Your restaurant is doing well. Revenue is consistently increasing every quarter, your staff are pleased with their jobs and your customers not only can’t stop coming back -- they’re actively recommending your restaurant to their friends. What should you do next?
Once you’ve built your first successful restaurant, one of the most effective ways to increase revenue and fuel continual growth is to expand to new locations.
Just like opening your first restaurant, expanding your existing restaurant business to a new location can be a challenging, difficult process. Because of this, it’s important to have a plan ready before you start taking action towards opening your second location.
Below, we’ve covered everything you need to know about expanding your restaurant business to a second, third, fourth (or 20th) location. From funding to choosing the right location, read on to learn exactly what you’ll need to do to make your expansion plans successful.
When Should You Consider Expanding Your Restaurant?
It’s easy to rush into the business expansion process. Every year, thousands of restaurants in the UK expand to new locations before they’re ready, damaging both the new location and the core business in the process.
Before you even consider expanding your restaurant business, it’s important to make sure that your business is ready to grow larger.
While there’s no simple “yes or no” flowchart that you can use to determine whether now is the right time to expand, you can gain some valuable insight by looking at how your current location is performing. Try asking yourself the following questions:
Is your current location as successful at it possibly can be?
Before you consider expanding, it’s important to optimise your first location so that it’s as popular and profitable as possible. This puts you in the best financial position to expand your business, as well as giving you a proven template for future locations.
Is your current restaurant operating at or near full capacity?
It’s almost always more cost-effective to grow your existing location than to expand to a new one. Because of this, you’ll want to make sure you’ve developed your first location as much as possible before expanding to a second.
Do you already have an audience outside your local area?
If people are travelling to your restaurant from several miles away (or, better yet, from other suburbs or towns), it’s a good sign that your business can succeed in a different location.
Do you have time to spare opening a new location?
While it might be a smoother process than opening your first location, expanding your restaurant business requires a lot of your own time. If you don’t have enough time to manage the process yourself, it might be worth reconsidering your plans.
Do you have access to funding for the new location?
Opening a new location for your restaurant can be a cash-intensive process, meaning it’s essential that you have access to a reliable form of financing that’s compatible with your business model.
If you can answer “yes” to all of the above questions, it’s a good sign that your business is ready for expansion. If not, it’s important that you solve any problems with your existing location before you consider expanding to new ones.
Securing Financing for Your Restaurant
Opening a new restaurant requires a significant amount of capital. This means you’ll either need to use your own savings to open the new location or (more commonly) find a finance solution that meets your needs.
If you’ve tucked away a significant amount of money from your first restaurant’s profits, it might be enough to cover the cost of opening a second location. Funding your new location with your own funds has both advantages and disadvantages but it’s important to keep in mind the importance of timing: By waiting so long to open a second location, you could be leaving money on the table as a business owner.
If you have good credit, a proven business plan, a strong track record and are willing to provide security (such as your business or home) you might be able to secure financing in the form of a business loan from a bank. However, most banks are apprehensive to provide funding for new, unproven restaurant businesses due to their lack of cash flow history - and a plethora of criteria must be met.
Even if you are able to access a bank loan, the cost of paying back a long-term business loan can often be a drag on your new location’s profits.
A more effective, flexible option is to use a merchant cash advance like our restaurant funding solution. This lets you receive an immediate capital injection that you’ll gradually pay back through a percentage of your credit and debit card sales, all without having to worry about APR or fixed payments.
In short, this option lets you pay off your funding when your customers pay you, making it less of a drain to your new location’s cash flow than a conventional bank loan. A merchant cash advance is also much faster than a traditional business loan, with funds in your account in a matter of days, instead of weeks or months.
As a restaurant owner, it’s important that you consider the advantages and disadvantages of each form of financing - comparing a business cash advance versus a bank loan - before choosing an option for your new location.
