Financing Your Business

The Importance of Understanding Business Financing for Your Restaurant

To run a successful and profitable operation, it's essential to have a thorough understanding of the financing that goes into it. In this article, we'll explore the necessary financing required for your restaurant and provide tips on how to monitor and control expenses.

Raising the Money

Working in a Partnership

Capital Expenditures

Evaluating Financial Performance

  • Daily Business Review

  • Cash Flow Analysis

Managing Costs

Raising the money

Explore Your Options: Alternatives to Bank Loans for Financing Your Business

When it comes to financing your business, don't limit yourself to the bank. You may be able to find better and more affordable options elsewhere. Start by determining how much capital you need and for how long. If you decide to pursue bank financing, take the time to shop around and compare offers.

Banks often compete with each other, so take advantage of this by negotiating for better terms. Don't simply accept the proposal as is – specify your requirements and propose a reasonable interest rate for the loan term.

However, banks may be hesitant to lend capital to new restaurant ventures due to their lack of a proven track record. Remember, you are not obligated to bank with the institution that provides you with a loan. It is worth exploring other banks for potentially better offers.

In addition, if the bank is not conveniently located for your business, this is yet another reason to consider banking elsewhere. Ultimately, the bank that lends you money should respect your sound business judgment

Working in a partnership

Starting a Restaurant? Here's What You Need to Know About Partnerships and Investors

Starting a restaurant can be a challenging endeavor whether you're doing it alone or with someone else. Most small restaurant startups choose to partner with investors or lenders. When going down this route, it's critical to convince your partners that you have what it takes to run a successful business.

To ensure smooth sailing, keep everyone informed about your business transactions, especially your partners. Communication is vital when dealing with partners and those who finance your restaurant.

When choosing investors or stakeholders, think about their strengths and goals. Look for partners who share the same vision and values as you. Beware of investors who want to run the show and take control, as this can lead to conflicts and misunderstandings.

It's essential to define areas of responsibility from the outset to avoid any confusion or disputes later on. As your company grows, these responsibilities may change, but it's crucial to discuss them thoroughly and adjust as necessary.

When entering into a partnership, make sure to protect your personal investment and agree on the split of assets and liabilities. By taking these steps, you'll be well on your way to a successful restaurant venture.

Capital expenditures

Understanding Capital Expenditures in the Restaurant Business

Capital expenditures refer to the money spent by a restaurant to acquire, upgrade, and maintain physical assets such as buildings, equipment, technology, and real estate. Creating a tailored list of capital expenditures for your restaurant or bar is essential to ensure that the expenses are specific and relevant to your business. Now, let's take a closer look at the capital costs involved.

For the property itself :

  • Chairs, tables, service area costs

  • Floor covering, window blinds or curtains

  • Lighting

  • Heating, air conditioning, kitchen extractor fan

  • Fire extinguishers

  • Bar construction and furnishing

  • Rent deposit, ongoing rent or cost to buy

  • Renovations including labour and materials

  • Building costs and labour

  • Plumbing, electrical labour and materials

  • Decor including any artefacts

  • Toilet upgrade

  • Accountants and bookkeepers fees

Kitchen and restaurant equipment

You may need :

  • Kitchen equipment large and small, including rental equipment costs

  • Glass, cutlery, crockery

  • Coffee espresso machine - lease or buy

  • Cleaning costs including vacuum cleaners, window cleaners

  • Rubbish removal costs

  • Opening party costs

  • Linen, napkins, glass cloths, kitchen uniforms, waiting for staff uniforms

  • Laundry costs

  • Music system, speakers, recorded music and performing rights costs

  • Cash register

  • Opening stocks : food, alcohol, cleaning materials

Ancillary costs

These will include :

  • Telephones

  • Gas and electricity

  • Office equipment

  • Printing for menus, cards, publicity handouts, billheads

  • Advertising

  • Promotion

  • Graphics

  • Menu research, including travel

  • Exterior lighting and menu boards

Accountancy and legal fees

These will include:

  • Budget for accountants and bookkeepers fees

  • Legal fees

  • Insurance

  • Permits : fire, health, business, licence

  • Licence fees

  • Staff costs -  waiting, kitchen, cleaning, office

  • Breakages

  • Operating capital

  • Contingency fund

Evaluating financial performance

Evaluating Your Restaurant's Financial Performance

Analyzing the numbers is crucial when assessing your restaurant's performance. Regular reviews and controls must be put in place, and your intuition should be used to investigate any discrepancies in your data.

It's important to stay on top of your business on an ongoing basis, whether it's monthly, weekly, daily, or even shift-by-shift. Don't let the little things slip through the cracks and catch you off guard. Take advantage of the opportunity to make corrections.

