whether the restaurant would continue to make money even after 10 years of operations. Your business plan should even factor in worst case scenarios with no customers and whether it can remain open by way of reserve funding even if there are no patrons in the first few months.
Eventually by spreading the risk, maintaining autonomy to pay back creditors as soon as possible, and by establishing a commendable track record, you will no longer find getting external funding to be an uphill task.
Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.