With ever rising costs for supplies and staffing, there are important measures restaurant owners can take to navigate an uncertain economic climate in 2024. That being said, unemployment remains low across the country and consumer spending is strong despite higher interest rates. We expect this to continue, at least in the near term.
In these uncertain times, we encourage restaurant owners to take the following steps:
Forecasting Financial Needs—Restaurant owners should determine whether they are likely to need capital going into the 2024 and if so, work to line up that capital now. The most common mistakes small business owners make is failing to properly forecast the cashflow needed to secure the inventory and staff required. Small business owners are by nature optimistic, and sometimes optimism causes us to overlook the downside contingencies that can become essential when things don’t go as planned.
Restaurant owners should work to forecast their busy and slow seasons and use these projections to determine whether they are likely to need capital as they transition into their busy season.
Banks have been reducing exposure to small businesses ever since the pandemic, and now with higher interest rates putting pressure on bank deposits and greater regulatory scrutiny, banks are reducing their loan books even more. Fortunately, there are a number of small business lenders who have been expanding their ability to provide small business capital in the face of this bank contraction. Small business owners should consider exploring options with their bank as well as these non-bank lenders.
Consider Offerings to Attract Customers—Restaurants trying to attract price conscious diners should make sure that their menus carry several low-cost, higher margin staples that can be sold at reasonable prices. Consider reducing the size and price of certain staples and then offering a “super-sized” portion for a higher price. Keep a close eye on your margins, and don’t be afraid to slim up menus and reduce hours of operation if demand begins to slip.
Retaining Staff—Flexible shifts and secure shifts may actually be more important than wages to some employees. An effort to maximize staffing levels by cutting shifts short or imposing last minute shifts can be very disrupting to employees’ lives. It may be easier said than done, but allowing employees more input into their shift times and durations can go a long way to creating employee loyalty. We also encourage restaurants to automate as much of their process as possible, keeping headcount light.
Planning for Growth—When considering expansion plans, restaurants should understand the demand in their local market as well as the competitive environment. A restaurant’s success is likely to be driven more by the local economy and by the competition than by national economic indicators.
Restaurants are expensive to start and can take years to become important fixtures of the community. As a result, it is important to have a good capital plan in place. Most restaurant owners have financial backers to help them get off the ground, and debt financing relationships to help them grow and cover temporary shortfalls of capital. Having the right financial relationships is important, and fortunately there are a number of non-bank lenders who are able to provide financing options to restaurants.
Ben Johnston is the COO of Kapitus.