Many of us dream of opening our own business. Some of us dream of opening our own restaurant or diner. But unfortunately, life gets in the way and many people have poor credit scores, outstanding debt or are in a less-than-ideal financial situation.
Don’t despair if you can’t get a bank loan – these days there are many different ways to finance your new restaurant including family member and angel investor investments, loans and micro-loans from non-traditional financial institutions and more. Alternatively, you could consider starting with a food truck, from home catering company, or running a pop-up restaurant. These will allow you to experiment, get your brand out there and establish a loyal customer base. You can upgrade from there. This is also a great way to show just how profitable your business is, helping you secure the loan that you need to take it to the next level.
How much will you need to pay upfront?
Opening a small restaurant can run into the six figures. There are so many expenses that are simply unavoidable – for example, fitting out a commercial kitchen, leasing a property and investing in staff and staff training. So what’s a restaurateur to do?
What company structure is best for your business?
It’s no use burying your head in the sand when it comes to tax-time. Before you start your business, you should consider which type of taxable entity will be most beneficial to you; sole proprietary or limited liability. Whichever structure you choose will have different tax ramifications. It will also affect if banks will be willing to lend to you or not. You may be able to use your house or other property as collateral for a loan.
Another good option is a personal instalment loan, which is a loan that is paid back regularly, be it fortnightly or monthly. If you make your repayments consistently and on time, your bank may offer you an open line of credit, lending you more money if you prove to be dependable and trustworthy and pay back your loan reliably.
However, there are certain types of loans that you should avoid, or at least be wary of. Be sure to read the fine print very carefully if you must take out an unsecured or ‘pay-day’ loan. These loans often have exorbitant interest rates, and you may find yourself caught in a downward spiral of debt.
What is an angel investor? An angel investor is a person who believes in your idea and is willing to invest in it. They may not lend you a lump sum. Instead they could let you use one of their properties as a premises, use their construction company to do your fit out for free, or otherwise help you out. They believe in the earning potential of your business idea. In return, they might request some conditions of their own, or a percentage of invested interest in your company.
Business plans are so important!
Often you will already be aware of wealthy people in your area who are good candidates to become angel investors. Before you reach out, make sure that you’ve got a watertight business plan on hand. It should contain your qualifications and illustrate the idea, targe market, costing and sales projection that you have in mind. Don’t forget that you are also pitching yourself, so be sure to highlight how your career experience will make your concept successful, and therefore a wise project in which to invest.
A food truck is a great place to start
A food truck is an amazing option for people who want to open their own restaurant and have a great concept to bring to the world, but may not have the capital on hand. They rarely need more than $50,000 as an initial investment. Additionally, because they are not physical premises tied to a particular address, you won’t need to pay rent, electricity, internet, or most of the other big bills. Because the space inside a food truck is so small, you won’t have to hire lots of staff, keep a packed bar full of expensive liquor, or invest in developing an interior seating area. Marketing, advertising and your business plan can still be done as normal. When you’ve established a name for yourself, refined your menu and business practices, and gained a following of loyal customers, you can choose to upgrade to a more permanent venue. You may find that the flexibility that a food truck offers actually suits your business, and may choose to keep this business model.
Consider opening a catering business
Opening a catering business does not require the same level of upfront investment that opening a restaurant requires. This makes it a very attractive option for many aspiring restaurateurs. Again, you will need to implement all of the business aspects required to run a restaurant business such as insurance, budgeting, marketing, customer service, tax and more. This is also a great way to refine your menu options and discover where your marketing, business and restaurateur strengths lie.