Tips For Securing Funding In Hospitality Business

How do you raise funding for a new hospitality venture? Paperchase, accountants specialising only in the hospitality sector, has supported many operators on their journey to raising finance and can help you get your ducks in a row. Funding is crucial and your investment capital will come from one of two external sources; an investor or a bank. So how do you impress those investors?

Paperchase work closely with Finance Kitchen, where Ian Woodley and his team help clients fund their hospitality dreams. We asked Ian to give a few tips in his own words on how to raise finance for a new venture or expand an existing portfolio. Read his tips below.

10 TIPS FOR SECURING FUNDING IN HOSPITALITY BUSINESS

Make that 1st impression count

When seeking funding, generally you have one shot at making a good impression with anyone you are encouraging to put money into your business venture. The daydream of investors saying “yes” and writing you a cheque relies totally on confidence. Confidence in you, your idea and most importantly the numbers.

Combat risks

Investors and lenders by nature, are risk adverse. They won’t allow themselves to get carried away with your enthusiasm and will ask themselves the cold-blooded question, what could go wrong? Whether you are a new start up or expanding an existing business, your management information and forecasts will be tested. Better they are tested before they reach the eyes of the decision maker and that is why we always suggest that our restaurant clients seek assistance and employ an accountant who understands the hospitality industry as it is an industry like no other.

Organise your finances

Established restaurateurs seeking funding will have little chance of persuading investors to put money into their venture if their business is a financial mess! Your numbers need to be trusted and having an objective professional, like Paperchase, produce them will give anyone considering investing, the confidence that they are dealing with reality.

Find the right balance when forecasting

I always find the subject of forecasts fascinating. In 40 years in financial services, I have never seen a forecast that didn’t tell me exactly what I was expecting to see. Investors want to see ambition, they also want to see realism, so we always say pitch your projections just ahead of the mid-point. Never make them overly ambitious as any canny investor will see straight through them. In addition, over pessimism is just as bad. Frustratingly, lenders attach less importance to forecasts than they should, there is an amount of tick boxing in that they will ask for a business plan and forecast but the ultimate decision will depend on what security they can grab. Asking directors to guarantee a company’s borrowing is the norm in SME lending these days.

Create an efficient investment deck

I have seen hundreds of business plans and the quality varies from business plans which are pictorial works of art, stacked with food porn and not a number in sight. I have also seen dry spreadsheets with no explanation of what is actually going on. My experience has shown that a killer executive summary of no more than two pages is the most important document you will ever write, making it sharp, to the point, without teasing out interest. If this summary doesn’t hit the spot, most discussions will go no further. The business plan is then used to add some meat to the bones. This should be concise, no more than a dozen pages, you can always have detailed financials as an appendix.

Consider scalability

You may think it odd but sometimes the food itself can be a bit of a distraction. No investor will eat a plate of your food and fund your restaurant off the back it. The potential to scale is probably the single most attractive factor to any restaurant investment. Scale will result in someone being interested in buying your chain in the future. It may also result in a price many times the original investment.

Understand the vanity angle

Fine dining concepts often struggle to get funding. The set-up costs are high, the staff costs are high, the ingredients cost are high and there is a strong probability there will only ever be one site. It may have great reviews, pick up stars but all of that doesn’t guarantee commercial success. We call these ‘vanity projects’ where investors like to be involved in a project but without any serious aspiration to get their money back let alone get a good return.

Stay on top of the numbers as you expand

Our experience has shown it’s very difficult to make a consistent profit with less than three sites. All restaurants have central costs and clearly the more you can grow revenue, opening more sites, without the central costs growing proportionately, then the more chance you have of making money. Knowing exactly where you are financially is absolutely a key to success.

Find the right investment partner

Seek the right investment partner. One restaurant I know had a meeting with a key investor. He was proudly served their most ordered starter. Being a numbers man, he dissected the cost of this item and informed them that they made a loss every time it was served. He ended up investing and at his suggestion the restaurant tidied up their menu, amended their pricing and closed a couple of sites that they had a sentimental attachment, but which had never made money. That investor added value.

Find the right hospitality accountant

I’m a foodie and got into this business because my love of food and understanding of the people who work in the sector. A restaurant run by an accountant based purely on what the numbers would be a culinary disaster. That said, you can’t serve up your wonderful food unless it’s underpinned by financial stability and security. Also, you will not secure external investment or have banks lend you money unless they have the confidence that their money is well managed and isn’t just used to fund your dreams or the lifestyle you’d like to enjoy.

Best of luck with your restaurant business. Have fun and remember that having an accountant who knows what they are doing will mean you, your investors and your bank manager will have a good night’s sleep. Get your ducks in row, with a partner like Paperchase, a partner who understands hospitality and the numbers!