How to Attract Investors if You Would Like to Open a Restaurant Business

Starting your own restaurant business can be difficult if you don’t have the necessary funds. The average $375,000 needed to open a restaurant isn’t easy to come by. If you have something special in mind, such as a fusion restaurant or an uncommon theme, the cost can get as high as $750,500.

Restaurants are cash-intensive businesses and no access to capital is both a huge risk and a huge impediment to making your dream come true.

Working with certain investors can help you get started on your dream career and allow you to build the business you have always dreamt of.

To do that, you will need to know exactly what type of funding is ideal for restaurant owners, which potential investors you should contact, and, needless to say, what strategies can boost your chances of getting funded.



Is it a good idea to have many investors for your business?

While your ultimate goal is to collect all the money you need to cover the first expenses of your new restaurant business, you still want to take into consideration that it might be a better idea for you to work with just a few investors who will back up your vision.

There is no specific number of investors you can work with, but it is best to avoid accepting smaller amounts from many different people. When someone decides to invest in your business, they are expecting some benefits in return for the financial aid they are offering you.

The more people involved in this process, the more the problems that may arise in case someone is after the same benefits another investor already has. If you do choose to work with several investors, you should always make sure to work through all the necessary legal documents with your attorney, so you can avoid any future sources of conflict between your investors.

Top 5 Ways you can Fund Your Restaurant Business

In your quest to gain funding, you might be under the impression that, at the end of the day, money is money and it doesn’t matter who gives it to you.

However, there are actually several types of people and institutions you can resort to, and each has its pros and cons.

Here are top 5 ways to secure funding for your restaurant business:

1. Banks

Banks are traditional loan providers and they’re usually the first option that comes to mind when it comes to getting funding.

The main benefit of getting a loan from a bank to open a restaurant is that banks are reliable institutions, so there are zero chances of getting scammed, and that interest rates are lower.

However, banks also have long approval processes and a low credit score can lead to the rejection of your loan.

2. Angel investors

Angel investors are wealthy individuals with a net worth exceeding $1 million.

In exchange for a certain stake in your business, an angel investor can fund your small business and help you grow it.

Angel investors generally work with entrepreneurs who are just starting out and, because it’s in their best interest for your idea to take off, angel investors will also offer you mentorships and help you avoid common rookie mistakes.

3. Crowdfunding

If you don’t like the idea of a traditional loan, you can try posting your business idea on crowdfunding sites like Kickstarted, GoFundMe, Indiegogo, or FoodStart.

Your credit score isn’t taken into account here, but the uniqueness of your business idea and the story behind it can earn you the support of the community.

Restaurants such as Field and Vine, Sticky Walnut, or Swah-Rey managed to set up shop after raising money on Kickstarter and they’re just three of the hundreds of success stories made possible by crowdfunding.

However, keep in mind that if you want to start a project on Kickstarter or other similar platforms, it’s important to be fully transparent and let users know exactly how you will spend the money and what rewards they get for backing you up.

4. Personal investors

Personal investors are friends, family, acquaintances, and everyone who’s not an accredited investor, but can support your business endeavor.

Turning to someone you know for help instead of going to a bank can sound like a great idea, but keep in mind that there are certain limitations on how much a person can invest.

Besides, even if you might be tempted to keep things casual because you know the investor, after all, personal investments still have to be thoroughly documented.



5. Restaurant incubators

Restaurant incubators can be a great solution for start-up owners who lack the funds and the experience to establish a restaurant.

In an incubator, not only can you rent restaurant space at a fraction of the cost, but also receive professional training and guidance from culinary experts. There are many great restaurant incubators throughout the United States, such as Smallman Galley (Pittsburgh), R.House (Maryland), and La Cocina (San Francisco).

As a potential downside, keep in mind that you will eventually have to move out of the incubator once you’ve passed the initial steps.

No matter which of these options you decide to go for, remember that you need to prepare a solid business plan if you want to attract investors.

Market your restaurant business online

68% of restaurant owners promote their business on Facebook, and 24% use Instagram. [Source]

One of the best ways for you to start looking into potential investors for your business is through the power of social media platforms. With millions of daily users, platforms such as Facebook, Instagram, and Twitter can help you come in contact with people who will be able to help you out with your cause.

The key here is to show other online users and businesses in your industry that you have a solid plan of what you wish to create but simply lack the financial support to get started.

Promote with

Using platforms such as GoFundMe or even asking for donations on your Facebook page can also help you get started with covering some basic expenses which will help you attract more potential investors.

In order for your social media accounts to look legitimate, you will have to invest in creating some promotional content such as audiovisual content or even blog posts, which will help create hype and attract more people to your pages.

You can post frequent stories about the progress of the interior of your restaurant, your menu designs and any dishes you are attempting to perfect before you add to your menu.

Another aspect of making your online presence look legitimate and trustworthy is tied to the looks of the content you present your audience with.

This means that when you post any form of written content, you should make sure to always eliminate grammar and spelling errors.

