Hey Hot Potatoes,

Welcome to the latest edition of the Hot Potato Newsletter. Now, who here likes ABBA? Over the years, I've come to love them, especially going out with someone who is obsessed with them. Banger after banger, you just know when 'Gimme Gimme Gimme' comes on in the club, it's absolute chaos. But one of my other favourite songs is 'Money Money Money' and in today's newsletter we're going to be talking about just that. In a few conversations I've had recently in my day-to-day life working with hospitality brands, they've mentioned how they're looking to grow but are unsure how and what options are available to fund it. So in today's newsletter we're going to get into the nitty-gritty of restaurant funding - the pros and cons, the process of raising money and what sources of funding are out there. Let's get into it!

In today’s email: Dough to Grow: A Guide to Restaurant Funding.

Read Time: Approx 4 mins

Restaurant funding and its pros & cons.

Source: SevenRooms

Picture this: You've got the perfect concept, secured a top location, that chef you've been after for months—but your bank balance is looking more stretched than pizza dough. This is funding scenario number one—the classic startup cash crunch. But it's not just about getting those doors open.

Maybe you're already serving up a storm but dreaming of expansion? That second location in that up-and-coming neighbourhood isn't going to finance itself. Or perhaps your kitchen equipment is outdated and that renovation you've been postponing can't wait another financial quarter.

Still on the fence about whether to chase that funding? Let's break down the flavours of this financial decision:

Pros of raising funds for a business:

• Cash Flow Boost: Gives you access to capital you don't already have expansion

• Possibilities: Opens up new opportunities for growth

• Financial Safety Net: Lets you keep some cash in your reserves for emergencies

Cons of raising funds for a business:

• Interest Burden: Loans and other financing options come with steep interest rates, which can be difficult to pay back with the typical low profit margins and high operating costs

• Creative Constraints: When you take money from others, you can lose creative control. Some funding options, like working with an investor, can involve being beholden to that person's demands

• Financial Risk: Taking on debt is always risky, especially in the volatile hospitality industry

There are clearly pros and cons of raising funds and it's worth giving thought to whether you're able to reinvest your profits in the first instance or if you need that extra financial impetus.

Process of raising money.

Source: OpenTable

When it comes to the process of raising money, there are a few steps required as laid out below.

Key Points:

• Business Plan: It all begins with a proper business plan—think of it as the tasting menu of your financial journey. Beyond just "great food, great service," it needs to include details about your concept, location analysis, marketing strategy, your dream team, and most crucially, those predicted costs and income streams. This document proves you're not just another passionate foodie but a savvy entrepreneur who can turn vision into profit.

• Lending Requirements: Before approaching lenders, check your credit reports with the attention you'd give to a health inspection. Different lenders have different thresholds, and deposit requirements can fluctuate more dramatically than a chef's mood during a busy service. A clean financial profile shows potential backers you manage money better than your inventory.

• P&L Projection: Any potential investor will dig into your numbers with a fine-tooth comb —they'll want profit and loss statements, balance sheets, and realistic cash flow projections. Getting an accountant too is also a wise decision!

• Credit Broker: Here's an insider tip that could save you hours: consider using a finance broker who specialises in restaurant funding. They're the sommelier of the financial world—they know exactly which funding pairs best with your particular concept and handle complex paperwork while you focus on perfecting that signature sauce.

Check out our business plan article here to get the first steps in motion. If you’re also in need of extra accounting support Paperchase accounts, specialise in the hospitality sector.

The main sources of funding.

Source: Simply Business

There are a few different ways to get funding these days, here are some of the most common routes to go:

Key Points:

1. Friends, Family and Savings: It's often the most accessible starting point, but remember—mixing personal relationships with business dealings requires as much care as balancing flavours in your signature dish!

2. Typical Bank Loan: The traditional main course of restaurant funding. Banks and specialised lenders offer structured loans with clear terms, but they'll scrutinise your business plan more carefully than Gordon Ramsay dissecting a menu on Kitchen Nightmares.

3. Crowdfunding: Platforms like Kickstarter let you pre-sell your concept directly to future customers. Successfully funded restaurants often offer creative rewards—early access, cooking classes, or having a sandwich named after top backers. The beauty is two-fold: you validate your concept before opening and build a community of supporters who are literally invested in your success.

4. Investors: Angel investors, venture capitalists, and private equity firms are the high-rollers of the funding world—they bring serious cash to the table, but expect serious returns on their investment. Think of angels as enthusiastic foodies willing to take a chance on your concept, while VCs are looking for the next chain concept they can scale faster than overnight pizza dough.

5. Your own funding round: I recently stumbled upon Sourdough Sophia's funding journey, which has been super interesting to read about! After hitting brick walls with traditional lenders, they partnered with SeedLegals and managed to raise a jaw-dropping £1m across just a couple of quick funding rounds. Their secret ingredient? Distributing small slices of equity to dozens of everyday food enthusiasts rather than surrendering a massive chunk to one or two big players.

If you do decide to raise money there are a few routes to go down. It's important to understand given your needs, which type of funding works best for you. I've also come across models where brands can raise money based on profit share, so you only pay back if you're in profit, which might be something to consider too.

Today we’ve had a blitz through restaurant funding, the pros and cons, the process and a few different funding avenues worth exploring. If you were going to raise your own finances which route would you go down?

Now, in next week’s edition, we’re going to explore a topic I am pretty passion about… branded packaging! For those of you that don’t know, in my day to day I work at Brand Your, supplying branded packaging to a range hospitality brands. We’ll explore why it’s important, who is doing it well and practical steps to improve yours.

Ready to get the low down on branded packaging? Subscribe now to have our branded packaging guide delivered straight to your inbox in our next edition!

Bon appétit,

Max Shipman, Founder, Hot Potato

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