Building a brand takes time and a great deal of investment in terms of energy and resources. Although every restaurant is different there are often four general stages of finance that are involved in taking this type of business from start-up to success. Here we look at what’s involved in each one.
The first step for any new business is establishing a foothold in the market and starting the process of proving concept and testing the business model. Getting a restaurant off the ground may mean looking to friends and family to help provide the financing for this first key stage. Investors are often required to provide the up front capital that is necessary to secure premises, equipment and to cover essential start-up costs, from marketing to staff. If you’re working with a brand new business model then investors can be tough to find – those who buy in to the concept of the business and what it’s trying to achieve are likely to be the best choice.
When the business starts to find its feet there is usually a phase of slow but steady growth. Financing at this stage may be required in small amounts, quickly - for example to cover the cost of a renovation or to help provide for unexpected issues that can affect cash flow, such as seasonal dips in trade or obstacles that prevent walk-ins (e.g. roadworks outside). At this stage every new restaurant needs to have some flexibility on the finances front and this often means ensuring that you have access to a debt facility. If you’re borrowing to help fund this stage of business growth bear in mind the impact of interest rates and the fact that repayments will begin almost straight away.
Taking the business to the next level
At this stage a single restaurant could potentially be rolled out into a chain if the right financial backing can be found. Equity investors are often the best option here, providing funding in return for an interest in the business. One of the major benefits of working with investors at this stage is the injection of expertise that the business will also receive. Investors can help to identify opportunities to generate maximum value from the business that has been established and to provide functional and strategic expertise whether that relates to marketing or technology. A more informed perspective on the legal context to the business, as well as market trends, is another benefit that investment partnerships can provide.
Nationwide – or global
Going nationwide is often the result of years of robust trading and having the right financial backers. Taking the business further than this might mean looking at opportunities to access debt and equity funding to deliver growth or identifying opportunities for the original owner to exit the business at some point in the future.
Finance is an essential part of the process of taking a restaurant business from start-up to success and these are the key stages involved.