5 Ways to Use Your Restaurant Capital
How to raise restaurant capital and make the most of your restaurant working capital.
DISCLAIMER: This content is provided for informational purposes only and is not intended as legal, accounting, tax, HR, or other professional advice. You are responsible for your own compliance with laws and regulations. You should contact your attorney or other relevant advisor for advice specific to your circumstances.
As we move toward a post-COVID-19 world, we are also inching closer to a world where dining in at restaurants is back to being one of our regularly scheduled activities. Although many restaurants took a hit in 2020 due to the pandemic, 2021 restaurant sales are projected to climb 10.2% according to the National Restaurant Association — a promising start for restaurant owners, employees, and patrons across the United States.
With the reopening of full service restaurants right around the corner, there is no time like the present to put your restaurant working capital to work. Money can’t buy happiness, but for restaurant owners, it sure can buy peace of mind and a range of capital projects.
What is Restaurant Capital?
Before we dive into all the ways you can use your restaurant working capital, let’s quickly define what restaurant working capital means, as opposed to the broader category of restaurant capital.
Generally speaking, “restaurant working capital” encapsulates the assets and cash that a restaurant uses to cover its day-to-day operations like paying rent and utilities, stocking up on ingredients, paying restaurant employees, and other short-term expenses.
Ensuring that your restaurant working capital is kept at a healthy level requires a significant focus on your operations and key restaurant metrics, such as inventory turnover ratios, mindfulness regarding your short-term spend, and consideration of shorter-term working capital loans on an as-needed basis. Once you’ve mastered managing your restaurant working capital, your day-to-day finances can take a backseat to exploring bigger and better things for your restaurant.
That’s when we shift focus onto “restaurant capital,” which can encapsulate the money a restaurant has available to cover working capital needs, but can also be used on longer-term investments and projects.
Having enough restaurant capital on hand allows operations to run smoothly, gives you the opportunity to upgrade and expand your restaurant, and provides a safety net for any surprise costs — such as dealing with a flooded basement or an unplanned insurance fee.
If you don’t have cash on hand, you’ll likely have to explore funding options from third-party vendors. With the advent of new lending markets, such as online lending and personal credit cards for small businesses, obtaining capital has never been easier.
How do Restaurants Obtain Capital?
Obtaining capital for your restaurant can seem like a tough hill to climb. But don’t worry, help is out there if you look in the right places.
For example, whether your restaurant business goal is to open a new location, invest in new equipment, bolster your restaurant working capital cushion, or just manage cash flow over the next few months, you're going to need a reliable source of funding to make your dreams a reality. Toast Capital provides eligible Toast customers with access to loans from $5K to $300K that can be used for any restaurant need. Toast Capital Loans have one fixed cost with automated repayment that flexes with sales* – with no compounding interest and no personal guarantees. Once you’ve been approved and signed your Toast Capital Loan agreement, you can expect funds to be sent to your bank account in as soon as one business day**.
Toast Capital Loans are issued by WebBank. Loans are subject to credit approval and may not be available in certain jurisdictions. WebBank reserves the right to change or discontinue this program without notice.
*Toast Capital Loans offer different target repayment terms ranging from 90 days to 360 days, depending on eligibility. The maximum repayment term is 60 days following the end of the target repayment term. Any outstanding balance due at the end of the maximum term will be collected automatically via ACH.
**Funds are typically disbursed within 1-2 business days following application.
If you’re not a Toast restaurant, we’ve got another idea for you. Let’s say you took out an SBA Loan or received a cash advance. Great – but don’t forget to take advantage of the Section 179 Tax Incentive.
But wait, what exactly is the 179? Originally intended for small businesses, it’s one of the most lucrative incentives released by the IRS. Using this tax incentive program, businesses can deduct the purchase price of new and used equipment and off-the shelf software from their gross income. Talk to your CPA or a tax specialist to fill you in and see if your business is eligible.
The marketing tips & tricks your restaurant needs
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5 Ways to Use Your Restaurant Capital
So now that you have restaurant capital, and enough cash on hand to invest in projects, what are you going to do with it? Having an effective strategy for how to use these funds is almost as important as procuring the capital. Whether it’s developing a new restaurant marketing campaign or obtaining overhead cash for a slow winter season, here are five ways to put money back into your business.
1. Investment Projects
An investment project is a great way to put money back into your restaurant in a meaningful way. You can build additional revenue centers, increase the number of guests on a given day, and ultimately make more money for the business.
For example, starting a catering business is a great way to market your business and the food you’re cooking up. Through a catered event, you not only hit a potential new customer base, but the costs are minimal with a ton of potential net revenue.
