It's well-known that restaurants are high-risk businesses. According to one study from Ohio State University, 60 percent don't make it past the first year. And the ones that survive the first year aren't exactly in the clear—80 percent of restaurants fail within five years.
That's why restaurant expansion opportunities are as nerve-racking as they are opportunistic. As excited as you might feel about opening a second location or introducing a frozen products line, you need to make sure that you're scaling without risk. In addition to creating great food—and getting enough sleep—you need a financial plan that protects the future of your business while preventing as much risk as possible.
Industry Experience: Recommendations from Harvey Metro
Harvey Metro, CFO of Matchbox Food Group, has worked within the restaurant industry on businesses of all sizes from small to mid-size throughout his career. He sheds light on when it's right to expand, and how to go about it when the right opportunity comes along.
Think Like Cost-Conscious Executives
When it comes to growth and expansion within the restaurant industry, uncertainty is the norm—especially when you're launching your first few sites. You need to make sure that you hire the right partners and teammates to deliver on your brand promise.
"The big question is whether new markets will be as passionate for our restaurants as our home markets are," says Metro. The answer to this question isn't always location—up until the restaurant actually opens its doors, you're taking guesses. That's why Metro and his team focus on hiring and training before tackling any other challenges.
"To make sure we deliver on the brand promise to our guests, we have committed significant resources to our training systems, and the trainers who deliver them to our staff," says Metro.
With this approach, Matchbox Food Group has their ears on the ground and the team is able to surface its best cost-saving opportunities.
"Then there are lots of other challenges behind the scenes like site selection, competition for sites, and several others," says Metro. "Our training program ensures that we're getting A+ real estate opportunities due to our high average guest counts and average unit volume."
Partner with Strong Backers
One of Metro's goals is to always ensure that his company's cash position remains strong—which can be challenging given that new Matchbox Food Group locations cost millions of dollars to open.
"Cash balance is very important when negotiating leases," says Metro. "We want to show strength through our cash flow and cash balance so we want to keep a significant cash reserve."
Instead of front-loading all cash, Matchbox Food Group seeks out strategic partners.
"We generally put in between $1.25M and $1.75M from our cash to build our restaurants," says Metro. "The remaining balance comes from bank debt, in addition to contributions from our landlord."
There's no reason to give up your cash if you have investors who are willing to work with you. Weigh your options to determine whether a partnership is right for you.
Prepare for Fluctuation
When it comes to the restaurant industry, no two markets—and no two franchises—are the same. Be prepared for fluctuation on both the cost side and the revenue side.
"Pay careful attention to labor costs," says Metro. "Minimum wages are being increased throughout the country. And then there are taxes that you may not be accustomed to in your home market. For instance, Florida charges a sales tax on rent payments, and there are a lot of surprise taxes based on revenue."
Other areas to watch? Pay attention to building permit costs, too, as these can vary from a few hundred to a few thousand dollars.
Expect financial surprises—no matter how well you know your restaurant industry and target market. Budget for unforeseen expenses to ensure that you're in your best possible cash position.
For the right CFO and leadership team, cash flow management is an art form. Even when you're expanding, make sure you're in the strongest possible financial positioning. Cast a wide net to consider multiple financing options.
Insights on the top cash flow challenges business owners are facing today.
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