Opening and operating a restaurant is one of the most rewarding achievements for a small business operator, but it can be difficult. Many of the small business owners with which Rewards Network works are those who “think about food all the time, not just the enjoyment but the creation”.
Many restaurant operators are professionals who have been in the hospitality business and just wanted to venture off on their own or have a family-owned business. As a “finance guy,” I admire their pursuit of their passions but often find myself in the position of asking the tough question: Are you sure you’ve planned your capital needs properly?
Having worked with several types of businesses including restaurants, there are some basic tips I always offer to those planning a business venture.
When opening a restaurant, it’s not just about getting enough capital to open the doors – you also need to plan your capital needs to service and attract customers while ramping up your cash flow. Many operators have detailed plans on opening the restaurant and planning their capital needs well before opening, but neglect to plan for the working capital needed to continue operations and attract customers.
In general, it may take between 12-18 months for a new restaurant to generate a positive cash flow; which means the plans should include at least 6-9 months of capital set aside for operations. There are many tools in the market that can help guide you in this process. From my experiences, the cash flow-positive clients we work with have detailed business plans that keep them in check.
Creating a detailed business plan is an important part of opening a new restaurant. Your business plan is your roadmap to success. It will help to keep you on track when your imagination runs wild with potential purchases.
A basic business plan will provide a:
Brand Definition and Company Description
Your business name, style of service, your identity and brand, and your mission statement. This is the creative section, answering the “who, what, why, when, where, and how” of your business.
Market Analysis and Marketing
Details of the geographic area, your competition, menu comparisons, audience penetration, and a marketing and communications plan. This also includes a SWOT analysis to evaluate the strengths, weaknesses, opportunities and threats for your business venture.
Business Operation Plan
Covers your operations from A-Z including what skills you will require to produce your menu, scheduling, required number of employees, management structure, ownership and responsibility, revenue projections, etc. You’ll also need operation costs for food, labor, fixed and variable expenses.
States in detail the projected revenue, expenses, and cash flow associated with the business. This charts the expected intake needed to cover expenses and other financial obligations. When constructed carefully, a financial plan gives you insight into any additional cash needed to support the overall business plan. Some additional cash options could be business loans, merchant cash advances, or bringing in one or more business partners. Rewards Network reviews hundreds of restaurants’ financial statements each year to assess the current and projected financial health of the business.
These four components of your business plan will give you the building blocks to better understand the road ahead when opening your establishment. It is important to take into account that there will be variables in every business plan that will change along the way, but understanding the core objectives is the key to sustaining your business and utilizing your capital wisely.
Want to know more about how Rewards Network can help with your capital needs?