Many people dream of opening their own restaurant, creating showstopping meals and hosting their friends in their very own social hub. But how can you kickstart your passion project? Here, we take you through the ways you can get funding to build a thriving restaurant franchise unit.
[Disclaimer: The statistics in this article are based on consumer spending habits before the UK’s lockdown and are not representative of the restaurant sector’s performance during the COVID-19 pandemic. Below, you’ll find information on the government support available for restaurant businesses that have been affected by the outbreak.]
The restaurant industry is a lucrative one. According to Statista, 43 percent of Brits eat outside of the home at least once a week, spending an average of £19 a week in restaurants, pubs and cafes.
Many would-be entrepreneurs are put off moving into the restaurant industry because it’s notorious for its high percentage of business failures. And many restauranteurs will tell you that the hardest part of running a restaurant is setting it up in the first place – often because securing funding is so difficult.
But you put yourself in the best possible position by investing in an existing business that’s already cracked the formula. Lenders should be more willing to give you the money you need if they can see you’re putting it towards a business with a proven model. So, let’s run through some of the best ways to get the funding you need for developing a restaurant franchise business.
Ways to get funding for your restaurant franchise unit
1. Get a bank loan
One of the most well-known ways of sourcing funding for a restaurant franchise unit is to borrow money from a bank. You’ll meet with a financial advisor and sign an official agreement detailing the terms of the loan. Some franchises have established relationships with high street banks, making the lending process easier for new franchisees. Always check to see whether your franchisor is able to give you a list of approved finance partners.
Remember, you may have the skills, creativity and drive to run a successful restaurant, but lenders won’t be willing to sign over their cash unless you can prove you’ve got a solid financial plan in place. So, it’s vital you’ve developed a rock-solid business plan for your particular franchise unit. Your franchisor should be able to help you with this and provide financial forecasts based on existing franchise units.
One thing to bear in mind: This may not be the last time you apply for funding in your lifetime, so you should make it your priority to pay investors back as soon as possible in order to maintain a good credit score. This may mean you give the majority of your profits away for the first few months, but it should be worth it in the long run.
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2. Use your overdraft
Generally, we recommend you only go into your overdraft to fund low-cost franchise units with a quick return on investment (ROI). So, if you’re setting up a café or small restaurant branch and already have enough capital to fund some of the set-up cost, this option could work for you.
Some franchisees opt to use their overdraft facilities because of the flexibility it offers them when it comes to repaying the money. However, there are a couple of negative aspects to this type of borrowing: the interest rates are often high, and banks can withdraw overdraft facilities at any time.
3. Pool money with family or friends
If you’d rather not use funding from an official lender, you could form a business partnership with friends or family members to boost the amount of capital you have access to. When your business is up and running, you could choose to buy out your partners’ stakes in the business and continue managing it yourself.
Just make sure you select your business partners wisely; you’ll need to be able to work well together. Also, you should all contribute an equal amount of money, time and effort into the restaurant, as disagreements further down the line could negatively impact your personal relationships.
Tips for starting up a restaurant business
- Choose your franchise wisely – Avoid franchises that seem to tap into food trends. Although they might seem like the ‘place to be’ now, you’ll thank yourself later on for choosing a restaurant with longer-lasting appeal.
- Sign a long-term property rental contract – If you sign a short-term lease, you’ll give the landlord the opportunity to raise the rent when you go to renew it. A lengthier contractual period will keep your expenses lower for longer.
- Save money on furniture and fittings – Consider leasing kitchen equipment and furniture or buying second-hand rather than new, if your franchisor allows it. As long as you have the necessary safety certificates, you can serve your customers delicious food for a much lower price.
- Choose a franchise with a point-of-sale (POS) system – This practice will help you manage your day-to-day sales and expenses, as well as stock levels.
- Think about where you source ingredients – Some restaurant franchises dictate where you get your ingredients from, but if you can, be savvy when you spend. Discount warehouses can offer you great prices for items you need to buy in bulk, while local suppliers will provide high-quality food and save you money in transportation costs.
Government support during the COVID-19 crisis
If you’re struggling to stay profitable during the COVID-19 pandemic, or are in the process of setting up your own restaurant franchise, you may be eligible for government support. As part of its COVID-19 funding package, the government is giving all businesses in the retail, hospitality and leisure sectors in England a business rates holiday for the 2020/21 tax year.
Your local council will apply the discount, so you don’t need to do anything. But you can generate an estimate of how much relief you’ll get using the government’s business rates calculator.
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Join the restaurant industry today
Take a look at the fantastic restaurant franchise opportunities in our network to see whether there’s one to suit you. They span a wide range of sub-sectors, from pizza to noodles, crepes and pretzels.
Alice Tuffery, Point Franchise ©