This is what I hear often…
You have this brilliant restaurant idea or grandma’s secret recipe. You found this dinky spot in a nice neighbourhood where you think would be the perfect place to open up a restaurant or food business.
But the problem is: you don’t have the capital to start the darn thing!
A common situation I hear.
Well today, we’re going to be talking about, how do you start a restaurant with $0? Yep – a big, fat $0.
But here’s the thing first – when I first started off, I didn’t have the capital, either.
I was actually able to save up from my other businesses, which allowed me to diversify and invest in my first ice cream shop. I know some of you are not in that position, which is the reason why I’m going to share with you the 4 places you can actually raise capital so you can build and run your own restaurant.
1.) Ask Friends & Family
The number one way and easiest way to raise capital is through friends and family.
It’s the easiest to get the money because you typically don’t need to show them a proof of concept or a fancy a pitch deck.
The main reason why they’re investing and handing you their money is because it’s YOU. Because they love you, they trust you, and they want to support your dreams of building a kick-butt food and beverage restaurant or food business. That’s the reason why it’s going to be the easiest way to raise capital.
That being said, it is the most dangerous method.
The pressure of taking money from a friend or family is IMMENSE. You’re going to be risking your relationship with them. That is a really, really big risk that you’re taking on. One that is not for everyone.
If the business is successful, great. Everyone is happy. You’re making money for your friends. You’re making money for your family. And on top of that, you’re able to bring your delicious vision to the world!
But if your business is a dud and not successful…then you’ve possibly just lost a friend. You’ve probably just lost a family member.
If you are willing to go through all that pressure and risk of raising money through your friends and family, make sure you set the right expectation. Let them know the duration of how long this investment is going to be and that 80% of the time, the money is at risk of being completely gone. Of course, you’re going to try your very best to help them grow the money, but there’s no guarantee and that they should have that expectation of this being an extremely high-risk investment.
When you’re able to set that expectation, hopefully you can actually keep the relationship intact.
This method of raising money isn’t one that I would recommend. However, there’s a lot of people that do that and are okay with the risks involved. I, personally, value my relationships much more than running a business. Which is the reason why I would never, ever ask my friends and family for money.
What good does it bring when you have a successful business when you don’t have your friends or family to share that happiness with? What good does that bring?
For me, it doesn’t mean anything. I’ve seen too many sad stories of how entrepreneurs and people have lost their friends and family through business and it’s just a really terrible feeling, which I don’t really want to go through, which is a reason why I do not recommend it, even though this is the easiest way for you to get money.
2.) Government & Bank Grants or Loans
The second easiest way to raise money for your restaurant if you have $0 is through government or bank grants and loans.
The pros of this is that it’s much easier to deal with than your friends or family. During Christmas time, your banker is not going to be there asking you, “Hey, how’s the restaurant coming along?” and give you passive-aggressive pressure.
The cons of raising money through banks and government are the paperwork. You need to have different collateral to make sure that the bank has something in their hands for them to lend you the money. You may need a guarantor who is going to sign on your behalf, so if you do lose all your money, there is someone to guarantee that you will pay back that money.
On top of that, it’s a much more strict and long process to get the money. You’re going to have to write a legitimate business plan, you’re going to have to write a forecast for your business, and you’re going to have to actually prove the concept to your banker and convince them or their agencies that this business is viable. That the recipe that you have in mind is going to be exceptional when it comes to the competition, which is, a lot more difficult than raising money through your friends and family.
As daunting as the paperwork sounds, this is something that I highly recommend if you are short on cash.
For different cities, different countries, there are different agencies and different banks that have grants or loans available for you to apply for. So I can’t give you one straight answer of who to go to.
It really comes back down to your city that you’re in and the country that you’re in.
In Vancouver, we raised money through the Bank Development of Canada. They were very lenient with their process because the bank is backed by Canada. Oftentimes, they would even lend up to 90% of what you’re asking for. For us, we were able to borrow up to $100,000 with zero collateral because this bank has a much higher risk tolerance for small businesses. This bank was specifically made to provide funding for small businesses.
So in your specific area, hop on Google and try to find out what associations, banks, programs that support small businesses. Then see what are their guidelines in acquiring grants or loans.
