Thinking of buying or starting a restaurant? Here’s why it just may be the right time.
By Daniel McCoy
With the hope of the end of the pandemic and returning to restaurants being able to open again, it is a great time to buy or start that restaurant you have dreamed of. Here is why.
As most know, there has unfortunately been a lot of permanent closures. Entire chains such as Sweet Tomatoes/Souplantation, Luby’s Cafeteria and Fuddruckers have called it quits, while many others have reduced the number of locations. Pizza Hut closed approximately 700 locations, Ruby Tuesday has closed or is closing 185 locations, IHOP is closing 150 locations and on and on.
These affect the market in several ways. First, less competition for the consumer dollar. If there are fewer choices, the odds are better the hungry consumer will come to your establishment.
Second, there is more real estate to choose from, especially in the high-end markets. Many investors are already purchasing these locations to hold for better times, and rent is not going to go down.
Several locations come with furniture and equipment built-in, and zoning/permitting should not be an issue since it was already an eating establishment. Often, these are prime locations, but be careful when starting a restaurant. Some businesses, especially the larger chains, might have seen this as an opportunity to close low-producing restaurants that were in unsuitable locations.
Third, supply chains once difficult for smaller restaurants now are being opened. There is a limited amount of goods available; with the larger chains reduced, the smaller businesses should have an easier time getting product. Suppliers have been forced to reduce their inventory as well but will ramp back up as the greater demand starts to occur.
Another reason has been the shift in consumer taste. FoodDive.com reported that in a study by the International Food Information Council, 80% of consumers have changed their food habits because of the COVID-19 pandemic. And a higher percentage of respondents reported they are eating healthier. With a shift to remote working, fewer consumers are grabbing fast food on the way home. Eating out has become an event rather than the norm.
What about financing? Can I get a loan to get started? Currently, most banks are steering clear of the hospitality and foodservice businesses, but there seems to be a crack in their wall of resistance.
A few non-traditional lenders are looking at deals, and this will only grow. The average SBA Guaranteed loan will take 45 to 60 days to close, so now is the time to begin putting the request package together. While funds last, the first three months of payments will be made for you by the SBA if the loan is approved before the September deadline, certainly not a guarantee as the funding this go-around was only $3 billion.
One of the SBA requirements is that the borrower must have experience in the industry. Sometimes management in one industry can lend itself to others – for instance, a retailer in shoes could go into another retail operation in clothes – but in the restaurant business, experience is a necessity. If you do not have the experience factor, seek out a position in the industry even temporarily to gain the needed knowledge before starting a restaurant.
There are investors that have been on the sidelines waiting the pandemic out that are now ready to get back into the game. And don’t overlook crowdfunding opportunities that serve as a means of raising capital and advertising your new venture when starting a restaurant.
As for the type of restaurant, while investors have been more interested recently in fast-food and drive-thru concepts, there is growing interest in investing in full-service restaurants again. As cases dip and the number of vaccinated people increases, the expectation is that people will eagerly return to dining in.
In all the various ways of funding, the restaurateur should expect to bring money to the table – typically 15% to 20% – and time investment as well. If you have the passion, though, the reward will surpass the requirements.
The anticipation is that there will be several entrepreneurs looking to start their own businesses. Layoffs during the pandemic have been extremely high, and the C-Suite felt it as well. Many chose to take early retirement and are now looking to start their own business. Others were laid off and never want to rely on someone else for their employment again. Given all these diverging interests, to quote Sherlock Holmes, “The game is afoot.”
Daniel McCoy joined the UGA Small Business Development Center at Kennesaw State University as a business consultant in 2017, after a 21-year successful banking career as a Commercial/SBA Lender and Financial Adviser and 10+ years in upper management in the retail industry. He is a Certified Professional for the Society for Human Resource Management (SHRM), a member of the National Society of Leadership and Success and recently completed the Veteran At Work Certification process. He is also a 2019 Flewellen Award for Consulting Excellence winner. For more on how the UGA Small Business Development Center can help your concept, go to georgiasbdc.org or contact Daniel at dmccoy@georgiasbdc.org.
