Finding Funding

Finding Funding for your New Restaurant

Restaurants are a popular choice when endeavouring into the world of business, however this industry is one of the riskiest and most unpredictable. Your initial set-up costs can vary depending on where on the scale you envisage your restaurant sitting. Costs will also be dependent on the type of restaurant and the choice of food you will be offering. There are only a small minority of perspective owners who will have the full capital for the set-up process. The majority of people will take advantage of one or more of the many borrowing options available.

How much start-up capital will you need?

Your start-up costs may be more than you imagine. Consider the following potential expenses as a way of estimating and foreseeing how much money you will need to set-up your new restaurant.

• Buying existing premises or building on a new plot.

The most expensive option is probably building your own restaurant. Building materials, labour costs and the expense of buying a plot will all make this a more expensive route to take rather than buying an existing building. A new build will also take considerably more time.

• Renovation.

Buying an existing building can come at a cost depending on the area. Refurbishment, re-modelling, decoration, furniture and other furnishings will all add to the cost.

• Wages.

Your employees will need paying out of an already existing fund as your restaurant may not be turning enough profit to cover potential wages.

• Marketing.

A new restaurant will often use a strong marketing strategy to promote their business. This can mean you may incur a significant cost in order to get your restaurant noticed by the public.

• Kitchen equipment.

Your new restaurant will need equipment and supplies. Something reliable and efficient will reduce any future costs. Your choices of equipment will be reliant on the content of your menu, the service type offered in your restaurant and the size and layout of your kitchen area. You can purchase your equipment outright where the budget allows however where this isn't financially possible leasing commercial refrigeration is a great alternative.

• Supplies.

The initial food order will be extensive and a helpful optio is to order that little extra to cover any slip-ups in the kitchen or an influx of customers which is higher than expected.

• Working reserves.

When you first open your restaurant you may find that you have more outgoings than incomings. Having a buffer of reserve funds is ideal to cover the first year of business. By this time you will be hopefully turning a profit and your restaurant can sustain itself.

Financing Plan

This area will require in depth research and preparation. If this is your first business venture it will make the borrowing process even harder. You need to convince either potential bankers or investors that you can make your intended business a success. The following guides may be of some assistance in your preparations.

• Make your own personal investment. This personal investment will show future investors that you are committed and passionate about making this business work. By showing that you are willing to make a personal financial investment gives others confidence in your abilities.
• Experience. Listing any previous experience within the catering sector will show any professional lenders that you have knowledge of the industry.
• Location. Make sure you have an ideal location in mind before approaching any lenders. A poor site can often lead to a failed business and any future lenders or investors will take this into consideration when dealing with your application.
• Comprehensive business plan. This is where all your research and in depth analysis of locations and target markets will be put on display. A thorough knowledge of all aspects will go greatly in your favour when applying for any loans.

Financing options

Bank loans are the most common first port of call for start-up businesses. This can, however, prove difficult if this is a first time businesses.

• Risk factors. The restaurant industry is a risky one and banks are well aware of this fact. Most restaurants will fail within the first year of opening. Bank loans also prove risky for the restaurant owner. If the restaurant does fail the owner will still be liable for any outstanding repayments.
• Harder for first time businesses. It is usual that any lenders will prefer to have some proof of previous successful ventures. Where this is not available an in depth knowledge, thorough research and a strong business proposal will enhance your chances of securing a start-up loan.
• Rejection rates. It is usually that many loans will be rejected at the first attempt. With revision of your business plan and a change of persuasive techniques you may find that any subsequent applications could prove successful.

Personal loans show any potential lenders that you have a vested interest in making your restaurant a success. In turn this increases your chances of securing further loans or investments.

Investors are a good way of gaining finance and increasing your chances of success. Pitching your restaurant plan to acquaintances or contacts within the catering industry will potentially gain you finance along with some added insight into the restaurant business.

• Skills. Having skills in some aspect of the running of your restaurant will always prove to impress any investors. These skills could be of the culinary variety or more in the form of managerial or accounting qualities.
• Incentives. When approaching investors you will ultimately be offering a share of your business in return for their money. You need to demonstrate what an appealing opportunity this is and be convincing in showing how the potential profits can make their pockets bulge. Incentives are sometimes offered to make investment more appealing. You could suggest that part of the investment would be paid back at an agreed interest rate. Incentives such as this may prove difficult for a restaurant just starting out and trying to build up a profit but will entice any investors to believe in them in the first place.
• Approach more than one investor. Having more investor’s means that each individual will only be putting up a smaller amount of money. This will usually make the concept of investment more appealing as any potential losses will be reduced. It also proves more successful for the entrepreneur as they will have more potential sources of future financial input into their restaurant.

Looking for a suitable Partnership is often a good way of finding the needed set-up funding. Partnerships can often be successful but be aware that they can often come with a whole new set of problems. A solid relationship is a good base as shared responsibilities, profits and losses will all contribute to a highly stressful environment.

People looking for investment will sometimes find that a combination of financing methods is best suited to them. An initial loan may be secured and then investors may be recruited at a later date to inject some fresh finances into the business. You may find securing funding difficult and often frustrating but remember that perseverance in this situation is the key.