Seeking Financial Foundation for Your Restaurant - dummies

Seeking Financial Foundation for Your Restaurant

Most people can’t completely fund their own restaurants, so they need to look for outside investors. Investors can include partners (both silent and not-so-silent), people looking for a new investment, your friends and family, or a combination of all of these people.

Bringing a silent partner into your restaurant business

A partner is usually an informed investor. Typically, a partner is more involved in the business than a typical investor, also called a silent or limited partner.

Tallying the types of partners

Some partners don’t actually invest cash. Instead, they may invest their expertise. Normally, you select your partners because they bring something to the team that you’re lacking. It could be money, bookkeeping abilities, or culinary prowess. Whatever the situation, each partner should bring something valuable to the party, or that person shouldn’t get a seat at your table.

Bringing in a partner is always a strategic move. Here’s a list of good reasons to bring in a partner or two:

  • They bring capital. This is the most common reason to bring in a partner: You need the money.
  • They bring other financial services. Sometimes, you can barter a percentage of your business for other services that you need accomplished. Get creative, but don’t give too much away. For example, you probably don’t want to give free meals for life to the accountant who prepares your tax return one time. Think about people who have these skills if you don’t:

• Accounting

• Business acumen

• Financial planning

• Fundraising

  • They bring a particular restaurant expertise. Maybe they’ve spent time in the business doing something that you have zero experience with. Teaming up can practically ensure your success. Look for these skills in a potential partner:

• Culinary abilities

• Efficiency expertise

• Front man/host expertise

• Local dining scene knowledge

• Marketing skills

• Operations skills

  • They bring reputation or name recognition. Maybe your partner doesn’t lend cash or involvement in the day-to-day operations of the business. But he brings a reputation and is available to consult as needed. For example, you may decide to bring in a big-name chef to consult on your menu and advise you on various aspects of your back-of-the-house operations.

Making the relationship work

You may have heard the adage “Too many chefs spoil the soup.” The more partners you have, the more different ideas you’ll have about where the restaurant should be going and how it should get there.

You should settle decision-making issues before you present your first business plan, seek the first dollar of financing, or even think about opening the doors. If all the partners can’t come to an agreement about this point, you shouldn’t go into business together. In fact, if you can’t come to an agreement at this point, it’s fairly unlikely that you ever will.

Seeking other outside investors for restaurant funding

If you’re considering going to outside investors, complete your business plan and figure in one-time only start-up costs, such as fixtures, equipment, signage, and professional consulting fees. Before you have the first conversation with the first potential investor, you want to know how much you’re going to need from your investors, and be able to tell them how soon they’ll get a return on their investment and how much it will be.

People who invest in a restaurant may think they have a say in what goes on. Even those silent partners can become not-so-silent if they spend time in the restaurant. “Why did you get those curtains? They don’t go with the spaghetti sauce.” People may say that they don’t want to get involved until things don’t go as well, as quickly as you hope. Don’t give them a valid reason to comment. Run your business right from the beginning.

Investors have friends; hopefully, they’ll encourage them to come to the restaurant. If your investors are paying for their own meals, it’s even better. Some investors expect to eat in the restaurant for free as one of the perks of “ownership.” Consider offering discounted meals for investors if you think they’re appropriate for your business. Make sure to write down the full terms of repaying your investors, including any perks like free or discounted meals, so that everyone knows what to expect.

Borrowing from family and friends for restaurant investment

You’ve probably heard all the warnings about being careful about borrowing money from friends. Borrowing from friends puts both the borrower and the lender in tough situations. You don’t want to lose your life savings or your relationships with friends and family. Instead, rely on them for emotional support and encouragement.

If you do decide to borrow from friends and family, treat them with the same terms you’d treat your other investors, including a signed contract with deadlines for repaying the loan.