Issues that Cause Restaurant Closures and How to Avoid Them

How to Stop Your Cash Flow From Eating Away at Your Profit.

Opening a restaurant presents many challenges, especially in the uncertain financial climate that presents itself today. In recent years the restaurant industry in the UK has been growing, with consumer expenditure on restaurants and cafes reaching close to 88 billion British pounds in 2017. 

There are great benefits to running your own catering business – you have a passion for food, you want a platform to showcase your talents, and to be your own boss, or perhaps you are looking to take advantage of the market growth. However, it is important to avoid the many pitfalls that many businesses face, whilst keeping a clear focus on your vision. 

Restaurateurs often find that there is more to running a successful catering business than a passion for good food, and it is worth being armed with the knowledge to tackle some of the main issues that arise. The risks can be high, but it can be vastly rewarding too. Here is a run-down of the issues often faced by restaurants and solutions to minimise the risk of possible closure and help your business grow with confidence.

Location and Atmosphere

A common mistake that restaurateurs make is opening a business in their local area that they could imagine dining in, rather than catering to the needs of the area. Perhaps you are opening a vegan café in an area that is already oversubscribed in this category? Or a pricey fine dining experience in a low-income area? Doing your market research may lead to discovering that you have strong competitors and will help you to identify a clear strategy, which may lead to a change in the food you are offering or the locality. 

One of the biggest pitfalls I have seen the business I have worked with make is choosing a location with insufficient footfall for the scale they are trying to achieve, or choosing a poor offering for the area they are operating in. Identifying your market and noting which concepts may thrive in your chosen area is key to launching a successful catering business. 

Time Management

Figuring out how to manage your time effectively is one of the biggest issues faced by restaurant owners. There is so much to do, and the long hours and people management can leave you feeling stressed and exhausted. 

The secret to running an efficient business is to invest in staff that share your vision and have your mission statement in mind. With committed staff, you can work with them to set up procedures and create a workflow in order to streamline processes. Working this through with your staff will help them to feel more invested in the business and will free up some of your time. 

Take full advantage of the technology that is available – from staff messaging systems to project management software, there is so much at your fingertips. Research, shop around and find out which works best for you.

Brexit

Brexit is currently a concern to many business owners. Many restaurants have reported a diminished amount of job applicants, due to the uncertainty of residency amongst EU nationals. 

Forward-thinking entrepreneurs are looking to apprenticeships and colleges for homegrown talent until the future becomes more certain. With ongoing concerns in the weakness of the pound, imported foods are more expensive so sourcing locally has never been more important.

Outside Influences

A new business may be subject to any number of unpredictable issues that lay outside of your control. It could be a kitchen fire, the rise of an unexpected competitor, the resignation of your most talented chef, or perhaps nearby building works are affecting your outdoor space. Any of these factors can be a nightmare during your fragile first and second years, and the best way to prepare for any major dents on your profit is to keep your cash flow steady. 

Keep your major expenditures spread across the year and your payments low, so that if there is a disaster on the horizon, there is a cushion of capital to keep your business running until the crisis has passed.

Bad Project Planning

Another thing that is an element in the failure of a catering business is issues with project planning. If this step isn’t taken at the beginning of your planning, it may create big issues. The good news is that even if you’re already up and running, it isn’t too late to implement and update your business plan. It is prudent to have a clear plan that defines your benchmarks, guidelines and will help you to decide on the critical decisions you’ll be making.

Your plan will need to include the following: –

• Summary of the Restaurant
• Business Overview
• Industry Analysis
• Financial Analysis
• Operations Plan
• SWOT Analysis
• Marketing Plan

Cash Flow Management

The heart of any business is healthy cash flow, and this is crucial to feeding an upcoming business. Most businesses encounter issues with cash flow from time to time and this can be a major factor in failure. Fortunately, this can be avoided by advance forecasting of your monthly and weekly incomings and outgoings which enable to you set achievable targets. 

One of the most impactful expenditures of a startup catering venture is new equipment. These purchases can harm your cash flow and leave you unprepared for anything unexpected or can take up precious capital in the initial volatile period of your venture. 

Asset finance provides to you the equipment you need without the large upfront costs and enables smaller, more affordable payments to be made, monthly or weekly to suit your cash flow. Many business failures are due to cash flow issues, and a decision to purchase an expensive piece of equipment outright can affect the long-term health of your cash flow. Keeping costs low and learning what to expect will let you deal with any problems as they occur and will help keep things running smoothly.

Financial Risk Caused by Taking Out a Loan

Taking out a bank loan or overdraft to pay for your set up costs or new equipment can be repayable on demand of the bank. This can put great pressure on your business, and it may be preferable to choose a more flexible option. 

Asset finance is a great option and can often be tailored to work with your cash flow. It functions to improve your working capital by leaving your loan and overdraft facilities as a separate source of funding and is a growing preference for small and start-up businesses in the UK.

To Summarise…

The backbone of a successful restaurant is resilience, relationship building and great planning, with a keen eye focused on your goal. Keep re-evaluating your processes and your strategy as you go. 

You will undoubtedly face adversity along the way but love what you do and never lose sight of why you began. Passion, determination and strategy is the route to your success. Good luck!

For a no-obligation quote and friendly advice, get in touch with Busby Finance. Contact Alex Taylor on 07761 800 559 or email: [email protected].