As any restaurateur knows, getting working capital from his bank can be next to impossible. Due to the riskiness of this industry, banks typically decline restaurant loan applications. The recent Dodd Frank Wall Street Reform Act has only increased regulations and added more burdensome compliance, which has in essence put a vice grip on restaurants receiving loans.
What is a restaurant owner to do? Many restaurateurs have turned to alternative funding solutions like a merchant cash advance. The cost of funds is high, much higher than a bank loan. If you follow the strategies listed, a merchant cash advance can pay big dividends.
The first step that any restaurant owner should take is to create an action plan on what he plans to do with the money. Merchant cash advances are funded much faster than a bank loan and they can be a great source of cash injection for a restaurant having cash flow problems. If that is the case, the restaurant owner needs to figure out why he is having this cash flow problem in the first place and then use the funds to fix it.
Here are some real solutions that restaurant owners can use the funding for, which can turn the business around.
1. Set a Budget. – It’s easy to say, “Hey, if we only had more customers we’d be in the black.” Even the busiest of restaurants have cash flow problems. Most restaurants struggle because they have no idea where their money is going and how to stop the bleeding. This is why a well-run restaurant needs a strict budget.
First, the restaurant owner should take stock of his food costs. Food costs should not run more than 33% of your total expenditures. If your restaurant’s food cost is much higher, you should look for other purveyors, start negotiating with your suppliers and cut the excess fat from your menu.
Your staff or labor can also be your highest cost. Again, the general rule is that your staff should be about 30% of your revenue. If it is much higher than that, then again you have to find ways to bring it down. You may have to cut a bus boy, reduce hours, or reshuffle schedules.
Once you have a provisional budget in place, you can start to strategize on how to most effectively use your merchant cash advance.
Restaurants are unique to most other business because there are definitive ways to turn your sales around and generate significantly more revenue.
You may have seen the shows like Kitchen Nightmares and Restaurant Impossible. You don’t need Gordon Ramsey or Robert Irvine to turn your place around. You can use their ideas to make your place shine.
This is where the merchant cash advance funding can really help. First, the merchant cash advance approval rate are very high. In most cases, you can rely on getting the funding. You can use the quick business funding to implement the necessary changes, which should generate a significant return on investment.
Hire the top chef in your city as a consultant. This should cost a few thousand dollars. It is well worth the cost. Let him analyze how you run your kitchen and your business. Then work with him and your chef to pare down and/or create a whole new menu and make the necessary changes to make the kitchen run more efficiently.
Redo the menu. Most restaurants have menus that are too big. They are trying to please everyone. You are not Cheese Factory and don’t try to be. It is much better being excellent at a few things, than mediocre at many. Your Chef Consultant should help you pare down your offerings and create new exciting ones. Another benefit of having a leaner menu is that it saves you on your food costs.
Cleanse your restaurant. If you can’t get enough working capital to remodel, then the next best thing is make sure your place sparkles. Dave Thomas of Wendy’s built his restaurant chain on cleanliness. If you read his book, Dave’s Way, you will see that Thomas was a stickler for having his establishments spotless from the kitchen to the dining room and to the restrooms. Thomas writes that the cleanliness of his restaurants made Wendy’s a big success.
Train your staff: Hire a consultant if necessary. If you have a local Miss Manners in from your newspaper, hire her. Go over the basics of waitressing and etiquette. Plan training sessions weekly. Really hone in on proper service. Not only will your customers love you for it, but your wait staff will too, because they’ll be making more in tips.
Look for consistency. You want to make sure that the food and the service is consistent every day whether you are there or not. One bad night can cause you to lose your most loyal customers. You can’t have bad nights in the restaurant business. McDonald’s has been successful because it serves cheap, mediocre food consistently. Your goal should be to serve great food consistently to develop a loyal following.
Secondly, your staff will take the training more seriously, when they see you investing working capital into your establishment. They will want to jump on the bandwagon.
Plan a Grand Re-opening. Once you have completed steps 1-4, you need to let your city know about your renewed restaurant. People will be willing to give you a second chance, but you have to give them a reason.
Plan a Groupon campaign. Call up Groupon and tell them you want to tap into their network. Groupon will bring in the business and if you follow the advice in 1-4, you will keep them coming back.
Hopefully, you can recapture the excitement of when you first opened. You will thank yourself for taking this huge step because most of the stress you are feeling now will be lifted. It’s the difference between a well-run ship and one that needs some work done. More importantly, by following these steps, you will be using your merchant cash advance wisely and in a way that will bring big returns in the months and the years to come.