You may be surprised how little paperwork is necessary or how much funding you can get.
3.) Find A Restaurant Partner
Let’s say in total you need $100K to start up your food business.
If you only have $50,000, you can actually bring on a partner who can fill that $50,000 pot for you. That way, you can work with someone that can actually grow the business with you.
Aside from the cash injection that your partner brings, a good partner can help split up the workload of the business. For example, you have to deal with marketing, finance, logistics, front of the house, back of the house, HR, all this crazy stuff. Starting and managing a restaurant is a lot of work when it down to it. This is why bringing on a good partner who can actually bring value to the table is so important.
On the flip side, we always hear crazy horror stories of how partners running away with the money, partners not doing anything, partners are suing each other.
All these crazy things are what you would be expecting if you find the wrong partner. And that’s the risk in bringing in someone.
But if you find a good partner that works well with you…you are gold!
Out of the three different options that I’ve mentioned, finding a suitable partner is something I would choose. It really comes down to your alignment, in terms of culture, vision, and how you guys do things.
In the video below, I talk about exactly how you find that partner that’s going to be able to help you build this dream restaurant of yours and that’s what we’re able to do with 720 Sweets.
My partner, Brian, is a super, super amazing guy. He does all the operations while I take care of the vision. He just puts in 120%.
Throughout the last five years of us partnering up, I can’t thank him enough for pulling in all his weight, and also, we may have arguments. But we always know it’s because we’re arguing for the sake of the betterment of the company. It was never personal.
So for me, I got really lucky, but it was also very strategic when I brought in Brian. It was also a lot of hard conversations that we had in the beginning to set the right expectations so he knows what to expect from a partner like me, and I know what to expect from a partner like him.
That’s how beautiful dream team is being built.
4.) Angel Investors
The fourth way to open up your restaurant with $0 is to find angel investors.
So many people have actually messaged me and asking me, “How do I find investors? And how do I get angels to invest in my business?”
I just find this question really, really dumb…
If you think you’re good enough to create a business that would be successful enough to be invested in, do you think you would need to ask those basic questions?
Why would anyone who has the money and incredible networks (like angel investors), to invest in you if you can’t even use Google? What makes you different?
Some people think that investors and angels are dumb people who just happen to have money that would invest in anything and everything…that is precisely wrong.
People who have money, they got there for a reason.
Usually it is because able they’ve been in the trenches and worked their butts off.
Angel Investors are the most difficult method for investment. They invest in things that they think and see opportunity in. So, when it comes down to it, when you’re asking yourself, hey, I want to raise money through angels investors. Ask yourself that one question. What makes you different?
Simple as that.
The pros of raising money through Angels Investors is that they have tons of money and are willing to be able to invest in you. You don’t need to see them for Christmas. You don’t need to see them during your off time. So then that way, you’re still going to have a good relationship with your friends and your family.
However, they are much more difficult to align with because they would always ask, why you? Make sure you have that question answered. Make sure you’re able to actually convince these angels investors.
Oftentimes, they would invest in those with more track record or experience and in bigger projects. We’re talking about multiple chains, and whether you’re the person to bring this business to success. If you’ve had the industry experience and are only needing the capital to scale, they’ll know that there’s a good chance you could make it work.
But without the experience to back it up, it will be incredibly hard for them to have confidence in your project and with their money.
Just because you have a crazy, delicious recipe doesn’t make you any different from the millions of chefs out there. If they really want to get into this business, they can easily hire a chef to be able to do R&D on this recipe. They don’t need you.
So, make sure you answer that question. If you have something that is so different about you, your background, your resources, your connection, anything, you know what? Bring everything of that to the table. Then, perhaps, you would have a chance.
At the end of the day, Angel Investors are still looking to turn a profit down the road.
Other than that, I would highly recommend just sticking to the first three different options and raising funds for your food and beverage restaurant.
So, there you go, the four ways to open up a restaurant with $0 by raising capital.
If you have any questions or are looking for more resources on how to build and run a successful restaurant or food business, follow along my Youtube channel or join our Facebook Group filled with upcoming food business owners.