Whichever funding option you choose, it’s important to make sure you have enough capital for the entire process of opening your new location. This means planning ahead of time for things like a lease, renovations, new equipment and working capital.
Since you’ve already successfully launched one restaurant, you should already have a rough idea of how much you’ll need to spend to get your second location up and running.
Choosing the Right Second (or Third, or Fourth) Location
Location can be either a valuable asset or a costly liability for your restaurant. This is equally as true when you’re opening your second, third or fourth location as it is when you’re opening your very first restaurant.
Beyond the four most important factors (population base, visibility, accessibility and parking), it’s important to consider how your new location fits alongside your existing restaurant:
Are there potential customers nearby? Every restaurant has a target demographic, be it young professionals or fine diners. Before you open a new location, check that your target audience exists in large enough numbers to sustain the new business.
Could it cannibalise your existing location? Opening a new location too close to your existing restaurant could result in you simply attracting the same customers. This means your restaurant business doesn’t actually grow by any significant amount.
Before opening a new location, check that it’s targeting a specific location that gives you access to new customers, not just your existing customer base.
Are there local competitors? Expanding into a new area could mean dealing with local restaurants that compete with yours. Are there any potential competitors nearby? If so, do you think that you can compete with them successfully?
Is the area a good match for your business? The best areas to expand into are ones that are similar to your existing area. For example, expanding from one ‘hipster’ area into another is a smooth process; expanding to a financial district, less so.
Can you afford it? Before you get too attached to a specific location, check that it’s an affordable option for your business. Like everything else business related, any location needs to make financial sense before it makes sense for your business.
Like everything else related to your restaurant business, choosing the right location gets easier the more you do it. After you’ve successfully expanded into a second location, finding a suitable area for your third, fourth and fifth locations becomes much less stressful.
Preparing a Detailed Business Plan
Although your second location might feel like an extension of your existing restaurant business, it still needs its own business plan.
Once you’ve worked out your financing options, chosen a location (at this point, it can just be a rough area -- you don’t need to have a specific address picked out), it’s important to prepare a unique business plan for your second restaurant.
Your second location’s business plan should include all of the same content as your first, from the restaurant’s overall concept to staffing needs, target customers, market analysis and all of the financial information you need to accurately budget for the project.
It’s also important to include projections for your new location’s cash flow growth. While there’s no way to be completely certain about how quickly your new location will grow, setting concrete targets for sales cash flow and break-even can help you track progress after you open.
Since you’ve already successfully opened one restaurant, preparing a business plan for a new location shouldn’t be too much of a headache. However, if you’re making any changes to your existing formula, you’ll need to make sure they’re accounted for in the plan:
Will your new location have the same concept as your existing restaurant, or will there be changes (for example, an abridged menu, focus on a different type of customer or a unique atmosphere)?
Will your new location be bigger or smaller than your existing restaurant? If so, will this affect its seating capacity and ability to generate revenue?
Does your new location have different costs to your current location, such as higher rent or staffing costs? If so, how will these affect the amount of sales you’ll need to generate to break even and eventually profit?
The more similar your second location is to your existing restaurant, the easier it becomes to put together a comprehensive business plan. Because of this, if you’re expanding your business for the first time, it’s best to stick with the proven formula you’ve established with your first location.
At this point in the process, you’ll also need to apply for any relevant licenses, permits and other legal documents you’ll need to run your business. In the UK, you’ll typically need to register with the local council to register your business before you can legally carry out food operations.
Planning How to Market Your New Location
No matter how impressive your food is, your new restaurant is unlikely to be much of a success without an effective, scalable system for attracting new customers.
Because of this, it’s important to prepare a full marketing plan for your second location before it opens. This plan needs to address how to:
Let your existing customers know that your new location is open (since these people are already customers, simply letting them know that you’re open is often enough to prompt them to drop by).
Inform and educate new potential customers in your soon-to-open location’s target area about your new restaurant, then give them a reason to visit.