You can use tools such as Grammarly,  BestEssayEducation, SupremeDissertations and HemmingwayEditor to always proofread and polish your content before sharing it with your online audience.

The more active you are online, the more people will get to know about your upcoming business and the more chances you will have of attracting people who will be willing to help you fund it.

Common mistakes made by first-time restaurant business owners

Restaurants are one of the most popular start-up business ideas. But, at the same time, they’re also one of the likeliest to fail.

According to a study conducted by Cornell University, 30% of restaurants fail or change ownership in the first year and, after three years, the chance of failure jumps to 60%.

More often than not, failure is due to these common start-up mistakes:

  • Poor market research

All businesses depend on their customers, but, in the case of restaurants, the customer really is king. Look, you may be a brilliant chef.

You may have won a local cooking show. But, if you don’t do thorough market research to find out what customers want, your name and skill will not take you very far.

  • Bad location

You know that Seinfeld episode about the street spot where no business lasts for more than a couple of months? That is a very real situation that restaurant owners have to avoid at all costs.

Before opening your restaurant, make sure you investigate the local area to find out why previous businesses left and find out if the location matches your restaurant niche.

For example, you shouldn’t open a fancy fine dining restaurant in a student neighborhood, because the area will get more traffic from young people looking for affordable food. 

  • Bad timing

Opening your restaurant at just the right time plays a huge role in starting off on the right foot. Again, this is another situation where market research is crucial.

Look into your competitors, find out which is the best time of year to do business and try to open your restaurant then.

  • Neglecting permits

If you planned your opening day for June 1st, keep in mind that getting all your permits and licenses could delay your opening day till September. And that means missing out on the most profitable season.

From building inspections to remodeling and approvals from the city councils, all of these necessary formalities can take months, so it’s important to consider all variables before deciding on an opening day.

  • No staff training

After you’ve given so much thought to funding, location, permits and menu selection, you may feel tempted to hire whoever’s available, open the restaurant and figure it out as you go.

However, you might want to offer a few days of training in advance, because your staff are your brand ambassadors. Over 50% of all restaurants offer an employee handbook, a training manual, and a mentor program to their newly hired staff.

Not only do employees have to be very well prepared, but they also respect your restaurant culture. Otherwise, their service won’t be up to par and you can go out of business.

  • Host and attend events

A great way for you to come in contact with people who would be interested in investing in your new business is through attending and hosting various events and gatherings.

If you can attend conferences and seminars that require catering services, it is highly likely that you will come across people who will show interest in your project given the right opportunity for discussion.

On the other hand, you can always be the one to host the right events to attract potential investors. The easiest thing you can do is rent a venue that will serve as a free testing ground for your new menu items.

By using social media, friends, and colleagues to spread the word about this event, you will be able to attract some investors who will be interested in trying your menu and talking about your vision in person.

  • Ask your family and friends for recommendations

Oftentimes, connections can come from where you least expect them. Your family and friends, while they might form only a small circle of people, can help you come in contact with investors who could help you turn your dream into a reality.

Whether these contacts come through mutual friends, their colleagues or past business partners, there are always people who will be interesting in investing in a new business, especially if they know that the person running it is trustworthy.

In this case, such recommendations for business activities can help you work with people you can also put your trust in and form a business relationship that will benefit all parties equally.

That being said, you should be careful when it comes to starting a business relationship with a friend or family member that might also be interested in investing in your idea.

While you might have been on great terms with that person, money can change the relationship between two people drastically, so make sure that you won’t make a mistake by starting a partnership with someone you are close with.

  • Use networking to your advantage

If your friends and family don’t have many people they could bring you in contact with to help you find the funds needed to get started, you should try and contact people you have worked with in the past who can help you meet potential investors.

The contacts you gain through working experience could potentially introduce you to individuals who will be able to share your vision of starting your own business and even help you improve your current goals and ideas for the better.

Don’t worry if your work experience doesn’t sound glamorous. According to the National Restaurant Association, 80% of restaurant managers started their restaurant industry careers as entry-level workers.

Nowadays, you will most likely be able to reach out to potential investors through your social media accounts and even link them to your pages, in order to help them get a better idea of your goals.

Conclusion

Getting started with a new business idea can be tough if you don’t have all the funds necessary to support it. Having the help of an investor can help take a lot of weight of your shoulders as you won’t have to worry about big loans and an even bigger delay to your dreams.

When it comes to working with new people though, you should always make sure that you make their position in your business clear and that you have clarified their involvement from the beginning.

With the right business plan and a will to make this work, you will be able to come in contact with the right people who will be able to help you turn your restaurant business vision into a reality.

Author:

Angela Baker.

Yokebay

Koye Beckley is an Entrepreneur, SEO specialist and a Trainer. He is the founder of Yokebay.com and has published numerous business related articles that has high ranking position on search engine result pages (SERP). He is passionate about helping business owner grow their online business through search engine optimization (SEO); at the same time, he lives to travel the world.
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