By Veronica Wallace, Contributor
When restaurateurs decide to open up a business, they will spend a great deal of time planning how things should go. Most successful businesses have long and hard conversations about how to plan out their business and what their budget will look like. Unfortunately, too many restaurant owners believe that business planning only needs to take place in the very early stages of their careers. The truth is restaurant business planning should not be a one-time event, but revisited and updated regularly.
If you still aren’t convinced that you should be updating your business plan regularly, here are just a few of the things that might be going amiss:
Racking Up Too Much Debt
Business planning requires you to look at your income and resources against the needs of the restaurant. Sometimes, the things that you need can outweigh the money that you have coming in. As a result, your business could find itself in too much debt to have any real chance at long-term success. The question is, how much debt is too much debt for you to have when planning your business?
It’s difficult to find a golden number that represents healthy finances for all businesses. A more precise way of considering your debt is by figuring out your debt to income ratio. This number is calculated by crunching some numbers; you’ll need to divide your total debts and obligations by your assets and income. The lower the number, the better your business stands.
It’s recommended that your company stays within a debt ratio of 0.5 and lower. But if you have a debt ratio of 0.6 or higher, you might be in trouble. If your debt ratio is too high, there are ways for you to feel some relief from your crushing financial burden. You can, for example, consolidate your debt to a single creditor instead of paying multiple places each month. Another tactic is to directly negotiate with your creditors over things like interest rates or lump sum payments.
Where Does the Money Go?
Do you have any idea where your restaurant’s money is going from month to month? It’s important to track and manage your cash flow when you open a restaurant. You might be spending too much on food items that are not selling. It’s possible that you are paying your suppliers too much for the goods and services they provide. However, without a clear system for managing your monthly cash flow, you will never have any idea.
Investors in your restaurant will view it the same as any other type of business. Cash flow problems can indicate some serious issues just beneath the surface. They will be very interested to know that you can pay your bills from month to month and have money left over. This free cash flow means good things for their bottom line – and yours!
Setting New Goals for Your Restaurant
One of the main reasons why business planning shouldn’t be a one-time event is because you are always growing. At least, a successful restaurant business should always be focused on a growth mindset.
The goals that you were aiming to hit last year should be even greater for the coming year. Setting new goals is critical for your restaurant whether that means raising enough money to purchase new equipment, hire new staff, or expand your menu offerings. A business plan that is constantly evolving means that you are focused on the future and can adapt to the regular changes in the industry.
Reviewing Your Daily Planning
Do you know where your time goes from day-to-day? Many people start with an overarching plan for their entire restaurant but forget about the day-to-day operations. Spend a little time every now and again reviewing your personal daily business plan to see if there are areas where you could cut back or gain more efficiency. Over time, you might start to see patterns that tell you it’s time to give something up or hire an assistant.
Adapting to the Fluctuating Restaurant Industry
The truth of the matter is that you simply cannot predict everything that will happen from year to year or even month to month. You can create a thoroughly researched and detailed business plan before you open your doors, but it may not hold once you have been in business for six months to a year.
The restaurant industry is constantly changing and so is the appetite of your guests. Good financial planning should be based on the current trends and patterns that you see with your customers month after month.
If you are paying attention to the details and revising your business and marketing plan regularly, then you are less likely to lose revenue due to major changes in how your customers order and eat. You can better plan for your staff and keep things running smoothly during day-to-day operations.
Planning for Your Restaurant’s Future
Successful restaurateurs and food industry professionals know that a one-time and one-size-fits-all business plan isn’t going to work for long. You have to constantly pay attention to what your guests want and be willing to make changes to your business as necessary. Instead of viewing business planning as a one-time requirement, start to look at it as an opportunity for you to reveal new ways to grow your current business and improve your service!
About the Author
Veronica Wallace is the content coordinator at Reider Insurance, an insurance agency that specializes in providing insurance and bonding to all sizes of businesses.
