Noticeably, there are an abundance of restaurant “For Lease” signs spattered on windows across the country. The recession has taken its toll on approximately 12% of the restaurants in the industry over the past year and those spaces are now available.
For many owners, these lease signs are just the stimuli they need to begin conceptualizing on another idea or expanding their current operation. The problem then arise on where to and how to raise the capital to expand.
Shellee Fas, a partner with her husband in Rincon de Alex, a Tapas Bar in
As Charles Dickens wrote: “It was the best of times, it was the worst of times…” The same climate holds true today. There is tremendous opportunity in the marketplace for restaurant owners with a solid concept, meticulous records, strong profits and a well managed team that can support the expansion. However, even though everyone wants to own a restaurant, savvy investors are always skeptical to invest and need to be sold.
Due to the current credit glitch and the tightening of credit approval standards, it is virtually impossible to get any funding from banks or other lending institutions for a culinary concept.
Simply, that leaves the private sector. In that marketplace the combination of concept, personality, business plan and exit plan weigh heavily in an investor’s decision to put cash on the table. The major hurdle to overcome is the track record of any current location. Also, where the expansion is going to be is also important. It is difficult to open a restaurant in another city or country if you do not have a proven management team that has a continuous work record. Multi-unit ownership is a massive undertaking. When it is done in two different cities it becomes harder two different states are almost impossible and two different countries spells immediate disaster.
One of the rules in investor searching is the 3F rule: Friends, family and fools. Go to these people first. Naturally, the last category – fools – can encompass the first two categories if things do not go well so you will need to have strong business expansion plan. Also, private investors need to see that the owners are investing there money. If you are not in a situation to invest your own money, the investor will automatically be skeptical and hesitant to invest theirs.
The second place to look for investors would be your competing restaurants. Many owners are interested in expanding but do not want to do it alone. Often to team up with another operator is not a bad way of combining resources and working a plan of expansion that fits your needs.
Anyone raising money needs to realize a partnership of some sort is in order. You will end up giving a portion of your company away for any investment. If you turn to another restaurant owner you not only gain a partner, but you benefit from added skill and knowledge.
Here are ten tips on what you will need to attract an investor:
1). A solid business plan explaining expansion, location, and ultimate goals.
2). An exit plan. Every investor wants to know how they will obtain an ROI.
3). At least two years of performance data, along with P&L on your current operation.
4). Projections o your new location and a Performa on what you expect to make over the first 5 years.
5). A budget for the new location. This will include acquisition of the space, remodel, built-out, equipment and marketing.
6). Bios on current owners and key management people.
7). Marketing plan to increase customers and volume for new space.
8). If the new location has been under-performing, explain why the new concept will make a difference.
9). Management plan for running two operations. Division of time between the new space and the established space.
10). A stock offering memorandum explaining the risks, the cost of investment, and the amount of investment you are looking for. You need to have a specific number in mind with each investor you go to in order to obtain the needed capital.