By Liz Teodorini
Restaurant owners, even the most successful ones, almost all reach a point in their career when they’re short on money. Expenses may arise from expansion plans, new equipment purchases, or staff hires, and many owners will opt to borrow money to cover these eventualities. Though it might feel like a big decision it’s really very common, and a normal part of the ebb and flow of small business. Sometimes, you have to borrow money in order to make money. Here are five common scenarios.
If you don’t invest in your enterprise, someone else will invest in theirs. Sometimes, restaurant owners must decide between capitalizing on their success or being overtaken by the competition. One strategy is to wait to have expansion funds in hand, but this opens the door to nimble competitors. By borrowing, restaurant owners can take advantage of timely opportunities and increase their profitability sooner.
The restaurant business is a collaborative affair. You can’t prep your plates before you pay your producers. Between your suppliers and your wait staff, you’ve got bills to pay on a schedule regardless of what’s coming in when. Sometimes this leads to a cash flow problem. Instead of juggling scarce funds or worse, putting off your creditors, why not borrow some working capital? This can help you keep your working relationships healthy, and the wheels greased for smoother operations.
Just like any other business, restaurants are affected by seasonal changes. You may have a season when your sales are through the roof, but also times where your business naturally slows down. Having funds available year-round can be really important, especially since renovations or improvements are best done during quieter periods. Borrowing funds can help you take advantage of downtime to focus on growth opportunities.
Even if you’re miles ahead of the competition, unexpected events do happen and all of them seem to require extra cash. Sometimes the unexpected is completely positive, like a great review that brings in an influx of new customers requiring a bunch of new hires. Other times, there’s not much good to be said for a surprise issue. In any case, it’s a good idea to plan for the unexpected. It’s wise to be prepared with a few financing options in case you suddenly need money.
Savvy restaurateurs know that it’s best to keep your business accounts and personal accounts separate. Funds set aside for your family, education, or travel should stay where they are, away from your company’s savings. If need be, borrowing money for your restaurant ensures your transactions are kept separate and your personal accounts remain personal.
Ultimately, the choice of whether to borrow money or not is up to you. Debt can be a valuable development tool, but it’s definitely not for everyone. We all know there’s a cost to borrowing money. Too much debt or poorly managed debt can quickly escalate into a large problem for your business, no matter how successful you are. If you are considering borrowing money for your restaurant, develop a strategy to ensure you get the most out of your investment.
About the Author:
Liz Teodorini is Marketing Director at iCapital, a financing program that funds hundreds of restaurants and other small businesses across Canada. The company is committed to being Canada’s most caring and responsive loan-alternative provider. They frequently publish articles relating to small business finance.