The financial preparations necessary to back a new restaurant
Opening a restaurant is a risky proposition. According to Forbes, 60% of new restaurants fail within the first year and 80% close shop within five years. There are a number of reasons why a new restaurant might not make it, but one of the most common is simply that the owners didn’t have the financial backing necessary to weather the early challenges. In this article, we’ll outline some of the financial preparations you’ll need to make before opening your restaurant.
Determine your start-up costs
When starting a new restaurant, it’s important to have a clear idea of how much money you’ll need to get it up and running. This will include everything from the cost of renovating your space to the price of purchasing equipment and supplies. Make sure to give yourself a cushion in your estimates so you’re not caught off guard by unexpected expenses.
Create a business plan
Once you have an idea of your start-up costs, it’s time to start thinking about how you’re going to generate revenue. This will involve creating a detailed business plan that outlines your marketing strategy, operating costs, and projected profitability.
Your business plan should include an executive summary, information about your target market, a competitive analysis, operating expenses, and your proposed menu. This document will not only help you secure financing; it will also be a valuable roadmap as you get your business up and running. For more detailed guidance, look at this business plan template for restaurants.
Find the right funding sources
Once you have your business plan in place, it’s time to start looking for funding sources. The amount you’ll need to cover the costs of starting and running your restaurant will vary depending on the size and scope of your business. As a general rule of thumb, you should plan to have at least six months’ worth of operating expenses saved up.
There are a number of ways to finance your new restaurant, including personal savings, small business loans, equity financing, and crowdfunding. If you’re going to seek out loans or investments, make sure to shop around for the best terms and rates. You may also want to consider using personal savings or credit cards as a source of financing. Talk to your financial advisor about which option is right for you and your business.
Choose your location carefully
The old saying “location, location, location” is especially true when it comes to restaurants. Not only does your location impact things like rent and foot traffic, but it can also affect your bottom line in more subtle ways, like how easy it is to find parking or whether your customers feel safe walking to your door after dark. When choosing a location for your restaurant, be sure to consider all of these factors carefully.
Equipment
When it comes to outfitting your kitchen, buy only the essentials first. You can always add more equipment as your business grows and expands. Leased kitchens are also an option for new restaurants on a tight budget.
Build out your team
A successful restaurant is only as good as its team. In addition to experienced chefs and front-of-house staff, you’ll also need support from back-of-house staff like accountants, bookkeepers, and marketing professionals. As you build out your team, be sure to vet each member carefully; a poorly-performing team member can cost you dearly in both time and money down the road.
Keep your costs under control
Once your restaurant is up and running, it’s important to keep your costs under control. This means carefully managing inventory, controlling labor costs, and monitoring food and beverage prices. By keeping your costs under control, you’ll be in a better position to weather any slow periods or economic downturns.
Have realistic expectations
Opening a new restaurant is a big undertaking, both emotionally and financially. It’s important to have realistic expectations about the challenges you’ll face and the amount of time and money it will take to get your business off the ground. Set yourself up for success by doing your research and planning ahead as much as possible.
Follow these tips for success
Opening a new restaurant is an exciting endeavor, but it’s important to remember that it takes more than just good food and great service to be successful. Careful planning and financial preparation are essential for any new restaurant owner who wants to set up their business for success from the outset. By following the tips outlined in this article, you’ll be on your way to opening a successful restaurant in no time!
