What Restaurant Operators Need to Know About Restaurant Investors

Whichever type of investor operators work with, finding people in their network who can provide a significant amount of funding can often be the biggest hurdle to securing financing.

Read on to learn more about funding restaurants through investors. As an alternative to investor partnerships, we'll also explore how inKind Capital's financing model compares to the conventional investor model and why we believe it is a better alternative.

In short, restaurant investors are people who finance a restaurant in exchange for an investment stake. The typical process works like this: operators raise money to open their restaurant and promise a high percentage of their profits to the investors until they are paid back.

Then there is a "flip" and operators start to make profits for themselves. The problem is that the "flip" often doesn't happen for independent restaurants, so after years of hard work, investors are still not paid back and the operator is not financially benefiting from their efforts.

Investment agreements typically require that investors receive all (or the majority) of the profits from the restaurant until they have received an amount equal to the amount they invested, after that, they will continue to receive a share of the profits for the life of the restaurant based on how much ownership they bought.

When a restaurant is looking to acquire outside funding, potential equity investors would like to see the restaurant's financial statements along with a business plan that specifically details any expansion or growth strategies. How operators present this information and how quickly they answer any follow-up questions investors have, can go a long way to establishing themselves as someone who has a clear plan and someone they will want to invest in.

Investment agreements vary and are the result of a negotiation between operator and investor. Typically, investor agreements require that investors receive all (or the majority) of the profits from the restaurant until they have received an amount equal to the amount they invested, after that, they will continue to receive a share of the profits for the life of the restaurant based on how much ownership they bought.

The potential loss on an outside investment is "limited" to the money invested in the restaurant. Put another way, the equity investor can lose all of their investment, but no more than that. Therefore, an investor has unlimited upside and limited downside.

inKind Capital financing is a model of funding restaurant operators that drives new, loyal, high-spending guests through restaurant operators' doors. Built by operators, for operators, we provide access to the lowest cost of debt-free and equity-free capital.

By purchasing food and beverage credit to their restaurant, we're able to provide operators with a lump sum of nonrestrictive cash without incurring debt or sacrificing ownership. Because we hold credit to their restaurant, our incentives are aligned. When their restaurant succeeds, inKind succeeds too.

Unlike restaurant investors, our financing model focuses on helping restaurant operators achieve sustainable profitability as they grow. While conventional investors often seek continual gains in profit as restaurants grow, inKind capital financing works with operators to find mutually beneficial solutions.

In a typical investment structure, investors are the first in line to get paid any profits. This can mean that even profitable restaurants can wait years to see any of these gains themselves. financing through inKind does not require operators to give up equity or ownership stakes in their restaurant. We work with operators to drive new, loyal, high-spending customers through their doors, resulting in long-term and sustainable profit growth.

Given the high cost of opening a restaurant, most operators will need investors. It is tough finding investors and when they are working 100+ hours at the restaurant, it can be hard knowing they have to hand over their profits to someone else. However, investors can be great brand evangelists for operators and do not require guarantees or collateral. With investors, restaurant operators share the risk that the restaurant does not work out with them.

Through inKind Capital financing, restaurant operators receive a lump sum of funding focused on driving loyal high-spending guests through their doors. Our financing solution allows operators to maintain ownership over their restaurants, incur no debt on their initial funding, and achieve sustainable profitability.