Are You Low on Capital, But Want to Open a Restaurant? How Can You Get Your Loan Approved?

Jan 18, 2022
You’ve got recipes from professional chefs, but you don’t have money to open a restaurant. What should you do? What do you have to do to take out a loan for your investment? Today, MHA invites you to learn about investment.  If you want to invest in opening a restaurant, you’ll need some know-how about investing in restaurant businesses. You even need to know how many years it’ll take to break even, so you can talk to the bank.
 
First, Learn about Capital
Capital usually comes from two major sources (what we call 2 ‘jao’ in Thai):  1. Owner (jao khong), and 2. Creditor (jao ni).
1. In this case, owner means the business owner, or partner who shelled out the money for the restaurant. This person could be an ordinary person or a juristic person. Generally, the owner uses personal savings or backup money for the investment. However, it’s very difficult to take out a large sum of money for an investment these days because of unpredictable situations. Having backup money in case of emergency is necessary. Otherwise, you may be able to take out a part of that money for investment and find the rest of the funds from another source. That source is what we call the ‘creditor’.

2. In this case, creditor means the source from which you take out a loan for your investment. Generally, this means a bank or financial institution that lets people take out business loans, or ‘business credit’, and charges you annual interest fees. Whether a bank offers loans or not depends on several factors such as the loan applicant’s assets, financial history and the business plan submitted by the loan applicant when applying for the loan. Not everyone is approved, because the bank itself has to consider the business’s feasibility in order to reduce risks of loss in case the business doesn’t survive after the loan is taken out.
So, if you want to take out a loan to invest in a restaurant, what you have to consider is conducting a thorough business feasibility study first. Start by studying all aspects of the restaurant business by asking simple questions like the following:
 
-           What am I selling? You may have your preferences or recognized options when eating at restaurants and want to sell those products, too. However, you first have to conduct a survey to see whether the products are suitable for your location. Would you have a customer base?
-           Who am I selling to? Find out who your true customers are. Many people make the mistake of opening a restaurant because their friends or acquaintances like their food. In the end, their only customers are the people they know. Since the customer base can’t expand, they have to close up shop.
-           How much am I selling for? How can you price your products to make them suitable for your target group? How much are your customers willing to pay for your food?
-           Where am I selling? What channels are your customers going to buy through? If you’re going to sell from a storefront, location is the key. Or if you’re emphasizing delivery sales, you have to check how many delivery customers there are within a 5-km radius. Do you have to invest in renting a cloud kitchen?
-           When am I selling? When will your restaurant be open for business? When is the peak of the day and on which days will you have poor sales?

All of these things are like testing your business on paper first. By creating hypotheses and finding data to back them up, then adding details to make it as clear as possible, you’ll get the ‘business plan’ for your restaurant. This can tell you what your monthly operational expenses will be, what your competitive advantages and disadvantages are, whether your production capacity would be sufficient if you implement the plan and whether the calculated profit is worth investing in the business. *This is important because the bank will take into consideration the data on profits included in the business plan.
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Back to the capital…if you want to open a restaurant and get your loan approved, you need to also study three more issues:
1.     You first need to know what you’re going to invest the capital in. In restaurant ventures, construction costs aren’t the only investments. There are a lot more hidden costs such as renovation costs, decoration costs, kitchen supply costs, hiring costs, restaurant promotion costs as well as a backup fund in case of emergency.
-           There are differences in prices, depending on location as well as a large deposit.
-           Structural and interior design fees, divided into low and high design costs. That way, the restaurant owner has a middle range to choose from.
-           Construction costs and renovation costs (if you’re leasing and intend to renovate). 
-           Kitchen equipment, gas stoves, ovens, refrigerators, freezers, etc., depending on the type of restaurant.
-           Equipment for service provision: For example, if customers want to sit in the restaurant, how big should your restaurant be? What’s your capacity for receiving customers? How many chairs and tables do you need for your restaurant size so it doesn’t look too sparse or too crowded?
-           Public relations costs. Signs and sign size. Also, don’t forget signboard tax because the bigger the sign, the higher the tax.
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-           Funds for paying ingredient costs for the restaurant opening.
-           Fees for permits such as for alcoholic beverages, etc.
-           Pre-opening employee costs such as employee training and recruitment costs.
-           Public utility costs such as water fees, electricity fees, internet fees, telephone fees, CCTV fees, etc.
-           Supply costs such as for paper, pens, food boxes of different sizes, plastic spoons and forks, straws, plastic bags, tissue paper, etc.

