Independent restaurants are among the toughest businesses to grow because their profit margins are notoriously small, making it extremely difficult to save money. This forces restaurateurs to be creative and constantly find new ways to cut back on expenses, which isn’t easy since it could jeopardize the quality of your items. And unlike almost every other industry, the restaurant business never takes a break. They often stay open on holidays because this is when the pressure to perform is at its peak.
As if these standards weren’t crippling enough, industry experts believe running an independent restaurant is only going to get more expensive.
LAYING OUT EXPENSES AND PROFITS
Small profit margins are the outcome of the sky-high costs required for operating a restaurant in a big city. Many restaurants in New York City, for example, would traditionally put the cost of food and beverages at 30% of sales, roughly the same cost as labor. Then there’s operating and occupancy expenses, which combine to about 30% of sales as well. This leaves even the busiest restaurants with a profit of just 10%.
Fast forward to 2018, when increases in regulations, commercial rent prices, wage and benefit mandates are raising just about every single one of the aforementioned expenses. That 10% profit is now looking more like 5%, excluding additional expenses like new furniture, equipment or increases in the cost of ingredients. This is why more and more independent restaurants are closing up shop only to be replaced by chains that deprive local communities of tax revenue.
ADAPT TO SURVIVE
Restaurants have more than a few options. They could lay off employees, move to a cheaper location, or do a number of other things to jeopardize the proven formula for success they once had. Or, they could explore sources for small business loans. In the world of alternative business financing, some business lenders have developed restaurant financing programs primarily to offset increases in costs while fostering growth. They saw these rent and labor increases coming well ahead of time and designed new business funding programs that would account for their impact on cash flow.
United Capital Source has distributed funding to dozens of restaurants that were previously caught off guard with rising expenses as revenue remained stagnant. But these borrowers didn’t just use their funds to scrape by. They invested in maximizing performance for busy periods, advertising, increases in staff, new equipment, new staff uniforms, and other initiatives geared towards keeping current customers 100% satisfied.
LOOKING LIKE YOU BELONG
Rent spikes often lead to more upscale tenants moving into commercial developments. These properties give the area a new vibe that is meant to attract higher-paying shoppers as well as other commercial tenants. Restaurants must therefore adapt to a changing environment, which is how most businesses grow in the first place. United Capital Source specializes in financing time-sensitive renovations for restaurants looking to give their properties a makeover right before the pressure to perform hits its peak.
With a business cash advance, you could begin your renovations on the exact date you have in mind because this type of working capital loan can be approved in a matter of days and requires minimal paperwork. Payments are only deducted when you make a sale via credit card, which restaurants do in spades. Skeptics will say that taking out a small business loan after expenses increase is a recipe for disaster but at United Capital Source, our business funding programs can be customized to accommodate for additional costs that arise while you carry out your investment and deduct smaller payments when you are especially low on operational funding.
IF YOU CAN’T BEAT EM’, JOIN EM’
Many of the fastest-growing restaurants in the world today are of the fast casual variety. Along with an upscale appearance (your first investment), fast-casual restaurants are known for top-notch service and high quality products. Building a loyal team and sourcing local ingredients are more difficult thanks to the aforementioned lower profit margins but United Capital Source offers restaurant business loans tailored for the expenses and time frames associated with either initiative.
New hires must be trained before a certain time, which is why some of our clients use working capital loans or credit card processing loans to start the training process when business is slow without having to worry about being able to pay their bills at the end of the month. Or, you could take on your new hire during a busy period but allow his or her supervisor to deviate from usual responsibilities and devote more time to the training process. Operations might slow down but your largest payments could theoretically be postponed until the new hire is fully acclimated and the supervisor is back on schedule.
Our credit card based programs are perfect for sourcing expensive ingredients because they let you order ingredients whenever you like but pay off the brunt of the debt when sales from these investments pick up. The key is to secure your ingredients when it is most beneficial for your suppliers so you can develop good relationships with them, resulting in discounts and an availability schedule that is synced up with your financial cycle.
YES, IT IS ALL ABOUT WHO YOU KNOW
Contrary to popular belief, it is entirely feasible for a smaller independent restaurant to survive these increases in expenses without jeopardizing their future. As cliche as it sounds, it’s all about who you know. We say this because unlike your bank, we are going to make a conscious effort to get to know you and your business. Our clients trust our advice because we know the extent of their biggest problems and we don’t just stop bestowing advice once you’ve paid back your loan. This is a partnership that will continue throughout your entire career as you gradually watch yourself become “that guy who knows someone.”