It can be exceedingly difficult to operate a successful business in the hyper competitive restaurant scene. The ultra slim profit margins across the board and fierce outside competition can be a challenge to manage. A simple lack of capital can be the ultimate ruin of even the most successful restaurant. Many inexperienced restaurateurs run into a slew of hidden costs and liabilities that can easily run all of their capital funds dry.
Let’s discuss a few ways in which restaurants can increase their available on-hand capital.
- Bank Loans – The most traditional route for most business owners to accrue additional funds for business operations is via bank loans. This route is particularly advantageous for well established restaurants with proven financial success and solid business credit scores. However, this can put start-up and smaller restaurants at a disadvantage in regards to availability to funds.
- Business Partners – One way to increase available capital without taking on additional debt is to have a business partner. A reputable and trustworthy business partner can be hard to find, especially when for a business that is still relatively small and unproven. Although it can avoid taking on debt, a business partner will assume more control on general operations as they are buying a ‘share’ of the business.
- Personal Funds – It is very common for restaurant owners to use at least some of their own personal capital to fund a new venture . It is a wise way to avoid the burdensome liabilities of debt, especially when opening a new, unproved restaurant. However, it can be awfully risky to invest one’s life savings into a business or borrowing from rich relatives in hopes of turning a profit.
- Crowdfunding – A new accessible form of funding for restaurant owners that have a large email list and social media following. Popular platforms include Kickstarter, Indiegogo and Go Fundme. Essentially, this is an option to have restaurant patrons become involved in helping to start or grow a new concept.
- Private Equity – The last option of garnering funds pertains to private equity funding, which is essentially a group of private investors pooling their resources together to invest in a business. Private equity investment in the restaurant industry has been at a steady growth for years. Similar to having a business partner, restaurant owners can have access to additional capital at the cost of relinquishing some overall control on the business. The ideal candidates for private equity funding are experienced operators with plans to open more than 15 units. Here is a site with some of the top private equity lenders. https://aaronallen.com/blog/restaurant-private-equity-firms
Capital Funding Considerations
All restaurant owners whether big or small, can have access to additional funds for their business. The best option ultimately boils down to each restaurant owner’s personal needs and goals for their business. Whether the goal is to grow, consolidate debt, or future renovations; there is a source funding at their disposition.