Opening a Restaurant - The Mystique of Working Capital
This is often the great black hole of restaurant development. Of course, everyone knows that you need money set aside to operate your restaurant until the cash flow is sufficient to carry it. But in reality, it is too often a bogus figure that is never funded. Under-capitalization….not enough money….is an all-too-frequent reason for restaurant failure. Good concepts, well executed, and with excellent potential for success can fail if the financial obligations associated with them cannot be met in the early months of operation. The amount dedicated to working capital is often underestimated. Ideally, you want to have six months to a year of fixed expenses covered. Realistically, many operators budget one to three months. Because they have underestimated other pre-opening expenses, this fund is depleted in the early weeks or months.
Budget for success…..not failure…..