Restaurant Growth

What to Consider as You Expand

Seems like barely a year ago, you decided to open your restaurant… so far, so good! With hard work, determination, consistent staff training, great food and awesome service, you find yourself entertaining the thought of expansion! “Wait! what? open a second restaurant?” And whether it’s expansion from the inside or adding another unit, you’ll need to carefully plan the financial aspect first.

When thinking about growth, the first thing to do is explore all avenues of growth: Do you want to expand an existing operation? Knock down walls and add more seats? Or maybe you want to open earlier and add breakfast? Do you have the resources and knowledge to explore catering? There are many ways to boost your sales revenue within your current space. Increasing efficiencies and putting systems in place can greatly enhance your profits. On the other hand, you may be thinking of adding additional units where you’ll need to consider location, concept, competition, investors, partners, training, and expanded staff just to name a few. Whether you decide on inside expansion or additional units, there are a few things to consider while getting the dollars to make sense.

A business plan is a necessity when thinking about financing growth. This is as much an exercise in soul searching as it is an effort to create a business blueprint. The process will cause you to honestly assess your assets, resources, operations and position in the marketplace. It deals with people, management systems and practices, investment and financials, cash flow, information technology, marketing/branding, the marketplace and competition, and the business model. As you write your plan, it will give you an idea of why you are doing this and what it will mean to you.
Once you’ve decided on what type of growth and you’ve written your business plan, now you choose the best route for financing. There are several ways to finance and structure growth. Here are the most common arrangements in the restaurant industry.

COMPANY-OWNED - You or your company owns the business. In this scenario, you operate all the new units, typically under an umbrella organization that provides centralized administrative and management support. Managing shareholders and partners remain the same, although you might offer silent investment opportunity for passive shareholders/partners. This scenario works best when there is no need for business oversight talent, the restaurant can afford to employ whatever talent it needs (e.g., general managers) and the concept is neither interested in nor conducive to franchising.

PARTNERSHIPS - You take on managing shareholder partners with money, or experience, or business expertise. There are ways to structure these deals so that you retain control of operations and are the day-to-day decision-maker for the organization. It is advantageous to partner with people who bring things to the table that you don't have. There is very little reason to bring on partners with the same skills, abilities, and resources you already possess. This is an opportunity to balance your "team" and have the sum greater than the total parts.

FRANCHISING - You grow your concept through a franchising system. This is a tremendously complex strategy, and there are many responsibilities and legal requirements with which you will have to deal. You will also need to support the franchisees in operations, marketing, research and development, and purchasing to help ensure their success and the integrity of the brand. It is also necessary for you to "police" the system to ensure that the value of the brand is upheld and that the customers know what to expect. The concept has to be right for franchising and operating systems need to be thorough and replicable. In other words, it must be a highly distinctive concept that can be readily branded in the marketplace, have a somewhat predictable return on investment, and be replicable in a number of markets through systems, procedures and training.

ACQUISITIONS - This is one of the most common ways for restaurant businesses to expand. You, your company, or new partners/shareholders find an existing eatery for sale and you purchase the entity or the assets. The ideal "target" businesses include successful enterprises that are on the market because the owners want to cash-out or retire or a restaurant that has the location or market to be successful but is faltering due to poor management. In the latter case, this can be an excellent deal if the owners want to get out from under debt. There are reputable restaurant brokers who can help you find businesses for sale.

CONVERSIONS - As markets change some restaurants move or go out of business. This presents opportunities for operators to move into buildings that require very little infrastructure investment as most of the mechanical, electrical, and plumbing have been done. The site is already zoned and approved for a commercial restaurant and it will be easier to get permits. There is usually equipment left behind that can be purchased for pennies on the dollar.

The thought of expansion is both exciting and scary… don’t be afraid to ask for help! Do you have a trusted restaurant consultant to call for advice? Is there another restaurateur in town who can serve as a mentor? This is more critical than most people think. When business problems erupt, you can feel very alone. A trusted adviser who understands the business can help you develop focus and gain an objective perspective… inevitably, helping in the growth of your business! | GARETT SMITH, SYSCO PORTLAND

Article based on What to Consider before Going from One to Two Restaurants, by Jay Goldstein, at Information collected and written by Becky Fleming, Business Resources Department; edited and submitted by Garett Smith, Marketing Manager, Sysco Portland.