Financial Strategies for Hotel and Restaurant Expansion
Your business is the talk of the town. Patrons are snapping photos left and right of your delicious food to share on Instagram. You have an amazing staff that love their jobs and keep your customers happy. Sales are booking and business is great. You might start to think that it’s time to expand your business. Expansion can help you develop better brand recognition and expand your customer base. It could be a great decision — but only if you’ve done your homework.
No matter how many restaurants or hotels you have, expansion takes careful planning and a great deal of research. Once you’ve determined your reasons for expanding your business, the next step is to choose an expansion strategy that meets the needs of the retail hospitality industry. There are several good strategies from which to choose and we outline a few of them below.
What is an Expansion Strategy?
An expansion strategy is a plan that allows your business to grow at a rate that’s significantly faster than the rate at which the market itself is growing. Typically, a company’s intention to implement an expansion strategy also implies that the company is aiming to take market share from its competitors. The ultimate goal here is to increase your Return on Investment (ROI) over time.
What are some common Expansion Methods?
The first rule of expansion: never rely on your existing location to fund the new one. Look at this new location as a separate business entirely. Whether you use your own capital, take out a loan, or use outside investors, there are plenty of ways to get the funding you need to expand your hotel or restaurant.
No matter the size of the expansion, you need capital behind you to make it work. One of the oldest, and best ways, to secure this funding remains in the form of a traditional bank of business loan. The amount you qualify for will be determined by factors such as the size of your business and how consistent your business accounting records.
Maybe you don’t want to borrow money for your expansion. Maybe you’re looking for added value and support in addition to capital. If that’s the case, then you may want to consider looking into a private investor. Private investors can come from a whole host of places – venture capital firms, angel investment sites, or even crowdfunding portals. And if your business is particularly unique or exciting, procuring the funding needed for your expansion could be relatively easy.
However, there is a trade-off. If you choose to include a private investor in your expansion, they will require a stake in your business as a return on their investment. Take some time in advance to determine how much cash you need and how much equity you are prepared to offer in exchange. Also, consider that many private investors can offer industry experience and contacts in addition to any needed funding — making their involvement profitable in multiple ways.
A private investor is also for more committed to your success than a bank is. A bank will receive the same amount of interest no matter how well your business is doing. On the other hand, a private investor’s return will grow in proportion to how successful you become. By signing away a small portion of the control of your business, you gain a powerful ally to help realise your longterm business plans.
Occasionally, some restaurants or hotels choose to pool their resources with other businesses to form a stronger brand. And through this merger, you’re able to expand your business in several ways such as an increase in intellectual capital and a broader customer base. The trick to this strategy is to find the right partner for your business and your expansion strategy. Do your research carefully and ensure that you are your potential partner are on the same page every step of the way. Make sure that both parties are completely clear about what strengths, resources, and capital each one is bringing to the table.
New Segment Development
If you’re willing and able to do market research and a good deal of testing – then you may be able to take advantage of new segment development. This strategy is accepted as a stage that many successful small businesses that want to expand will eventually explore and involves diversifying the services you offer.
For example, say you own an independent pub and are looking at tapping into the lunch break market. To do so, you set up a sandwich deli that has a range of smoothies and non-alcoholic drinks. A bar can expand its market by hosting a live music or comedy night that attracts a new crowd.
As with any part of being a business owner, patience is a virtue. Regardless of which expansion strategy you choose, make sure to give yourself a realistic timeline and enough time to do ample research. When you expand into a new area, an understanding of the local market and demand is vital and will guide how you market your brand to new customers.
How Solve Can Help
Expanding your business is no small feat and one small misstep could set you back in time and money. Growing any hospitality business has many financial challenges that are unique to the industry such as:
- How to ensure correct the margins on food products that have long lists of ingredients and complex labour time to factor in
- How to source funding and investment to expand into additional sites
- How to manage and track the high volume of cash sales
- How to avoid theft when managing multiple sites
- Managing payroll for a growing number of both permanent and casual staff
So whether you are looking to grow from one site to two, five or ten — the team at Solve can help guide and advise you every step of the way and ensure that your business expansion is successful.