Restaurant financing ideas

Finance to Table Education for Operating Your Restaurant

Your days as a mom and pop shop are behind you. You threw your life savings into your restaurant, asked your friends and family for additional funding, and you’re ready to grow your concept. Now what? Here are some tips on finding restaurant financing.

Get your accounting process in order.

As a small restaurant business you relied heavily on do it yourself accounting. Before you approach a new funding source, make sure your processes are up to standard.

At a minimum, you’ll need a GAAP basis balance sheet and income statement. If you’re not already using a GAAP accrual basis of accounting, make the switch now. Additionally, a statement of cash flows is a plus.

Henry+Horne CPA provides robust accounting services for restaurant owners like you. Learn more about restaurant accounting with us. 

Work with a CPA to strengthen your restaurant finances

Now is the ideal time to seek outside tax and accounting assistance. It’s important to have clean monthly accounting financial statements, and an outside CPA can help you upgrade your accounting. No matter who you approach for funding, they’re going to want to see your accounting is top notch.

Improve your restaurant infrastructure

CPAs can also help you improve your restaurant’s infrastructure, which is another item funding sources will want to see in place. You may have a COO, but do you also have a CFO or director of accounting, development officer or a marketing officer? CPAs can help you select C level people with the type of experience that can help you grow at a much quicker rate than you’ve done in the past.

Keep your taxes in order

Organizational tax structure is another important strategy a CPA can help you with. Your organizational structure may be a little dysfunctional or disconnected, making it difficult to one day bring on additional investors.

For example, in the restaurant industry you might see multiple restaurant locations set up as separate LLCs. Investors aren’t going to want a piece of just one. They’ll want a piece of everything.

A CPA can help you structure a holding company that owns each individual restaurant so private equity can buy in at the holding company level.

Optimize your tax position

Working with a CPA will also help optimize your tax position. No more last-minute scrambles to meet tax deadlines. They’re also good for helping you plan.

CPAs aren’t just accountants. They’re business advisors. You need an experienced CPA business advisor who will help guide you in the direction you want to go so you’re better positioned for not only tomorrow but five years down the road when you’ve grown into ten units and want to continue multiplying.

Use Small Business Administration (SBA) loan options

If you’re looking to grow your business by one or two locations, consider an SBA loan. While the maximum loan amount taps out at $5 million, SBA loans offer longer terms and smaller monthly payments than a standard bank loan. Because SBA loans can amortize over ten to 25 years, the payments are easier to handle, allowing for more leeway as you grow.

While SBA loans are relatively easy to get, they require careful documentation. Since the government is on the hook if you default, you’ll find yourself jumping through more hoops than if you went the traditional bank route.

Talk to your banker

If you’re not already working with a banker, your CPA can recommend one to assist with restaurant financing options. Bankers will guide you through the process of applying for a loan. Restaurants typically approach banks when they’ve reached five or ten units, and they’re asking themselves if they want to continue growing in their current metro area or branch out into others. At this point their brand is also well developed and business plans refined.

Approach private equity

Around ten to 20 units you may start asking yourself some hard questions. Is the area that I’m growing in getting saturated, and do I need to start looking outside my area? Should I go to another city? Should I go to another state? You might consider private equity at that point.

When you start looking at private equity, you know you’re going to give up some ownership. Some might do debt only deals, but most are probably going to want some equity. So, you’re going to be getting debt and partners.

You’re also going to be increasing the speed in which you grow. Private equity will start pumping some serious money, or restaurant funding, into your concept. You might be opening three to four units a year, so you really need to have your corporate overhead and structure in a good spot so that you can start multiplying your concept.

Related: 4 Tips to maximize your restaurant group’s value

Your partners: from new restaurant financing to growth

Growing your restaurant is exciting! It’s also challenging and stressful.

Finding the right partners, advisors and financing is essential. Being organized and structured in a way that allows you to move seamlessly into the next stage of your restaurant concept’s development is essential.

For partners you can trust, reach out to Henry+Horne today.

Brian Campbell, CPA