Short-Term Finance Options for Independent Operators

Even under the best of circumstances, independent restaurants tend to be undercapitalized with heavy sunk costs such as labor, lease, and supplies. All this to say, when something goes wrong or seasonal lulls set in, many restaurant operators face tough choices due to inconsistent cash flows and a lack of capital.

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Why Restaurants Fail

This is when operators can get in trouble, notes Greg Flores, President and CEO of Flores Financial Services, which specializes in restaurant accounting, payroll and HR. "Restaurateurs are unique individuals. Their passion is food and hospitality, touching tables...They have a passion for what they're trying to do and [they] want to be successful at it." Flores notes that this tendency toward passion means that when things go wrong, operators often "get caught in the trap of thinking they can fix it."

Abe Loper, a financial adviser at Northwestern Mutual and the former owner of White Hart Cafe in Lynchburg, Virginia, fell into the restaurant business unexpectedly when he made an offer on a favorite cafe that had closed. While he had no industry experience, Loper had worked in consulting for entrepreneurs and figured he could succeed if he brought in the right talent.

Cash flow is critical to success in any business, but it can be a significant challenge in seasonal businesses such as restaurants. When sales are strong, an operator might be able to cover an emergency need, knowing money they spend is flowing back into the business with every table turned. When business isn't booming, that same emergency can't be handled quite so easily. When is a short-term loan a good idea? And before operators sign on the dotted line, what do they really need to know?