Learn the Right Way to Open a Restaurant With Little Money

Alternatives to Traditional Business Financing

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If you have a fantastic idea for a restaurant but lack the funds to get your dining concept off the ground, don't fret. Even if your credit rating is less than awesome, it doesn't mean you should give up your dream.

There are ways to open a restaurant when you don’t have much money or if your credit took a hit during the recession. Banks may not be willing to finance your dream, but others that may agree with your hot new idea and think you're worth investing in. Short of finding a non-traditional investor, a willingness to rethink your restaurant idea into a different concept can also help you get started. By starting out small with a food truck or self-catering company, you can demonstrate to the banks, investors, and the world at large that you're serious about food and have what it takes to be a success.

Costs of Opening a New Restaurant

Opening a new restaurant costs about $50,000 to $75,000, and that's the bare minimum you'll need. Those are the figures for a small, simple restaurant, such as a café or a diner. If you don’t have that much cash at your disposal, you may be able to borrow on the equity of your home or other property. Traditional banks are probably not going to finance your restaurant dream if you have bad credit. However, the good news is that others may look beyond your credit score and offer you financing.  

Angel Investors

The term ‘angel Investor’ refers to a wealthy person who helps finance an idea or business plan. Traditionally, an angel investor will give you a certain amount of money for your business venture in exchange for ownership equity. Despite the angelic name, these types of investors don’t give money away because they're nice. These investors see the value in your business idea and think that they will get something in return for their investment.

Because angel investors have their fingers in a lot of pies, they don’t always provide cash. For example, an angel investor might help you offset the cost of launching your startup by refinishing space in a building they own. In return, you sign a long-term lease with the investor, ensuring that they have a long-term tenant in the building that might attract other tenants.

Have a Business Plan Ready

It there's a well-known businessperson in your area who invests in real estate or other ventures, think about reaching out. Just make sure you're prepared before you make the contact. Have a well-thought-out written business plan ready that outlines your concept, target audience, start-up costs, and projected sales. This should include the type of restaurant you want to open, your identified target audience, and a detailed budget. Also, include your own qualifications as a business owner. If you don’t have any restaurant experience, think about what other kinds of experiences you bring to the table, including any pro-bono work.

Or you might be a seasoned manager, you're great with numbers and have experience keeping books, you're a phenomenal chef, or you're an outgoing individual who can work the front of the house and function as a gracious host. Remember, you aren’t just selling your restaurant idea. You’re also selling yourself, and you need to demonstrate that you're capable and knowledgeable with a skill set to offer.

Consider Operating a Food Truck

A little less daunting than opening a new restaurant is starting your own food truck. Food trucks require an initial investment of between $5,000 to $25,000 for a used truck to over $100,000 for a new truck. The beauty of a food truck is that there's virtually no overhead. You don’t need to pay rent or electricity. You don’t need to keep a fully stocked bar of liquor or hire a bunch of cooks and servers. Marketing can be done exclusively on social media, negating the need for a website and other traditional advertising material.

Food trucks are still a lot of work and require the same attention as any small business, but the initial start-up costs are far less than a traditional restaurant.

Start With a Catering Business

Opening a new restaurant requires a lot of planning and implementation, not to mention an infusion of cash. Before jumping in it’s important that you are fully committed to being a restaurant owner. An easy way to test-drive owning a restaurant is to do some self-catering jobs. Catering events, even small home parties, require all the elements of running a restaurant including menu planning and pricing, marketing, budgeting, food preparation, customer service, insurance, and bookkeeping. After a couple of catering jobs, if you still feel excited and committed to opening your restaurant, then go ahead and take the plunge.