Most of us dream of having our own restaurant business, yet there is always a fear that keeps us from actually going ahead and achieving it. Among all the anxiety, the biggest hurdle is to get capital and investments for your very own dream restaurant. In this article "Raising Funds for your Restaurant", we will take you through the different type of investments and funding and also explain them in our upcoming separate articles.
There are four types of investments and funding available in the market for the restaurant business –
- Self-funding or Private Investments
- Bank Loans
- Venture Capital funding
Let us have a look at each one of them.
1. Self-funding or Private Investment
The best way to fund your dream restaurant or start your own food business is with your own money. However, this should be the case only if you are very clear about the idea, concept, and the format you are planning to start with. The restaurant business has many risks, and it is advised that anyone who plans to enter food business should not use his/her savings unless the person has enough disposable that does not hinder or cut his/her daily needs and expenses.
One can look for borrowing money from family and friends as debt and return them when business starts generating profits. And if you plan to enter in next few years or so, invest and save smartly so that you can fund your own dream restaurant by that time.
Another great way to fund your dream project in the food business is to go for partnerships. It is always better to go for a partnership in the restaurant business as it not only makes it easier on the investment but also reduces the risks in business by sharing the future profit and loss. If it's your first restaurant venture, try to look for a partner who already has some experience in the restaurant business.
Choosing a partner can be a tricky business. It is important to partner with a like-minded person and someone who shares the same vision. Also, every deal and partnership structure should be in black and white, backed by a formal partnership deed approved by the notary. Ideally, the partners should not be close relatives and best friends, but acquaintances who know each other well to have a formal relationship. However, individual preferences and discretion, for choosing a partner is always there.
3. Bank Loans
Bank loans are also considered a great way to get the initial investments and working capital for your restaurant business. However, bank loans aren't easy to get as the bank will need collateral property against the loan. Also, bank loans require a lot of documentation and paperwork. But, if there is a proper business plan, and a decent collateral property, bank loans can be easy to get. On an average bank charges 11-13 percent rate of interest on the principal amount of your investment.
We will discuss this in detail what is the procedure to secure bank loans in the next article of this series.
4. VC Funding
With the startup wave hitting the country, the restaurant business has been seeing some major changes in the investment scenario.
Venture capitalists usually invest in the concepts and formats which are already successful and more than 5 profitable units. They invest money in the restaurant business only for 5-7 years and they exit after it. In this, the VC acts as an active director in your company and holds you liable for the business performance. You should only seek investment from Venture capitalist when you want to scale and want to replicate your success in other cities.
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