Since starting a restaurant business is never going to be a cheap, a major topic to think about would be the finances of such an endeavor. There are various ways for you to get the funding you need and here is where we’ll be exploring these options. A few things to check off your restaurant business checklist as well will include a list of your required documents.
WRITING A PLAN
One document that you definitely need to prepare is an investment proposal. Having this is a great way to draw in potential investors and funders to your restaurant. If you’re unsure of how to write one, there are several business plan guidelines that you can consult, but the foundations of its creation remain: a good knowledge of your restaurant’s needs, its strengths and weaknesses, how much you are expected to spend on the business, and more.
One option you have is to save up your own money and fund your restaurant business yourself. This is viable when you are absolutely sure regarding your restaurant’s formats and concepts. That way, you can be sure that you won’t be changing things up on a whim just because your ideas are not yet finalized. To get a better idea of what concepts you want, extensive marketing research is needed. Paying attention to the cost analysis of market research methods should help your endeavors greatly.
Another option available is to seek out business partnerships. A tip here would be to look for a partner that already has experience when it comes to the restaurant business. This is particularly useful for those that are engaging in this type of business for the first time. As tricky as it can be, the type of partner you’d want has to be someone who has similar goals and visions for your business as you do. On your part, the assembly of a partnership proposal can help convince prospective partners to join you since it will show just how much thought you’ve put into this venture.
The third option you have is to get a loan from your local bank. This is an excellent way for you to get working capital and initial investments for your business. What should concern you about this option, however, is the fact that this is hardly an easy thing to get. Banks need some form of collateral property against it. One way to make things easier for yourself is to prepare a business plan to get a loan. While you’re at it, here are three different types of loans that you may want to look into:
This is known to some as an ‘unsecured debt,’ due to the lack of a collateral back it up. In this, lenders tend to utilize your credit score so that they can determine whether you can be given a personal loan and how much the interest rate would be. If you have an expense that you need to pay off as soon as possible, this would be the loan for you. How high your loan is will depend greatly on your credit history, and at times, it can be even higher than your secured loans.
This is the type of loan that you’re most likely to try to secure for your restaurant. Take note that lenders have the need to know just how you intend to utilize the funds. So it would be best to ensure that your spending outline is as clear as possible. Utmost professionalism is also needed; showing otherwise could lead to the rejection of your application.
Unlike the other types, this is not a direct loan to business owners. Rather, it functions as a guarantee on behalf of entrepreneurs to lenders and banks. The guarantee is to help protect the interests of lenders by the promise of paying part of the loan should the entrepreneur default on the loan.
If you believe that your restaurant has the potential to be a hit and earn relatively high profits, angel investing may be the option for you. The option to get funding from an angel investor can provide more than just capital as a benefit. Many investors of this type tend to be entrepreneurs themselves; you can expect not only close scrutiny, but closer involvement from them. Business advice and even mentorship are two things that can happen, but exercise caution on your part.
Approaching just any angel investor would not be a good idea. This is because most tend to have their own specialties. Be sure that their history of investing matches with what your business concepts are. Another thing to take note of is that they usually invest through their networks or groups. Due to their thorough nature, preparing an angel investor proposal can go a long way in securing the help you need.
VENTURE CAPITAL FUNDING:
Investors who are well-off, along with investment banks and various other financial institutions, comprise the option known as venture capital funding. Their actions are usually made to benefit small businesses and startups which they believe have the most long-term potential. Just because your restaurant has that potential doesn’t mean you’ll automatically get the funding you need. In some cases, venture capitalists help out in ways beyond monetary aid.
Some can help out in technical expertise and others may help in the managerial aspects of business. Those whose capital budget is lacking, VC funding can become absolutely essential. A word of caution should be exercised though, since there are still downsides to this option. In this option, investors tend to get equity. Through this, they can have a say when it comes to the decision making for your restaurant. Submitting a business plan to a venture capital firm or angel investor is the first step in getting this kind of funding.
Crowdfunding has become a popular method of raising funds over the past several years. Success in this case has a lot to do with how you come up with your crowdfunding proposal. Unlike speaking to a private investor or asking for a bank loan, there’s no need to be so formal here. Your target is the general public, so what’s important is telling your story in a way that can get their attention and convince them that funding you is worth it.
