How to Get the Cash to Start a Restaurant Business
Lots of people dream of starting their own restaurant, but very few people can do it with just the cash and assets they personally have available. A restaurant is not the kind of business you can start on a shoestring, or easily bootstrap you way into a bigger operation. As a result, the financing of a restaurant startup is often the most challenging aspect of getting started for any entrepreneur looking to get into this field.
The first step in any financing plan is to have a very well thought out restaurant business plan. You can’t begin to finance a project of this magnitude without a very good understanding of what you are actually going to end up getting. Well, you can, but the results are almost always a disaster!
Equally, or maybe even more important in some cases, is a financial plan that shows you the exact cost you will incur to launch your restaurant, including not only the cost of getting to the point of opening the doors, but also the amount of additional capital required to keep the doors open until you reach the break even point- where the business generates enough cash to pay all its bills every month.
Once you have your restaurant business plan and some carefully crafted financial projections in hand, you can begin evaluating your options for financing. The first place to always look is your own funds. Not only are these the easiest to get, but few other people are likely to put any money into your restaurant if they know that you yourself aren’t investing in the business.
The next most likely place to look is friends and family. While there are pros and cons to taking money from these sources, statistically they are one of your best bets for raising startup cash.
If you have put together a reasonable stake from these sources, you can often leverage the rest by using an SBA loan. A reasonable stake means 50% of the total you will need if you are starting from scratch, or 10-20% of the total if you are buying an existing business. The SBA favors borrowers who can show they have related industry experience, so if you don’t have any, now is the time to recruit some mentors and advisers to your team who do, to make your application look much stronger.
If you are buying a business, you will hopefully also have some financing coming from the current owner. These funds, while they don’t put actual cash into the deal allow you to pay a part of the purchase price over time, thereby reducing the total amount required to get started. Owner financing, combined with bank financing is the lowest cost way to get into the restaurant business for most people.
Another option, if you are looking at franchises, is third party financing arranged by the franchise company. While many franchises have steep net worth requirements, if you qualify they will often help you find the actual cash you need to get into the business.
Once you have exhausted the above options, you can pursue outside investors. While it is difficult to find an investor interested in funding a restaurant, it does happen, so be persistent. Your best bet is to find a successful business owner already in the restaurant business who may want to expand and have the capital, but not the time. This is where you come in, with a concept and the passion, but not quite enough cash.
Venture capital is a dead end for restaurants. The only time you will get interest from these investors is if you already have a chain of five or more locations, and a concept that can turn into the next Starbucks. Another dead end is grants. While the guy on late night TV promises that the government will give you money to start any business, don’t believe it. There simply are no grants for restaurant startups.
If you are persistent, and you have a solid business plan, anyone can eventually find the money to start a restaurant, even if you are starting with nothing else. All you need to do is keep at it and not give up, and you can succeed. For more ideas on how to raise money, find investors, borrow from family and friends and more startup related info, check out CapForge.com.
The ultimate guide to creating a “guaranteed to get funded” restaurant business plan quickly and easily was created by the author, former restaurant owner and full time startup business consultant Matt Remuzzi, owner of the website CapForge.com, one of the top web hubs for information on starting a business.