A business plan could be the difference between success and failure.
A business plan could be the difference between success and failure.

Once you’ve put together a business plan, it’s time to select the right finance option to suit your circumstances.

No-one can deny that the restaurant game is a tough business. Whether it is staffing, menu decisions, suppliers, the whims of the general public, legal obligations or maintenance

issues, problems can come so thick and fast that a proprietor can be very nearly overwhelmed.

But there’s one area where it’s essential to keep things under control—finance. Having the correct financial systems in place is the lynchpin around which all successful restaurants turn. And there are many different finance options to consider.

One of the most helpful things any restaurateur can do is to have a business plan in place. It doesn’t need to be an extremely detailed document but it should clearly identify the goals and strategies of the business. “It should look at the broader competitive landscape, where the operation is located, the business’s strengths, weaknesses, opportunities and threats,” says Adam Bennett, executive general manager of local business banking at Commonwealth Bank. “It’s also important to include financial projections and cash-flow forecasts.

“If a restaurateur has really thought about the plan for the business, that will be an important input in any finance discussions they have with the bank,” he says.

Whether you are starting a new business, expanding an existing concern or upgrading equipment and premises, you are going to need an input of extra funds to cover those costs. There are two main ways to achieve this goal …

Equity financing is money invested in your business by a third party in return for a share of that business. Debt financing is a loan where a lump sum is given and interest accumulates until the debt is paid. Which method is best for you depends upon a number of factors.

“Any financing has to be looked at in the light of the overall picture because running a restaurant is hard enough without having to repay debt,” says Michael Fischer of Michael Fischer & Associates, a restaurant, cafe and hospitality brokerage and consultancy firm. “When things are going well, it doesn’t really matter, but when things are going bad, you have to look at what is going to be the easiest for you. The best result is to achieve your goals with as minimal financing and as few partners as possible. Be as independent as you can.”

The biggest financial burden is when starting a new restaurant from scratch. A large proportion of your investment will remain in the hands of the landlord.

The formerly empty space will be improved with—at the very least—toilets, a grease trap, air-conditioning, plumbing, electricity and extractor fans. As Fischer points out, “All of those components are essential, hellishly expensive and none of it adds to the bottom line. It simply enables you to create a vehicle that you hope is going to be successful. If you sell the business, if you are asked to move out, or the restaurant is unsustainable, the money you’ve invested in those assets will probably remain with the landlord.”

Some would see the leasing of equipment as a good solution but the same issues apply. It is still somebody putting money into your business that you have to repay. Leasing companies are notoriously tough on new restaurants. Without a proven track record, collateral will be required. However, if the business is successful then the lease repayment can be paid off relatively quickly and there’s no ongoing debt.

“The best advice would be to spend time with a business banking specialist and lay out all of the requirements that you have to set up your business,” explains Adam Bennett. “That will allow them to structure your financing to best meet your needs.”

Another area to consider is how a restaurant receives and makes payments; it’s an important part of managing cash flow. It’s critical to get access to funds as quickly as possible so pay careful attention to the range of merchant solutions available in the market. Bennett explains that the Commonwealth Bank provides seven-day access to funds received through their merchant terminal. “This can be very valuable in helping manage the peaks and troughs in cash flow,” he says.

And it’s through the merchant terminals that valuable information can be obtained. “Based on the information from customers paying on credit or debit cards, the Commonwealth Bank can aggregate all of that data and provide it back to the restaurants,” says Bennett. “This information will not only show how much and how often people are spending at their business, but also demographic information. Gender, age, location, postcodes their clients are coming from—it’s valuable in helping target new clients while also encouraging repeat visits from their existing clients. Our program, Daily IQ, is available as an iPad app that provides updated information every day.”

While the physical side of a restaurant is one component of the financing picture, sufficient funds must also be available to order food, train and pay staff (irrespective of the restaurant’s income), and pay suppliers. In the first instance, most suppliers will expect cash on demand until you build up a track record with them.

Whether you decide to utilise debt financing or equity financing will have an impact on the success or failure of your restaurant. Talk to a business specialist, talk to your bank, talk to
your accountant. When it comes to financing, there’s no such thing as too much information.

Michael Fischer makes the point brilliantly. “Financing is somebody else’s money that they’ve put behind you. Irrespective of whether that person is a partner, a friend, a parent or they represent a bank that money has to be paid back. The person who has given you money to create your business vehicle is entitled to be paid before you. Ideally borrow as little as possible. There is little margin in the restaurant business for people to pay too much in financing costs. You have to be very, very careful how you do it.”


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