Timing is everything when you run a small restaurant. Knowing when to pursue growth opportunities is part science, and a bit of an art.
By Gary Fearnall
Making decisions about ramping up with additional staff, updating the dining area, or purchasing new equipment for the kitchen, can be challenging.
As the economy in Canada improves and the seasons change, here are three signals it might be time to consider investing in growth:
- You notice an increase in customers: Although a certain amount of waiting is part of the dining experience today, if people are waiting too long for food or for a seat, it might be time to consider an expansion project.
How you decide to manage your growing clientele and how long they wait for service will influence your decisions to hire a new server or an additional cook. The seasonality of your business might also help you decide if you need to expand.
- You see an opportunity to grow your menu: Adding to the menu can be an opportunity for growth. For example, if your restaurant now serves lunch and dinner, you might consider adding breakfast to the menu. A menu change might require a short-term need for additional capital to purchase supplies or accommodate the increased staffing requirements and the new hours.
- You need more room: It’s not uncommon for a growing restaurant to run out of space. As your restaurant grows, the need to accommodate more diners can present an opportunity to expand your current location. And, as the weather gets warmer, you might even decide to increase your outdoor eating space.
Once you’ve identified some of the signals that it might be time to expand, it makes sense to ask, “How am I going to find the capital to grow?” Here are three questions you should ask yourself to determine whether or not financing growth makes sense for your restaurant:
- Is my restaurant healthy with good cash flow? Borrowing capital is a lot easier if you have a healthy business and the cash flow to make the periodic payments. Unlike an equity partner who is willing to fund your growth for an opportunity to reap profits down the road, a lender expects timely payments throughout the term of the loan and will want to confirm you have the cash flow to support those payments.
- Do I have a plan for success? A “seat-of-your-pants” approach to borrowing can become very expensive in the short term, and could hurt your business down the road. Make sure you have identified what you’ll use the capital for and how much you really need. Because there are costs associated with borrowing, you need to understand those costs, know exactly what you’ll need to grow, and borrow only what you require so you can keep costs under control.
- Do the numbers make sense? Do you have an identified ROI for your expansion project? Will your cash flow be able to support the periodic payments? Will you be able to make timely payments throughout the term of the loan? These are questions you should ask yourself before you apply for a loan.
Recognizing opportunities to grow is an important part of running a restaurant. Understanding when it makes financial sense to finance that growth is a critical part of building a successful business.
OnDeck provides business loans and lines of credit to restaurants in all provinces other than Quebec. Click HERE to find out if OnDeck financing makes sense for your restaurant.
Gary Fearnall is the Country Manager for OnDeck Canada. OnDeck is the leader in online small business lending, focused on helping business owners solve one of the biggest challenges they face running their businesses—access to capital. To learn more about OnDeck’s loans and lines of credit or to see if you qualify, visit www.ondeck.com/canada.