What separates this option from others is that anybody can contribute, which can mean receiving low amounts. Some crowdfunding platforms also required offering incentives or rewards to your contributors. As part of the proposal, you can add a video which can help potential contributors understand who you are and what your business is all about. The written part must be both clear and concise.
FRIENDS AND FAMILY
They may be your friends and family, but as a business owner, you still need to watch out for certain pitfalls. One common mistake entrepreneurs make with this is over-valuation. Such a mistake causes structural problems that you need to resolve before your next financing round. There’s also the legal requirements to think about; even if your investor is a family member, do not neglect any requirements that come with the acceptance of your first investment.
Besides those concerns, there’s also the personal nature of your relationships. Don’t take advantage of your friends and family by asking for more than they can afford to give or lose. A minimum amount for the achievement of a particular milestone is often good enough. Just like regular investors, communicate with them. Share your plans and the cost to open a restaurant. Provide them with regular updates. Lastly, it would be best to turn to friends and family that have relevant business experience. Doing so can help you and your business so much more in the long run.
BUSINESS INCUBATORS & ACCELERATORS
For you to make the choice between dealing with business incubators and accelerators, a distinction must first be made. When dealing with incubators, you expect benefits in the form of shared space and facilities. They can also provide telecommunications systems within a dedicated building. More benefits include access to advice or guidance from consultants and advisers. For many entrepreneurs, the typical incubation period lasts between three to five years.
When it concerns business accelerators, some characteristics are shared but the process tends to be much faster. Their aim is taking concepts and turning them into viable products in just a matter of months. Your sponsors not only provide you with initial funding, but also their expertise. In return, they get an equity stake in your business. It is usually not much; six percent is the typical amount. When dealing with either incubators or accelerators, you should be prepared with your restaurant business proposal.
This is one option that involves a much greater level of risk compared to those mentioned beforehand. Those who are new to business are not likely to have any business credit, which leaves only their personal credit. This makes you liable for whatever debt you may incur. Despite the risk, there are still ways that you can succeed with this option of funding. You need to make sure that your credit is spotless. Being up-to-date on every obligation is another necessity. The top priority here would be the capacity to afford your business’ credit card bills.
Those with excellent credit rating ought to try and negotiate for lower interest rates. It is recommended to try working with three credit card companies. There’s no doubt that you’ll need a significant cash advance so you can get your restaurant up and running. By having three credit cards, you may juggle each one so that the interest rates will be eliminated or lowered as you continue running your restaurant.
In turning to microlending, you should know that the loans you’ll be getting are incredibly small. For some, it can even be as small as $25 to $50. Besides the amount, a key difference is also the motivation of the lenders. Whereas more traditional ones take part due to their interest in potential profit, microlenders are more into the development of your restaurant or business. Some even go as far as to throw in some training or coaching.
If you’ve chosen this as a method of funding your restaurant, the best thing to do first is to shop amongst potential lenders. See where you are able to get the most and the best deal possible. You can even approach one of your local banks for information regarding your eligibility as far as borrowing is concerned. Once you’ve got the information needed, compare every term and select the lender that you think can help you out the most.
If the idea of lending appeals to you but you don’t want to use official financial institutions as intermediaries, then peer-to-peer lending is just what you need. The downside of all this is the longer delays and the greater risks and effort involved. As a borrower, your profile will be displayed on peer-to-peer online platforms. From there, investors will assess the profile and decide if your business is something they’d want to lend their money to.
The platforms connect entrepreneurs to their potential investors, particularly those with enticing interest rates. It is highly recommended to first acquire a comprehensive knowledge and understanding of what risks you face with unsecured loans. That way, you can engage in this method of funding as prepared as possible.
By now you ought to be fully aware of the different types of funding options that are available to you. Despite their differences, what most of them have in common are the required restaurant templates and documents that you will need to present. There are some variations here and there, but all those documents can go a long way in helping you get the funding you need. Pick out an option that’s best for you and your restaurant and it is a guarantee that you’ll be off to a great start.