If necessary, differentiate your new location from any competing restaurants that already serve the target area.
Over time, bring in a steady flow of new customers from a range of marketing channels, from word of mouth to online reviews and more.
If you already have a social media presence for your business, you can use this to let your old customers know about your new location. These customers can act as a great “seed” audience that generates buzz and helps you launch your new location.
This plan should also cover the first few weeks of operating and marketing your new location, from plans for its soft opening to launch parties, introductory promotions and other tactics for drawing in new customers and establishing the location.
While there’s no need to stick precisely to the plan - most of the time, you’ll need to make a range of adjustments throughout the process - having a thorough blueprint outlining the first few weeks of promoting your new location can make a big difference.
Fitting Out and Equipping Your New Location
After you’ve chosen your new location and prepared a business plan, it’s time to purchase and install the equipment you need for your restaurant.
Since you’ve already done this before, fitting out your restaurant with the equipment, furniture and decor it needs is rarely a difficult part of the process. In fact, it’s usually the easiest. For a smooth, stress-free experience, try to:
Use the same equipment as your first location. This makes it easier to train your employees. It also means you can move staff from one location to the other, if ever needed, without having to retrain them to use new equipment.
Measure your new space before purchasing. Before you buy furniture, appliances and other essentials for your new location, measure your key areas to make sure they will fit without any issues.
Stick with your existing suppliers. Just like with appliances and other equipment, it’s best to stick with your current food suppliers as you scale your restaurant business to a new location.
This is also the time to purchase and install your POS system, audio equipment and any other technology that’s essential for your restaurant to function.
Scaling and Training Your Staff Before You Open
Your staff are the heart of your restaurant. Train them for the task and you’ll start your new location off on the right foot, with smooth operations, friendly, efficient service and satisfied customers.
Instead of hiring a completely new team for your second location, it’s far more effective to promote your existing staff from within. Review your current team of staff and select your top-performing, most experienced and most trusted employees to run the new location.
By this point, it’s vital that you have established, tested systems for every aspect of your restaurant’s operations. If you don’t have a system for every part of running your existing location, make sure you’ve established these before you consider expanding.
It can help to compile these processes into a company policy manual. The more new staff members you need to hire for your new location, the more vital it is to put every process, step, rule and procedure in writing.
Even with the most thorough training and employee documentation, you’ll inevitably need to spend a lot of your own time establishing your second location. Be prepared to put plenty of hours in, especially during the first few weeks of operations.
Opening and Running Your New Location
Once you’ve signed the lease, fitted out your restaurant and trained your staff to operate the new location, it’s time to open.
Just like many of the other steps in the process, this is something you’ve done before. Since you’re expanding your business into a new location this time around, you can learn from any mistakes you made (if any) during the launch of your first restaurant. Try:
Soft-launching first. This gives you the opportunity to check that your new location is running smoothly before you start marketing and inviting more guests.
Hosting an opening party. When you feel your new location is ready to serve guests, host an opening party to generate buzz and let people know you’re open. Make sure to invite your existing customers via social media.
Offering a range of promotions. With a new location, the priority is to get new people in to experience your restaurant. Holding a promotion or offering a discount on certain menu items can be a good way to generate this initial surge of foot traffic.
Use your established marketing tactics. You’ve already built a successful restaurant, now it’s time to scale. Use the same winning marketing tactics as you did for your first restaurant to get your new location off to a promising start.
Just like opening your first restaurant, expanding to a second location is a lot of work. Take a long-term approach, plan ahead of time and implement the tactics above and you’ll get off on the right foot, helping you set up your second location for success.
Take the Next Step
Thinking of expanding your restaurant business? As specialists in flexible financing for small and medium-sized businesses, we’ve helped countless UK-based restaurant owners expand their businesses to new locations and generate extra revenue.
If you’ve got a successful restaurant business and want to grow, we’re here to help you. Learn more about our restaurant funding or contact us now to learn more about how we can help your business grow.