Daily Business Review

Your daily business review is a report that you create by recording your sales figures, labor costs, and customer counts (and any other pertinent financial info or business conditions ) every day.

By recording this info in one place and every day, you build a history of your business that allows you to compare figures across previous days, months, and years to establish patterns and determine whether you've gained or lost ground in individual categories.

Grafting this data and cataloging it over time is essential. Your POS (point of sale ) system may already have a version of this report built into it.

Check your system or check with your salesperson to take advantage of features you may not be using. Here are a few things a daily business review can do for you :

Evaluate how various factors affect your business: You can determine whether a current promotional event, the weather, or a holiday affects your sales compared to last year.

Confirm whether your overall volume is increasing over time : Remember, if you want to grow 10% per year, you have to grow 10% each day.  (Not literally, of course, but you get the picture.)

Established patterns : Over time, you should start to see trends and patterns emerge in your sales figures.

Alert you to the beginning of a problem but not necessarily to what the problem is : You may see that your liquor sales are down compared to the previous weeks, but the report may not tell you why. You almost always need further investigation to get to the heart of the problem.

Dig deeper into other places, such as your logbook, reservation book, and other appropriate resource. You might discover that you had a large rehearsal dinner the previous week that accounts for a jump in your sales that week, and now you're back to normal.

Cash Flow Analysis

The Importance of Monitoring Cash Flow for Business Owners

In order to properly manage your business, it is critical to keep a close eye on your cash flow. This involves monitoring both the money coming in (sales) and the money going out (expenses) on a regular basis. Utilize accurate figures, such as invoices that you know will be due soon, and make accurate forecasts for the rest, including future sales and expenses.

For restaurateurs, it is particularly important to know the precise amount of money available at any given time and how much is owed. Maintaining control over cash, receivables, and payables is crucial, especially if you are a new business owner who may not have the option of extended credit.

When deciding whether to take advantage of supplier discounts for quick payment, weigh the benefits against other possible uses of your cash. Although suppliers may offer discounts, such as a 5% discount for payment within 10 days instead of the standard 30 days, it may be necessary to hold onto the cash for other expenses.

For example, you may need to pay for additional labor or upgrades to equipment, which could be a higher priority than taking advantage of a discount. In short, it is essential to monitor your cash flow and make informed decisions that will benefit your business in the long run.

Improving Cash Flow Through Inventory Management and Strategic Payments

Are you dissatisfied with your cash flow figures? One possible solution is to reduce your inventory. Extra inventory can tie up your money, making it unproductive. Keep just enough inventory to run your business smoothly.

Boost your cash flow by prioritizing slow payouts that don't attract penalties. Consider requesting advance payments for large parties or special events. If you need to make significant purchases in advance, such as champagne or expensive meats, request at least a portion of the payment upfront. This approach can help improve your cash flow situation.

Be cautious when accepting deposits for future events. For example, if you accept a £5,000 deposit for an event two months in advance, ensure that the funds are spent on party-related expenses.

Managing Costs

Managing business costs such as inventory, supplies, labour and other services takes focus and consistency, but there are also a few easy tips that can help you keep such costs to a minimum. Utilise existing resources such as :

  • Provide a display case selling specialty items that can last for a few days or even weeks. Many guests will love the idea of purchasing items "to go" that they cannot purchase in a store or anywhere else.

  • Offer a wide selection of virgin specialty drinks for children, non- drinkers, and designated drivers. Doing so saves you the expense of providing free refills on coffee, tea and sodas.

  • Offer customers a choice of bottled water, such as spring water. Still water, sparkling water, or even flavoured water before you pour them a glass of ice water from a jug. You will be amazed at how much this simple act will increase your sales figures.

  • Ice makers are costly to purchase and repair. Rent or lease ice makers on an as needed basis instead. If you already have an icemaker, be sure to install appropriate filters in the unit to enable it to last longer.

  • Install electric hand dryers. Not only do they save on costs, but they're also better for sanitation purposes.

  • Pallets and crates take up valuable space, as they are bulky items requiring labour to manage. By making vendors responsible for taking pallets away and reusing them, the burden on your staff is reduced as well as the costs of waste management.

  • To eliminate the use of individual wrapping, use straw and toothpick dispensers. Also, consider using drink coasters that can be reused instead of cocktail napkins.

  • Use cleaning rags instead of paper towels. Encourage staff to use cleaning rags instead of high quality napkins and paper towels to mop up a spill. The purchase of disposable towels and napkins can be more expensive than laundry service.