Owning a restaurant and making it profitable is a challenging thing in any economic environment because the restaurant industry is notoriously tough. If you’ve managed to turn one restaurant into a success and you’re thinking about expanding a restaurant business, then learning how to scale your restaurant businesses is essential.
Here at Select Funding, we partner with restaurant and bar owners to provide them with the working capital they need to fund their restaurant growth plan. If you’re considering opening a second location or even selling the rights to your restaurant’s name and brand to franchisees, here’s what you need to know about scaling restaurants and the role that small business financing can play.
How Do You Grow a Restaurant Business?
Once you’ve got a successful restaurant business, you may start thinking about growth strategies. Some strategies may involve staying in one location, while others may include expanding to one or more new locations.
Here are some of the most popular strategies for restaurant business growth, including some that allow for growth on a small scale and some that promote growth on a large scale.
Expand Your Hours to Include More Service
If you have a restaurant that serves only one or two meals a day, then expanding your service to include an additional meal can help you attract more diners and earn more money.
For example, if you only serve dinner, you might add a lunch service. Or a restaurant that serves both lunch and dinner might add a weekend breakfast or brunch service. You could also stay open later and add a late night dinner menu.
Expand Your Space to Accommodate More Diners
If you don’t want to add a new meal service or extend your hours, another option is to either expand your existing space (by acquiring an adjoining space, for example) or move to a bigger location to accommodate more diners.
While expansion comes with some increased overhead costs, being able to serve a large group of diners every day can quickly add to your profits after the initial expense.
Optimize Online Ordering
The COVID-19 pandemic forced many restaurants to embrace take-out and delivery orders as a way to survive. Since many diners still have a preference for dining at home, you can grow your business by making it easy for people to order from you on your website or an app.
There’s also the option of using a third-party delivery service, but the fees are often exorbitant and you’ll be more likely to see the increased profits you want if you handle orders directly from your customers.
Open a Second Location
If you can afford it, opening a second restaurant location is an effective way to increase profits. You’ll be able to capitalize on the fact that people in your area already know your restaurant by name and reputation, giving you a jump-start on attracting diners to your new location.
A second location comes with a big leap in overhead expenses, so it’s important to make sure that you have enough working capital to pay your expenses and keep both locations thriving.
Franchise Your Restaurant
Franchising is a way of scaling a restaurant business. It involves selling the rights to your restaurant’s name, brand, and menu to a third party, who opens a new location. You collect a franchise fee and they do the work of helping you expand your business.
While fast food restaurants such as McDonald’s and Domino’s are obvious examples of franchising, there are higher-end restaurants that have franchised as well. Ruth’s Chris Steakhouse is an example.
How Much Does It Cost to Grow a Restaurant?
The answer to how much it costs to scale a restaurant is it depends, but let’s expand on that because there are many factors that will affect your costs.
Opening a single new location can cost about the same amount that it cost to open a first location. You’ll have some marketing advantages with a recognizable brand, but you’ll still need to secure a location, pay rent, hire and train skilled kitchen staff and servers, and build out the kitchen and dining area to your preferences. It may cost upwards of $100,000.
Adding a new meal service or expanding to include takeout and delivery will be less expensive. Either option will require additional overhead expenses in the form of hiring and training staff, marketing your expanded operations, and buying food and supplies to accommodate increased ordering. Costs could range from $10,000 to $50,000.
Franchising has the benefit of offering economies of scale. If you franchise your location, you’ll need to invest time and money in creating a franchise agreement and creating resources for franchisees, as well as training them. Costs will vary depending on how many resources you intend to provide.
What Are the Ways to Scale a Restaurant?
Scaling a restaurant business can help you grow at a rapid rate. Let’s look at the differences between growth and scaling:
- Business growth occurs when top-line revenue and costs increase at the same time, with the focus being on increasing revenue despite the costs of doing so.
- Business scaling occurs when top-line revenue increases while minimizing costs, ideally taking advantage of discounts and other economies of scale to keep costs low.
In the restaurant business, opening one new location would normally be considered growth and not scaling because there are unlikely to be many economies of scale involved in the opening. There might be some opportunities to save by ordering food in bulk and negotiating discounts.
There are multiple ways to scale a restaurant business:
- Secure financing to open one or more new locations. With the right small business financing, you can get the working capital you need to expand your business to multiple locations.
- Prioritize and scale takeout and/or delivery orders. There are many restaurants that might do little in the way of sit-down dining but make up for it with exponentially larger takeout and delivery orders.
- Add a food truck business. Food trucks cost less to get started than brick and mortar restaurants and given the popularity of these portable restaurants, it may be a worthwhile investment. (You can even use equipment financing to purchase vehicles!)
Sell your most popular products. Many restaurants increase their profits by bottling, canning, or otherwise packaging their most popular products. - Franchise your restaurant. Franchising requires extensive planning and an up-front investment, but can help you increase profits rapidly if you do it properly.
Any one of these options may be right for you. The key is to make sure you have enough working capital to see the method you choose through to the end.
How Does Financing Help Scale a Restaurant?
Now that you understand some of the methods available to scale your restaurant business, let’s talk about the role that small business financing can play in helping you increase your profits by scaling your business.
Select Funding provides small business financing in two forms that may be useful for scaling a restaurant business.
Restaurant Small Business Financing
Our small business financing is available in amounts up to $250,000. Borrowing the maximum would allow for enough money to do the following things:
- Open one or more new locations
- Hire and train new employees in the kitchen and front of the house
- Expand your hours or take over an adjoining space
- Create a franchise plan
Best of all, we’ve kept our requirements simple to make sure we can help as many restaurant businesses as possible. Here’s what you need to apply:
You must own your own restaurant business
Your personal FICO score must be 525 or higher
You must have a minimum of $100,000 in annual sales. (We ask for three months’ worth of business bank statements to verify your annual sales.)
We do not require collateral. We will review your application using our automated system and get you an approval as quickly as possible. You may be funded in as little as 24 hours after approval.
Restaurant Equipment Financing
Having the right equipment is a necessity if you want to keep your restaurant running smoothly. Select Funding provides affordable equipment financing in amounts up to $1,000,000. You can use equipment financing to do some or all of these things:
- Upgrade your kitchen equipment or purchase equipment for a new location.
- Purchase food trucks or delivery vehicles.
- Invest in restaurant management software to streamline your operations.
- Buy furniture and other decorative items for your dining room.
- Invest in automation to make your service more efficient.
Equipment plays a significant role in most types of restaurant growth and scaling. Our requirements for equipment financing are the same as those for small business financing and you can get your money in as little as 24 hours after approval.
Scale Your Restaurant Business with Small Business or Equipment Financing
Growing or scaling a restaurant business can help you increase your profits, but only if you have the financing necessary to make your goals achievable. Applying for small business financing or equipment financing can provide you with the funds you need.
Are you ready to scale your restaurant business? Select Funding can help! Click here to read about our restaurant business financing and apply today.
