Five ideas to curb financing woes

Before and after the recession: Restaurant industry realities

The recession changed things dramatically for most small businesses, and the restaurant industry was no exception. It has created a different landscape for business owners in terms of credit options and overall profitability. But our industry is nothing if not resilient; many restaurateurs have sprung back from the challenges of the financial crisis, finding new and different ways to make their businesses thrive.

Before the financial downturn, business was booming and the industry was riding high. Owners had the confidence to take risks, open more locations, and offer premium products and service to a moneyed clientele. Many small restaurants were even able to use personal credit to back their businesses, and banks were relatively flexible with financing options.

Canadians as a whole did not suffer as much as our neighbours to the south, but the recession was still a time when consumers tightened their belts, and dining out was one of the first luxuries to get cut from family and corporate budgets. The downturn hit our industry hard. Restaurants changed their business models, downsized and closed. It was a difficult time to be serving food – people simply weren’t spending.

The economy has recovered since, and so has the industry, to a large extent. But the recession has definitely left its mark on the way we do business. Banks have lost their flexibility. They want more security, so they have tightened up their requirements, added restrictions, and are generally a lot less free with their loans. Plus, Canadian banks have always been more conservative than their American counterparts. Which means we did not feel the impact of the recession as severely, but it also means it is that much harder for restaurant owners to get the funds they need. Investors are now similarly risk-averse. So in this financially conservative atmosphere, there simply are not as many ways of getting money. So how do restaurants survive?

Nethris/CGI Jan - 2016
These days, restaurant owners must find alternative ways to fund their businesses, which requires some creativity. Here are a few ideas to help curb your financing woes:

  1. Focus on one location. Rather than spreading themselves too thin, many restaurant owners are putting their energies into a single high-yield location. Focusing on quality and service is a great way to build loyal clientele. An owner with one great location that people love will do better than a restaurateur with several spots that are mediocre. It’s a great way to build a brand, so when you are ready to expand, your reputation will precede you.
  2. Find alternate funding options. Because traditional banks and investor avenues have dried up as a source for small business cash, a number of businesses have sprung up to address this gap. iCapital is a good example. They offer loans using a unique model; retailers and restaurant owners borrow the funds they need, and then pay them back over time with a percentage of each sale they make.
  3. Cater to niche markets. When you are offering the same thing as everyone else, you may have a bigger audience, but you also have more competitors in the playing field. Going after a smaller segment of the population (e.g. vegans, grilled cheese fans, people who eat organic) means you have fewer restaurants to compete with, and is an opportunity to build loyal clientele.
  4. Use cheaper marketing tactics. Radio and newspaper ads are expensive. These days, many restaurants are successfully marketing themselves online – for free. The movie “Chef” shows a great example of using free social media tools to build awareness. The main character’s son manages to build hype for his dad’s food truck using simple online tools such as Twitter, and creates a loyal following that finds them wherever they set up shop.
  5. Stay lean with overhead. Keep expenses low by slimming down your menu options to lower food costs. Forecast labour needs carefully. Renegotiate with your suppliers or shop around for new ones.

The recession created new financial challenges for restaurant owners everywhere. But the surviving and thriving eateries out there are showing us that there are definitely options that work, and that these new challenges can be overcome with a different approach and some innovative thinking. So what ideas do you have for finding funds in this risk-averse reality? Comment below and let us know!

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About the author:

Liz Teodorini is Marketing Director at iCapital a hassle-free and flexible financing solution for Canadian small businesses. The company, which is committed to being Canada’s most caring and responsive loan-alternative provider, frequently publishes articles relating to small business finance.

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