Great food and enticing atmosphere go a long way toward making many restaurants successful. Even restaurants with plenty of buzz and reservations, however, sometimes go under because of problems in the back office.
Keeping a restaurant properly funded is not always easy, but it is inevitably key to staying afloat. Recognizing the kinds of issues that can lead to cash flow troubles and a lack of working capital will always be a valuable skill for a restaurateur. Knowing how best to overcome the funding challenges that can arise along the way is every more important.
The Same Few Sources of Funding Pressure Affect Many Restaurants
The restaurant business is an undeniably romantic one, with many who open their own establishments dreaming about treating guests to unforgettable meals and raking in rave reviews from critics. Quite a few do so without understanding how challenging it will be to turn those dreams into reality, given that restaurants are even more difficult to run than many other types of businesses.
A pair of economists heartened many readers with a 2014 study titled “Only the Bad Die Young: Restaurant Mortality in the Western US.” They established that the commonly held beliefs about restaurant failure rates were actually fairly exaggerated.
At the same time, that paper and plenty of other research back the view that restaurants which are run best from a brass-tacks business perspective tend to fare the best. In every case, that means being able to make sure a restaurant will always have access to the funds it needs to keep serving diners. Some of the sources of funding stress that are common to just about all restaurants include:
Most of the suppliers restaurants depend upon so heavily will allow payments to be made on “net 30” or another delayed basis. That is typically helpful for restaurateurs with the discipline and planning ability to make sure that enough funding will be available once an invoice comes due. While normally predictable and foreseeable, though, payments owed to suppliers make for persistent financial problems even at many restaurants that are generally well run.
Seasonal and cyclical factors.
Even many popular restaurants see reservation levels surge and ebb in ways that can make it very difficult to keep cash flows balanced. Some restaurants do booming business in the summertime but are barely able to make rent when the weather grows colder. Others rack up huge profits on particular holidays but struggle to stay in the black outside of them. Once again, issues like these can make it difficult to run even a popular, well regarded restaurant.
Investments, repairs, and other one-time payments.
A recently opened restaurant that immediately becomes a hit could find itself facing capacity problems that hold it back from growing further. A well established restaurant that suffers a major equipment failure in the kitchen might find its formerly solid financial situation deteriorating sharply overnight. One-off investments and required payments, whether expected or not, also frequently make properly funding a restaurant far more difficult.
All of these possible funding issues and others are essentially unavoidable realities when running a restaurant. As such, every successful restaurateur needs to be able to grapple with related problems effectively when they arise.
Some few establishments might have investors with such deep pockets and generous outlooks that no other funding will be needed. Most restaurant operators will need to develop and make good use of other solutions.
Funding That Fits the Real Needs of Restaurants
Fortunately, there are some sources of funding that do, in fact, suit the needs of most restaurants very well. Given the unique nature of the business, it might be expected that the best fitting funding options would need to bring some special features to the table. In most cases, restaurants will be best served by funding that is:
In some types of business, things are generally so predictable and routine that future expenses can be plotted out with a good deal of accuracy. Even a restaurant that faces generally foreseeable financial challenges like seasonal fluctuations in volume will almost always need to confront plenty of surprising ones, as well. As a result, restaurateurs who have access to funding that can be used however needed tend to find it easier to keep the books balanced. Business loans that must be used for particular purchases might sometimes be appropriate, but being able to leverage more flexible types of funding will almost always be helpful, as well.
Traditional sources of funding like banks became a lot more demanding of small businesses after the last financial crash, and they have remained stricter than in the past. Funding providers who are more willing to account for and accommodate the unique nature of the hospitality industry tend to be a lot easier to work with. Even restaurants with strong histories of sales will not always be able to satisfy traditional lenders.
A loan with repayment terms that would be impossible to live up to could sink a restaurant just as surely as an unexpected, unplanned-for financial emergency. Because daily receipts and monthly revenues in the restaurant industry are not always as regular as might be hoped, funding arrangements that provide a bit of leeway will often be easier to maintain in good standing. Being able to refinance funding after the situation changes can also make a difference.
In many cases, securing restaurant funding from a source like Iruka Capital will check all these boxes along with other, similarly important ones. Instead of requiring collateral and rigid, monthly payments like a traditional loan, merchant cash advances have the initial funding repaid through pre-agreed percentages of credit card sales or set deductions from daily balances.
With no restrictions regarding how the working capital may be used and sales history the most important qualifying factor, many restaurants are especially well suited to this type of funding. As the repayment terms can be arranged to accommodate virtually any common situation in the industry, even restaurants that expect to go through slow sales periods can qualify and keep up with their obligations.
Funding providers like Iruka Capital, in fact, are making it easier for restaurateurs everywhere to overcome some of the most common and challenging problems in the industry. Having access to required funding when needed and on terms that make sense will always make it easier to keep a restaurant in sound financial shape, whatever the particular situation.