If you are ready to finally take the plunge and turn your dream of being a restaurant owner into a reality, it is time to embark on a long and somewhat daunting journey of securing the necessary capital needed to get your startup off the ground and turn it into a foodie success.
From securing the necessary funds to cover lease obligations, daily operation expenses, and salaries to acquiring things like coffee machines for businesses and other essential kitchen appliances, your passion, dedication, and endless hard work can soon pay off.
Restaurant Business Loans
Before you can ask for a business loan from a financial institution, you will need to have a detailed and accurate business plan that clearly states your financial goals, timeline, and expenses. Business owners must research every bank loan available and ensure they understand the terms of the loan, interest rates, and services offered before committing to any legal agreement.
Entrepreneurs in the hospitality industry should be aware that many banks are wary of lending money to first-time operators due to the high risk of failure. To improve your chances of success, it is recommended that you already have some funds to finance your business.
Angel Investors
An angel investor is an entrepreneur who has successfully launched multiple business ventures in the past and is now looking to invest in and finance a new business in exchange for equity. The terms of how these investors get paid could vary across multiple offers, such as asking for 10% of profits over 10 years or a 20% share if the restaurant is eventually sold.
Potential restaurant owners should ensure that their business model and restaurant concept are sustainable, efficient, and practical before pitching their business plan to an angel investor, as these investors traditionally get involved in the early stages of planning and development.
Business Partnership
A business partner traditionally encompasses multiple roles and expectations. Some partners may choose to play an active role in daily operations, while others may provide essential financial backing. In some instances, your business partner may decide to fulfill both.
Bringing on a business partner allows you to distribute financial obligations and reduce individual risk. However, to ensure a successful and harmonious working partnership, it is crucial to define responsibilities from the outset.
Government Subsidies
Different countries around the world have different schemes or initiatives to support the food and beverage industry. Typically, they are given more favorable interest rates, but the establishment is often required to share regular business reports with the government.
Receiving these subsidies can improve a restaurant’s reputation, improving its chances of successfully applying for funds through private banks. However, there are many drawbacks to accepting these subsidies, which include limited availability and a laundry list of requirements to meet when applying. Furthermore, they usually involve retrospective disbursement, requiring funds upfront.
Developing a Repayment Plan
When obtaining money from third-party sources, it is vital to develop a reliable and practical repayment plan alongside a funding plan. You should assume that your payments will come from profits generated each month.
Funding Plan
A funding plan is a document used to lay out initial costs such as equipment purchases, lease deposits, maintenance and renovation costs, and ongoing working capital needs such as groceries, water, electricity, gas, salaries, and other daily operational expenses.
This plan must provide a detailed explanation about how funds will be raised, including a clear breakdown of each source and amount, to ensure complete transparency and clarity for any potential stakeholders to fully understand the finances of your startup restaurant.
Income & Expenses
A detailed and well-crafted income and expense plan is a vital tool for creating a strategic outlook for business operations in the future. Sales projections, future expenses, and calculating potential profit must be studied and understood before starting your business.
When building an income and expense plan, restaurant owners must judge and understand the overall business environment, the general state of the industry, the success and performances of competing establishments, and any possible changes in equipment capacity and prices.
Sales Forecast
Sales forecasts are crucial for planning income and expenditures. The method by which these forecasts are crafted differs from industry to industry. For the restaurant business, the cost per customer is determined by the time of day, while turnover rates will be influenced by the time of day and the day of the week. Therefore, it is necessary to make separate calculations for day and night, as well as weekdays and holidays or weekends.
Furthermore, it is crucial to pay attention to seat occupancy rates, which reflect how much seating is occupied. For example, two people sitting at a four-seater table have an occupancy rate of 50%. If occupancy rates are low, it can negate high turnover and cause sales to drop.
Repayment Scheme
Restaurant owners should utilize projected profits from their income and expenditure plans to build a realistic and sustainable repayment plan, which will clearly illustrate monthly repayment costs and the timeline for settling the debt.
It is important to remember that any profit you make before paying off your loan is your total profits minus your loan payments. When allocating funds for your repayment scheme, set aside a sizeable portion of your budget to cover any unexpected emergencies or expenses.
