How to Open a Restaurant When You Are Broke?

Managing any business with limited funding can be a challenge. However, it can be an especially daunting task in the restaurant industry where profit margins are already slim and the flow of customers tends to be seasonal.

Despite these difficulties, many business owners do manage to successfully start restaurants with the limited funds at their disposal. Here’s how to open a restaurant without money.

Before taking the plunge and devoting your savings towards starting your restaurant business, it is important to determine how much opening your new venture will actually cost.
Some important startup costs to consider are:

1. Assess the costs of opening a restaurant

Before taking the plunge and devoting your savings towards starting your restaurant business, it is important to determine how much opening your new venture will actually cost.

Some important startup costs to consider are:

Deposits and Down-payments
If you intend to rent the space for your restaurant, you will need to pay a security deposit or an initial down-payment before your lease is approved. This amount can be equivalent to multiple months’ rent, so you should factor in these costs in addition to the property rent.

Set-up Costs
If your restaurant will be set-up on a property that has already been built, you may need to spend funds on renovations and purchasing fixtures and fittings. Some of these funds will be spent on paying your landlord for equipment and fixtures that are present at the site, while other funds will be spent on purchasing new items.

The exact amount you spend on these set-up costs will vary depending on the type of fixtures and fittings you wish to add. However, restaurant owners generally try to design restaurants in a manner that utilises their space as efficiently as possible without splurging on unnecessary items.

Customers may appreciate your restaurant ambience more if you install an indoor fountain, but the additional popularity may not justify the costs of building one, especially when you have limited funds.

Insurance
Restaurants in the UK usually require public liability insurance before they start operating. This protects your business from special instances such as if any customer suffers food poisoning or lodges a public complaint against you. It also protects your business if any technical problems such as electrical shortages or kitchen flooding occur.

In addition to this, your restaurant will also require employer’s liability insurance. This can protect your business from damages if an employee suffers an injury on the job. The costs of these insurance policies vary on a case by case basis, but you can expect to pay a minimum of £500 a year for small restaurants.

Licenses
In addition to insurance, restaurant owners will need to apply for food business registration and food premises approval. However, these are usually free of charge.

If you intend to serve alcohol on your premises, you will need to get a license. The cost of this license will vary based on your venture’s value, but you can expect to pay a minimum of £100 along with an annual fee. Selling or serving alcohol without the proper license will result in a fine of £1000.

2. Financing your restaurant

The aforementioned start-up costs can add up to a significant amount, so you may need to spend tens of thousands of pounds just to open up your new venture. If you have limited funds available, you will need to look into some restaurant financing options to pay for the initial start up. Some options for financing include loans from banks or loan companies, grants from the government, and/or angel investors.

Loans from Banks or Loan Companies
Prospective restaurant owners can apply for cash loans from their bank or a loan company. This route may be suitable depending on the terms and conditions of the loan itself. Some banks may not approve high loan amounts for business owners who are already strapped for cash or have poor credit histories.

If you apply for a secure loan, you may need to put up some collateral to be approved. This collateral usually includes restaurant equipment or even real estate if you own the restaurant premises.

Restaurant owners who do not have sufficient collateral to put up may be able to apply for unsecure restaurant loans from banks. However, the drawback of this option is the higher interest rates on unsecured loans.
If your loan request is rejected by your bank, you may be able to apply for loans from private lenders or organisations. These parties also conduct credit checks before granting loans, but their requirements may be less strict compared to banks.

The drawback of getting loans from private lenders are high interest rates. If you are not confident about your restaurant’s ability to pull in revenue, applying for a high interest loan could lead to significant financial problems in the future.

Government grants
Restaurant owners also have the option of applying for business start-up grants from the UK government. Grants are funds that do not have to be paid back, which makes them a preferable option to loans.

These grant amounts may vary depending on your location and the value of your business. However, the government may ask you to spend a certain percentage of the grant on your business in order to be eligible.

Angel investors
If you are not eligible for loans or grants, you will need to fund your restaurant with the help of an angel investor. These are private investors who offer financial backing for small businesses in exchange for a share of ownership.

Many angel investors tend to be family or friends who are confident in your ability to start up and run the business they are investing in. Alternative, you could try and attract investors independently; however, it may be difficult to find people willing to back you if you do not already have a history of starting up successful businesses in the past.