5 Business Financing Tips from a Philly Burger & Cheesesteak King
Many entrepreneurs need business financing to grow their enterprises. But relatively few experience success in getting it. In fact, 31% of small business owners say they can’t access adequate financing. Why? I called up Josh Kim, Owner of SpOt Gourmet Burgers, to get his opinion.
Josh and I met when I worked at The Enterprise Center (TEC) in Philadelphia, a nonprofit organization that provides financing to local minority-owned businesses. After firing out burgers and steaks from a closet-sized food cart for several years, Josh had built a loyal following and was ready to expand to a brick and mortar restaurant. Well, except for one minor detail. Money!
Did you know the average cost to open a restaurant in the U.S. is nearly $500,000?! Even a food truck easily can cost at least $30,000. Meanwhile, the average American has less than $1,000 in savings.
Josh once earned a tantalizing six-figure income as the owner of an ATM company, but his happiness and quality of life suffered. So he quit to pursue his passion as a restaurant owner — investing all but $500 of cash savings into his business. Inevitably, fully realizing his dream meant he had to find financial assistance.
Business Financing Tips
While passion is essential, it’s only one piece of Josh’s success story. Growing up in a South Philly project as the son of sidewalk vendors, Josh has always had the entrepreneurship hustle in his blood. But he’s learned that lasting success takes more than just hustle.
Managing SpOt Burger has taught Josh the importance of financial savvy and discipline for building a business that can afford him and his family a good life. Hopefully his tips can help you do the same!
- Build Your Dream Team
Build a team of people who are strong where you are not. With an art degree and culinary background, Josh loves cooking. He doesn’t love numbers. So he found a trusted teammate who does.
Nevertheless, Josh is still the boss. So he’s educated himself to understand his business’s financial statements and make informed decisions alongside his team.
2. Invest in Accounting Software
Invest in solid accounting and point-of-sale software. When I asked Josh what his most popular burger is, without hesitation, he named the SpOt burger, along with sales figures. If you can’t confidently report basic financials about your bestselling product, investors probably will see red flags.
In addition to a historical paper trail, funders often require financial projections for your expected growth — up to 5 years in some cases. Having accurate financial records as a basis for projections will make this exercise substantially easier. And if you’re a startup business without a track record, review tip #1! Ensure your team is equipped to formulate sound financial projections.
3. Keep It Above Board
Here’s what not to do. Don’t skip your personal or business taxes or underreport income. Put all your employees on the books. And don’t co-mingle personal and business finances.
Difficult? Yes. But necessary for sustainable business growth? Also yes. SpOt Burger’s $15,000 in payroll taxes each month is cringe-worthy. But its 27% net profit margin and $650,000 in gross sales last year make it well worth it! Did we lose you here? If so, reread tip #1!
4. Do You Really Need Business Financing?
A bad weather day can kill a restaurant. Then out of desperation, the owner falls prey to an inordinately expensive merchant loan and is stuck in a debt trap. Alternatively, a business in control of its cash flow can make adjustments to free up capital and negate the need for external financing.
Rephrasing a quote from late management expert Peter Drucker, Josh says “if you can measure it, you can manage it.” When SpOt Burger found itself in a recent jam, Josh’s team forecasted various scenarios to determine how to cut staff hours without letting anyone go.
Successful financial analysis was also vital to their decision to partner with third party delivery companies, even though at surface level working with these services appeared to be a zero-sum game.
5. Find Alternative Funding Sources
Josh experienced limited success with funding from traditional banks, which consider restaurants a high-risk industry. Forced to find alternatives, he discovered TEC which offers the smaller loans that banks generally don’t want to do, along with other types of business financing specifically tailored toward food-based enterprises.
Many specialized funding sources like TEC exist. Consult your local government, other business owners, and the internet about other affordable and trustworthy funding sources that can serve your specific needs. Just beware of predatory lenders!
How Investors Can Help Underserved Entrepreneurs
Josh says minority entrepreneurs, particularly first generation immigrants, struggle with getting business financing due to lack of proper accounting paperwork. They’re often already behind the 8-ball when it comes to applying for financing, and they’re forced to bootstrap perpetually.
In addition, many don’t know how to make tweaks to expand their bottom line, which can make a world of difference for a small business operating without much room for error.
Josh thinks we would see more minority-owned businesses thriving if funders held more workshops covering topics like the Schedule K tax form, profit and loss statements, and COGS (cost of goods sold). He also would like to see more coordination among funders and streamlining of financing applications.
And lastly, he’d like to see you at SpOt Burger next time you find yourself in Philly! But in the meantime, follow SpOt Burger on social media!