The restaurant and foodservice industries can be called completely unique without exaggeration. People who haven’t had experience working in a restaurant have a hard time seeing how difficult it can be to find a concept that works while juggling tight profit margins and bruising hours along the way. Things don’t get much easier when people start looking for business financing options to build or grow their restaurants. Banks’ underwriters aren’t trained to be restaurant loan experts and financial statements don’t always tell the whole story, so the other aspects of the business plan and owners’ finances need to be in near-perfect order. Let’s take a look at some of the considerations you might need to make before seeking financing or opening a restaurant.
Determine Your Concept
Before you can do anything else, you’ll need to figure out what you want the restaurant to be, serve, and look like. If you’re in a big city like New York, you’ll be up against some stiff competition in nearly every category imaginable. In data collected from NYC restaurant inspections, there were over 90 individual categories ranging from Egyptian Fare to Australian Cuisine to Coffee Shops. Without a unique concept and a solid execution, it will be nearly impossible to get any attention or to build a customer base. Some new operators try out their concept by starting off with a food truck or through pop-up dinners at various locations. This isn’t free by any means, but it gives them the option to try different things without the huge risks involved with buying space and hiring a full staff.
Create a Business Plan
If you want to optimize your options for financing your restaurant business, get organized. The first question you will get at a bank is going to be about your business plan. Are you looking at building your own space or moving into an existing restaurant facility? What kinds of foods will you be serving? Will your business be open year-round, or only seasonally? All of those things will be important to know before you can estimate any sort of funding needs, because they all impact what kind of construction, equipment, and operating capital you will require. Restaurant business plans are a little different than those of other companies like startups, as you’re not necessarily scaling the business to sell or exit, you’re looking to manage costs and grow a loyal client base. Here, show that you understand product purchasing, basic accounting, and customer behavior. Banks will want to see that you’ve got a roadmap for your business, but, more importantly, this document will help you stay focused as you build, staff, and open your restaurant.
Plan for Expenses and Revenues
Ten years ago, some culinary schools were teaching 2% as a healthy profit margin to hit. Things are getting better now, with most research showing many restaurant owners are taking home between 7-9% after all the bills are paid. Those margins are still razor-thin, and very fragile, as food costs and things like equipment maintenance and utilities are constantly in flux. Take the business plan and go one step further. What would your menu cost be if the price of corn or beef exploded by 20% tomorrow? What if your state changed labor laws to require hourly wages instead of tipping? It’s important to remember that your only source of revenue is food sales, and the number of things (costs!) it takes to keep producing that food is staggering. Show that you can withstand volatility while still paying your bills (note payments) and stay in business.
Put Commitment on the Table
There are really only two types of restaurant operators: those that are hands-on and manage everything, and those that want to hire someone else to run the business while they enjoy the perks of ownership. If you’re exploring your business financing options, you are probably not in the latter category, but the rules are the same for both: True success in hospitality comes from an intimate involvement and understanding of every aspect of the business. You will need to know how dishes are prepared, how long the dishwasher takes to run a load, and what the health inspector will be looking for when he or she arrives. This level of expertise will help show your bank that you are dedicated to the business and have the drive to succeed.