Industry Standard Best Practices in Restaurant Financing

When it comes to moving your restaurant brand forward, the ability to get financing is typically the make or break factor. Getting lenders and investors to fund your business can be somewhat of an art. It requires being able to have a clear concept of your plan, the ability to illustrate its potential profitability to others, the awareness of potential challenges that may arise as your restaurant expands, and the ability to respond to them. Here is an overview of each of these industry standard best practices in restaurant financing in greater detail.

Have a Clear Concept of Your Overall Strategic Plan

Having a clearly defined strategic plan is a key piece of your overall financing packet. Detail how capital is used, the positions and duties of the team that is required to make it work and the profits and losses that result from the effort.

Make a point of documenting both your short and long term objectives, along with any supporting materials needed to demonstrate that you know what steps are needed to make those objectives a reality. Gather all of your financial statements, your strategic plan and supporting materials together so that everything lenders need to know to make a decision is available to them in an organized, user-friendly fashion.

Illustrate that Single Unit Economics Are Intact

Being able to demonstrate how funding will work at the unit level is an important part of your overall financial plan as well. It’s a good idea to include a case study of single unit economics in your financial documents as supporting evidence. You need to be able to show that your economics are solid and your concept’s likelihood of success is high. Banks want to know what the money they lend you is going toward and what they will be able to expect in return. The more replicable you can demonstrate that your single unit results are, the more attractive your brand will be to lenders and franchisers alike.

Be Aware of Challenges to Your Niche and Long-Term Viability Issues

A final best practice we’ll cover here is the ability to articulate your awareness of potential challenges and long-term viability issues that exist. Challenges to your business could include competition, traffic trends, your ability to promote and price your products successfully, and anything that might go haywire along the way. Challenges to your ability to fulfill your lending agreement will include the potential for interest rate changes, property lease increases or expiration, store remodeling and upgrading requirements, ability to meet loan maturity dates, etc. Lenders need to know that you’re aware of these potential challenges and have a plan in place to deal with them. Think these things through and be able to talk freely about them with your lenders.

In sum, getting financing to expand your restaurant’s brand has a lot to do with coming to them with a clear plan of where you’d like to go, how you’re going to get there and why it will be profitable for them. Ensuring that you have these industry best practices in restaurant financing in place, before you approach lenders, will go a long way toward ensuring the ultimate success of your restaurant’s brand expansion.

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3 Responses to “Industry Standard Best Practices in Restaurant Financing”

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