Posted At: May 17, 2024 - 830 Views
You have finally taken the bold step of opening your restaurant. Congratulations, it's a major milestone! But don't expect everything to be smooth sailing. Your team might decide to take an unexpected break, renovations might cost more than anticipated, and let's not forget the usual expenses that come with running a restaurant.
All this can seem overwhelming, and you might even be tempted to give up. But if you can navigate the hurdles of the first year, you are on your way to building a prosperous restaurant business. So, how do you overcome the stress of the first 12 months? Let's break it down.
Starting Up: Reality vs. Expectations
One of the first realities new restaurant owners face is the stark contrast between the initial investment and daily expenses.
You might have meticulously planned and budgeted for the grand opening, but reality often has other plans. Renovations, permits, licenses, and unforeseen events can quickly turn your well-thought-out budget into a mere suggestion.
According to CNBC, "the restaurant business is not for the faint of heart... or stomach. They have a high failure rate. About 60 percent of new restaurants fail within the first year. And nearly 80 percent close before their fifth anniversary."
Therefore, arming yourself with successful strategies is necessary to preserve your business in the first year.
Financial Guidelines for the First 12 Months
- Understand Your Initial Investment
When you decided to open a restaurant, you made an initial investment. This includes securing the location, renovating the space, purchasing equipment, hiring staff, and obtaining licenses. It's crucial to keep exact track of how much you have spent (it will surely be more than you anticipated).
Use accounting software or hire a professional accountant to keep detailed records of every penny spent. This will not only help you understand where your money is going but also serve as a reference point for future financial decisions. - Budget for Unexpected Expenses
One of the harsh realities of the restaurant business is that unexpected expenses can and will arise. To handle these challenges successfully, it's essential to create a contingency plan within your budget. Set aside the equivalent of 3 to 6 months of operating funds specifically for unexpected expenses.
This fund acts as a financial safety net, allowing you to address urgent matters without severely impacting your cash flow. - Manage Operating Costs Carefully
Take a close look at your expenses and identify areas where you can cut back without sacrificing the customer experience. Consider negotiating better deals with your suppliers, exploring cost-effective alternatives for ingredients, and optimizing staffing levels. However, be careful not to compromise the quality of your products or service, as this could negatively impact your reputation.
Also, keep a close eye on your inventory. Waste is a significant contributor to unnecessary expenses in the restaurant business. Implement efficient inventory management systems to minimize waste and ensure your ingredients are used before they expire. - Manage Cash Flow Methodically
Cash flow is the lifeblood of any business, and the restaurant industry is no exception. Efficiently managing your cash flow is crucial to ensuring you have enough funds to cover your daily operations, pay your suppliers, and handle any unexpected expenses.
Start by creating a detailed cash flow projection for the coming months. This projection should include your expected revenue and all anticipated expenses, from rent and utilities to staff salaries and inventory costs. Having a clear picture of your financial inflows and outflows allows you to identify potential problems before they become crises. - Execute Your Marketing on a Budget
Creating awareness and attracting customers to your restaurant is essential for success. However, marketing can quickly become a significant expense, especially for a new business. Fortunately, there's no need to worry. There are cost-effective ways to market your restaurant effectively.
Start by leveraging the power of social media. Establish a strong presence on Instagram, Facebook, and Twitter. Share engaging content, highlight dishes from your menu, and encourage customers to leave reviews. Word-of-mouth marketing is powerful and often costs you nothing.
Collaborate with local influencers or food bloggers who might be willing to showcase your restaurant to their followers. Their reviews and recommendations can reach a wide audience and attract new customers without the high costs associated with traditional advertising.
Survive Your First Year and Beyond
Surviving the first year as a restaurant owner requires more than just serving good dishes. With resilience, dedication, and smart financial management, you will not only survive but thrive in the competitive world of restaurant ownership.
Ready to learn more? Discover more insightful resources and explore financing options that can propel your entrepreneurial dreams. For personalized assistance, contact us directly. Your success story awaits—take the next step toward building the business of your dreams!
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If your business is small or medium-sized, has been open for more than 6 months, and has monthly net income of at least $7,500, follow these steps:
- Complete our online pre-qualification form.
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Disclaimer: The content of this post is for informational purposes only. It is not intended to provide nor should it be considered as tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisors before making any transactions.