If catering isn’t for you, does your restaurant have a great brand that customers flock to? Then perhaps it’s time to increase brand awareness to new markets. Opening a new location is one option, but if you think your brand has growing power, the best way to expand quickly is to franchise. Setting up clear guidelines and a strong company message will allow your franchisees to follow in your footsteps and develop your brand to the next level.
A few other investment ideas for restaurant capital:
Build a patio for additional seating and traffic every night
Open a pop-up restaurant
Speaking of marketing...
2. Marketing Projects
Adding new customers and retaining the ones you have is essential for a restaurant to remain profitable. You don’t want customers forgetting about that great meal they had, or the awesome ambiance you’ve created. Building an engaging and diverse marketing strategy is a great place to put your additional capital.
We’ve talked about building a great marketing strategy before, and one of the best ways that you can get your restaurant in front of potential customers is a strategic advertisement on Google. All it takes is to fill out Google’s My Business Form and then place a bid for ad placement on the search engine. The next time someone searches “where to get lunch near me,” your restaurant will come up first and not that rival restaurant down the street.
A more traditional marketing strategy is to sponsor a team or event. This will increase brand penetration in your local market as well as offering quite a bit of upside in ROI. On top of that, you’re giving back to your surrounding community.
A few other ways to use your restaurant's capital for marketing:
Generate brand focused merchandise
Revamp your social media presence and advertise on social media
Bid for ad placement on Google Adwords
Partner with an influencer to grow brand awareness and expand your audience
3. Reactive Projects
“Anything that can go wrong will go wrong.”
Murphy’s Law may seem cliche, but being prepared for the unexpected is a vital part to operating a restaurant. A refrigerator that shuts down overnight could cripple operations, spoil food and drinks, and leave a dent in your overhead cash. Every restaurant owner and manager should have readily available capital to cover the costs of a reactive project.
If you live in the Northeast, dealing with the winter can be tedious. On top of having to salt the sidewalks and shovel snow, what if your HVAC system crashes and your restaurant turns into an icebox? You would most likely have to close down the restaurant for a day or two to procure the capital for such a repair. Making sure you have the appropriate overhead capital will be key for these surprise costs.
Instead of being reactive, think about how you can be proactive with responsible use of restaurant capital. Do you get the feeling that your restaurant equipment is nearing the end of its useful life? Are creaky doors and shaky windows making your restaurant drafty? Maybe it’s time to make some replacements and upgrades — before they turn into repairs that can cost your restaurant both restaurant capital and lost time.
A few other ways to use restaurant capital for reactive projects:
Repairing a broken window
Purchasing additional inventory for an event
Hiring a plumber
Refurbishing dining room furniture
Upgrading outdated kitchen equipment
4. Employee Projects
Restaurants have a unique opportunity to delight their customers through amazing food and a welcoming environment. Both the front of house staff and back of house staff play an essential role in making a great customer experience a reality.
Investing in your staff and celebrating their accomplishments not only increases team morale but also grows the appeal of potential candidates interested in joining the team.
The best way to show appreciation of your staff is to provide great pay and robust benefits, like health insurance or paid time off, and an infusion of capital can help you set these programs up.
Another trend that has been making ripples in the news lately is taking restaurant staff on a vacation, often to a destination where they can try food and drinks that will inspire the next season’s menu.
Additional ways to use restaurant capital for employee projects:
Throw a restaurant staff party to celebrate your employees
Give your employees a bonus or a raise
Comp employees to take classes on subjects they’re interested in or learn new culinary skills
Start a student loan repayment program for your employees (be sure to consult with your legal advisor to make sure you comply with the applicable laws)
Better training for happier employees
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5. Technology Projects
One smart investment that can cut costs and also give you a rich set of data is purchasing an inventory management technology. With inventory management, you can reverse engineer any item on your menu and know exactly how much an ingredient costs on a granular level. For example, if you know one slice of cheese is 1 cent, how much money could you save over time if you made sure the cooks only put on two slices of cheese rather than three on a cheeseburger over a month or a year?
Another great technological advancement that has found its way into restaurants is mobile tech. Using your capital to purchase a handheld point of sale system like Toast Go can increase revenue with quicker turn times, while also improving the customer experience through easy order taking and payment.
Additional ways to use your restaurant capital for technology projects:
Update your payroll system
Purchase a Bluetooth temperature monitor
Upgrade your hardware with handhelds, kiosks, kitchen display systems, and more
Find a new software integration for your restaurant
How do you plan on using capital for your restaurant?
Now it’s your turn. With accessible capital that you can invest into your restaurant, and a clear, thought-out strategy on how to use that capital, there are lots of options to improve operations and increase your profitability.