2. Having insufficient working capital

Once the doors open to the public, your restaurant needs a sufficient amount of working capital to carry out day-to-day operations like purchasing inventory and meeting payroll. Many restaurants fail within the first year of business because cash flow is at a deficit from the start and never rebounds, says Rosenberg. Unfortunately, banks and lenders are not often sympathetic.

“In Canada, there are multiple avenues for financing an additional location,” says iCapital’s small business financial expert, Diane Capobianco. “For industries considered high risk, traditional bank loans may be difficult or time consuming to secure. Low-risk finance products like cash advances that fluctuate with sales and seasons may be preferable despite their higher cost.”

3. Trying to manage multiple locations alone

The downfall of many restaurant owners is stretching themselves too thin. To avoid this, you need to find reliable management staff who can provide quality customer service and effectively manage the hurdles of operating a business. Each location needs strong management, because running a restaurant requires a full-time effort.

As you are considering opening an additional location, ask yourself if your customers demand to do business directly with you – or if another manager in your place will satisfy them. If bringing in another person won’t work, then neither will the new location.

4. Mixing the books

Although some businesses maintain one set of books and track their various locations in sub-ledgers, it involves sophisticated record keeping and is traditionally a rare practice in the restaurant industry.

Rosenberg recommends restaurant owners keep a separate set of books for each location. “Accounting for your businesses separately is a smart move that has a lot of upside. It’s easier to manage records like sales, expenses, payroll and taxes when they aren’t combined in one ledger. Owners need to have complete oversight and control over how each business is doing to avoid falling behind.”

There’s a lot to consider before expanding, and plenty or risks involved. The right combination of timing, location, funding and people plays a key role in whether a new restaurant does well. But when you do get the formula right, there’s no better way to grow your business.

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About the author

Liz Teodorini is Marketing Director at iCapital a hassle-free and flexible financing solution for Canadian small businesses. The company, which is committed to being Canada’s most caring and responsive loan-alternative provider, frequently publishes articles relating to small business finance.