Corporate Business

If you are thinking about financing the restaurant of your dreams, you certainly do not need anyone to tell you how difficult it can be. If you already have a go of it, money can be tight while trying to build up the restaurant’s reputation. With respect to cash flow—often times it does not flow. One bad night can result in an unprofitable week, and the slow periods often last longer than expected. On the other hand, you may be in the position to sell a restaurant, and being privy to a few handy restaurant selling tips can be of tremendous value—no matter what side of the fence you are standing on.

Bank loans may be thought of as the obvious way for a buyer to raise capital for a restaurant business. However, it may surprise you to know that from the viewpoint of the lender, even a profitable restaurant is a big risk due to historical pre-tax profits ranging from 4-7%. If you are on the buying end and obtain a loan whereby the interest rate is high, this can be a problem within itself—especially for low margin businesses such as restaurants. Do the homework and make sure that a bank loan is the way to go. For the owner looking sell a business, knowing any likely stumbling blocks ahead of time that the buyer might encounter will help you to part with the property on schedule.


Self-Financing


The owner of a restaurant is looking to successfully sell a business, and is not over concerned what type of financing you use—as long it is legitimate. If you have the available capital, self-financing becomes a viable option. A word of caution though, there is often no recovery of personal capital if a venture goes bad once you have taken it over. On the other hand, if you are using your own capital, the incentive to succeed might be stronger. Of course, the stronger the incentive to succeed—the greater the chances of making your new restaurant venture a success.


Personal Loans


For the buyer negotiating with an owner to sell a restaurant business, the numbers indicate nearly 42% of private investors are close family members, such as a sibling, spouse, parent, or grandparent. There is a lot of investing going around these days, and approximately five out of every 100 adults in the United States have invested in someone else’s business within the past three years. Restaurants are the most common businesses started in the United States; therefore, it stands to reason that selling a restaurant will be among the most common types of business transactions. Keeping these numbers in mind, it should give you a great deal of encouragement if you are looking for a personal loan.


Factoring the Accounts Receivable


At this stage of the process, the selling price for a restaurant has been agree upon, and all the variables have been taken care of. Now that the business is up and running, there may be those periods that you will need a quick influx of working capital. Factoring is a form of finance whereby a business can accelerate cash flow by selling its accounts receivables at a discount. It allows the business to move forward and receive needed cash flow without waiting for outstanding invoice to be paid, and is a process that works well for service-based businesses. However, restaurants usually have very little business of this kind. You should never rule out any avenue of help at the initial stage though. Always follow through! You can never tell what kind of surprise might show up at your doorstep.


Factoring Credit Card Payments


Restaurants do have a lot of credit card transactions, and by leveraging this type of capital—restaurants can literally obtain capital with other people’s money. Restaurants can actually leverage up to $120,000 in the process. The restaurant owner can use the money for any purpose—from expanding the business to buying new equipment. The factoring advance is not a loan; it is simply an advance against future credit card payments.

The company purchasing the credit card payments usually takes a fixed percentage of future credit card transactions, and makes the payment to the restaurant usually within 14 days. If this is a viable option for you, make sure you know what the restrictions are. Generally speaking, to qualify, a restaurant would have to be running for more than a year, and take in over $5000 per month in credit card transactions. Additionally, there would need to be more than one year left on the lease to qualify. A word of caution is to avoid companies that charge an application fee or closing costs. There is not that much information paperwork to be processed.

Angel investors may also be a route worth considering as well. These individuals look for restaurants with high growth prospects. You may have to relinquish some control over the business, but it can be a start if your business is in the early stages of growth. These types of investors can be readily found in large metropolitan areas.

Bill Henthorn formerly was principal broker and owner of a resort / commercial real estate brokerage in Honolulu which specialized in representing sellers in transactions up to $50MM.He currently serves as the marketing director of http://www.acquireo.com

Article Source: ArticlesBase.com - Resources and Tips on Financing your Restaurant