If you don’t know exactly what is wrong, why would you borrow money to fix it? Entrepreneurs in the restaurant business make this mistake all the time. They look at their general expenses and plan to throw money at them until the restaurant begins to make a profit. What they don’t realize is that most of the time changes can be made internally to solve the problem. Cutting back on man hours, lowering food costs, and perhaps increasing prices slightly can stop your losses and prevent you from having to take out a small business loan to keep your business afloat.

Once you have managed to bring things back to point where you are making a profit, you can still go to the bank and apply for a loan, but now you’ll be doing it to create some business working capital for yourself. It’s always best to have some lines of credit available to pay your venders with instead of dipping into your cash reserve. In any business you want to spend as little of your own money as possible. The restaurant business is no exception. Keep the cash in the bank as often as you can.

Other areas where a restaurant can “bleed” are high overhead costs and prohibitive regulations in their community of origin. A good example of this is a restaurant that is located in a town that has a 1:00 AM closing time for establishments that serve liquor. If the town next door is allowing bars and clubs to close at 2:00 AM you will be losing customers. Patrons don’t want to get up and travel once they start drinking. They’ll go to the place that closes later. Restaurants can also be affected in the same way by Blue Laws and community curfews.

If you did your homework in advance and still opened your restaurant in a community with time restrictions, hopefully you took them into account. If those restrictions were put in place after you opened you might want to consider moving. Look into a business collateral loan for a move or expansion and go to that town next door that lets your patrons stay at the bar till the early hours of the morning. Try to find a less expensive lease and a larger parking lot while you’re at it.

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