Starting a business of your own is not always easy. Whether big or small, your business is going to need a whole bunch of resources, capital being the most important.
According to a report by the Indian Brand Equity Foundation, the tourism and hospitality industry in 2019 alone, was one of the major contributors towards the growth of the service sector. The report suggested that the contribution to GDP during that year was 6.8 percent of the total economy, amounting to approximately Rs, 13,68,1000 crore.
This only goes to show that the restaurant business is a thriving one and it’s safe to assume that almost every day somewhere in the country a new restaurant is opening its doors for business. Building a business ground up cannot be that easy and neither does money grow on trees. Then how exactly are entrepreneurs managing to start a new restaurant venture every single day?
A few options are listed below:-
Private Investors
The first thing any entrepreneur thinks of while establishing a business is that of looking for an investor. Whether the investor is a silent one or not, investors and partners are the first go-to for any kind of entrepreneurial venture, and restaurants are no different.
Getting investors can often be difficult. This is an option you go for only when you are aware of your venture’s growth potential, scalability and the quality you will be able to deliver, as that will in return affect the kind of money you bring in to your investor. While this option is a particularly difficult one for anyone who has no prior experience running a business, it is one that is challenging enough to keep you on your toes and push you to do what it takes to ensure that the business is successful. In this situation you might have to give up shares of your business in exchange for the money or make some other contract of a similar nature.
Loans
Banks can often be cumbersome to deal with and yet if you have been turned down by an investor or don’t want anyone else involved in your business other than yourself and possibly your partner, loans from banks might be your best bet. Of course they come with an interest rate, but if you believe in the potential of what you are planning to build then a loan from the bank might have the solutions you need.
While a bank loan might steer you away from giving up your shares, you will have to have some kind of collateral or a guarantor who will back you up when you approach the bank. It is important to note here that given the huge number of people who approach banks for loans to open restaurants, banks do not necessarily look at you favourably if a restaurant is what you are asking money for. However, you don’t get anything till you don’t ask for it.
While most advise that you should not mix family and business, requesting a loan from your friends and family is also an option, some opt for.
Franchising
Franchising can often be explained as a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system. The franchisee on the other hand, pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.
Restaurants do franchising when they have established their brand in a particular market and are looking to expand to newer markets with help of franchisees. Franchisees help invest in the business and also help run the business in some cases. Franchising is beneficial as it helps restaurants increase brand presence, raise capital and also get a steady source of additional income through royalty.
Franchising contracts may be restaurant specific, area specific or country specific. The varied nature of franchising allows restaurant operators to scale at a faster pace with the right partners. Obviously, this option is more for someone who already has a restaurant and an established brand name as the latter is what helps attract franchisee’s.
Self-financing
Standalone restaurants or restaurants that have a single outlet are usually self-funded by the restaurateur themselves. While self-funding is a dying option, especially post the pandemic, it still is a great option in the long run.
Self-financing usually is a result of having saved up for years or having some extra money come your way. However, if you do decide to go this route, ensure that you have calculated all of your expenses well and have enough to help you sustain your business for at least the first three months. This is usually the amount of time it takes for even a small scale business to turn profitability.
Financing can be tough. Deciding on the route to go can be tougher. However, it is the most crucial decision you will make as part of starting your business. No matter what your option, having a fall back plan to help you sustain any kind of challenges the new venture throws your way is a sound decision.
Restaurants are a lucrative business, but innovation with your idea, menu and service, will help you stand out from the crowd and give you your money’s worth. Consider setting aside some money for some R&D too.