2. You need to know how much capital you’ll need. Try calculating the total capital you’ll need to open the restaurant, whether it’s for the deposit, restaurant construction, miscellaneous costs or working capital. So, you’ll need to prepare about 60-70% of the capital for the costs involved in opening the restaurant.
Keep enough backup working capital for 4-6 months in case something unexpected happens. If there aren’t as many customers as you anticipated, you’ll have this money to support the business. You’ll have the money to pay the bills for the ingredients, water and electricity and employee salaries because, don’t forget, it takes some time for customers to get to know a newly opened restaurant. This fund makes up about 20-30% of the total capital.
Marketing Budget - Beginners tend to forget this budget. They spend the majority of the funds in decorations and forget that they also need a budget for making their restaurant known with things like ad launching, publicity and influencer fees. Even advertisement signs, flyers and marketing media require funding. This budget should make up about 10-20% of the total capital.
 
3. You need to know when you’ll break even if, for example, you invest all of your capital, which is three million baht, including your working capital. You’ve done the survey and find that the local customers are willing to pay 200 baht for your food and you have about 3,000 people in your target group per month or 100 people per day. That means a monthly income of 600,000 baht. Use that number as a rough estimate. From this amount, deduct about 35%, or 210,000 baht, for the sales capital. (You should control your expenses, so they don’t exceed this standard amount.) Deduct another approximately 300,000 baht for renting, hiring and miscellaneous fees. In total, what you have left is a net profit of 90,000 baht per month or 1,080,000 baht per year.
Next, try using the following formula to calculate the ROI (return on investment):

ROI = (Net Profit/Capital) x 100
From the example, you’ll find that ROI = (1,080,000/3,000,000) x100 = 36% per year, which is considered okay.
Then calculate the payback period by using the following formula:
Payback Period = Capital ÷ Net Profit
                   From the example, you’ll find that the payback period = 3,000,000/1,080,000 = 2.77 months[I1]  or about 2 years and 10 months.
From the calculations above, you can look back and see whether you’re satisfied with this payback period or if some other ventures would give you better returns faster. You have to weigh the options.
And if you know how to calculate your budgets, you’ll see your restaurant’s value in the next 4-5 years. See whether your restaurant’s value will increase from the capital. This information will be useful for yourself, investors and the bank when they decide whether to invest or approve the loan for your restaurant business.

We recommend learning more about this in the “Restaurant Business Feasibility Study” course by Sethaphong “Seth” Phadungpisuth, Managing Director of Gnosis Co., Ltd., which provides consultation services to restaurant businesses and franchises. The course will give you a simple beginner’s lesson on how to conduct a feasibility study for your restaurant business as well as analyze your ability to compete, marketing feasibility customer needs, service capabilities and financial feasibility. Most importantly, the course is free!!! Click => Restaurant Business Feasibility Study
Last but, not least, if you still don’t have a clue what you want to sell, we recommend checking out Makro HoReCa Academy’s many recipes for dishes you can sell because we provide everything from recipes from professional chefs guaranteed to please customers, ingredient cost calculations and recommended selling price per unit. Let’s just say, after watching the clips, you’ll be ready to open your restaurant right away.
Example courses:
“Million-Baht Sticky Rice with Fried Pork and Fried Chicken Recipe with Fermented Fish Sauce” by Chef Yanat ‘Oh’ Maartlert, an instructor at the MSC Thai Culinary School, member of the Thailand Chefs Association Sub-Committee and an expert in Thai Cuisine with over 10 years of experience.
 “Korean Fried Chicken”, Celeb Chef Thailand’s Chef Supara ‘Titum’ Kittiudom’s recipe for a dish popularized by the series trend.
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