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Financial Risk Management Strategies for New Restaurants

Financial Risk Management Strategies for New Restaurants

Opening up a new restaurant can be a particularly risky business endeavor. Many restaurants get by with small profit margins, so generating enough revenue to cover costs may prove to be difficult for new restaurateurs. Good financial risk management strategies and proactively addressing some of your other big risks can help you succeed in this challenging and competitive area type of entrepreneurship.

Choose Your Operating Space Wisely

Rental rates for restaurants can comprise well over half of an establishment’s operating budget. Not meeting rent is a common pitfall in the food industry, and not being able to make rental payments is one of the most common expense management issues that forces restaurants to close.

While you need to set up your business in a desirable location, you can’t enter into a rental agreement that will be too burdensome to keep up with unless your cash flow is near the top of your projections. When you’re searching for operating space, exclude listings that meet all of your key criteria but seem too pricey. Consider seeking out rental agreements that give you the option to pay a fixed percentage of your revenue on top of a moderately priced flat sum that will fit comfortably into your budget.

Shop Out Supplies

Buying in bulk is a good way to save money on the items that you’ll be using the most. You don’t want to buy an entire year’s worth of supplies at once while you’re still getting up and running. However, you should think in terms of months and not weeks to make the most of your operating budget. Check out pricing from multiple vendors for items that you’ll continually need to restock such as food packaging materials, wholesale disposable hot cups, and paper products for bathrooms.

Work With Dependable Food Distributors

You’ll rely heavily on your distributors for food quality. No matter how skilled your kitchen staff is, subpar meats and produce are going to lead to dismal dining experiences. If you try to serve food that’s past its prime, you’ll be unlikely to get good reviews or returning customers. When you’re choosing distributors, you can’t let pricing be the determinative factor.

Be clear about your expectations for delivery standards, and address quality issues immediately. Even when it seems like only a small amount of a delivery is unusable, it’s best to relay the issue to your account manager. Letting them know about problems makes them aware that you’re paying close attention to quality and may ensure consistency with quality.

Make Takeout and Delivery Part of Your Business Model

Most restaurateurs like to envision their establishments full to capacity with diners, but the carryout and delivery elements of the food industry are a great way for new restaurants to enhance their visibility. Trying to rely wholly on your ambiance to entice diners to pick your establishment for their next may be too presumptuous.

For new restaurants to have mass appeal, putting a high premium on a dining experience is iffy. Offering reasonably priced menu items that make sense as takeout or delivery options is a pragmatic way to spark interest and get people to try your food.

Carry Comprehensive Insurance

Being prepared to handle loss and liability is integral to good financial risk management. In addition to general liability insurance, getting policies that offer protection against interruptions to your business and employment liability issues could wind up sparing you from insurmountable losses.

Taking steps to maximize your resources can help you avert some of the most common issues that stand between new restaurants and profitability. Addressing risk proactively can help you keep your focus on operations management and growth initiatives.

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