Before you even start thinking about expanding your business, make sure you’ve got a business plan and systems in place. By Nicole Azzopardi
When Kristian Livolsi opened up his first restaurant four and a half years ago, he had just $512 in the bank. These days, he heads up Australian renowned restaurants Citrus, The Observatory and XO Supper Club. Combined, they make up Livkorp, Livolsi’s food emporium which turns over no less than $8 million a year. If that’s not enough, the 28-year-old South Australian entrepreneur aims to have three more restaurants by the time he’s 30.
The secret to his success? Realise that food just isn’t enough.
“I’ve discovered when expanding from my first business to my third that above all, you need to have a plan,” says Livolsi.
In an industry with a reputation for poor profit margins and backbreaking work, the former chef says few restaurateurs with ambitions to expand understand the importance of having systems in place and a thoroughly documented business plan before they start the slog. “That means having job descriptions ready to go, operations manuals, a mission statement, a trademark, a methodology and some goals.
“People often fail when trying to open a second or third business because they don’t have systems in place in the first one.”
Establishing a good relationship with his accountant and bank manager is also key when it comes to Livolsi’s personal operations manual. “It’s critical when you go to the second business,” he says. “Run a very low cash flow projection to your bank manager. Don’t big note that you can make a million in the first year.”
Westpac business advisor, Chris Jones, couldn’t agree more. “Start planning 12 months out, look for venues, locations and tell your banker how your plans are progressing,” he says. “Don’t request an overdraft and expect it yesterday. Talk to them and they may even know before you do that you’re going to need some extra working capital.”
But above all, Jones would expect anyone wanting to expand to show him a business plan. “It doesn’t have to be 50 pages long,” he says. “The plan outlines some of the risk elements surrounding key personnel. Does the client have insurances in place? What if the head chef is also the owner and he gets sick? What safety nets are in place if these kinds of problems arise?”
Realistic forecasts of cash flow projections are also fundamental, as would determining how much of the restaurateur’s own money is being laid on the line. “If you’re going to open a second restaurant we’d be looking for someone to put in at least half, assuming their business has little or no debt,” says Jones. “Favourable lease terms are considered a plus, as is a good track record, credit history and record in the industry.”
Keeping track of your own financial position and not solely relying on your accountant to crunch numbers is also key, he says. “Oversee your own books. Check in with your accountant every quarter and work with them,” advises Jones. “Know the ins and outs of your financials and get some training in financial management.”
Many institutions hold small business courses, he says, such as The Westpac Beyond Survival Workshop—a seven-hour course that costs $395 per day. Chartered accountant Michael Corigliano stresses the importance of making sure the business has the necessary equity or borrowing ability for contingency funding.
This finance helps to cope with cost overruns and working capital requirements if the start-up revenue of the expansion is less than expected. “The restaurant industry is littered with the train wrecks of operators of one successful business expanding and the expanded operation failing, bringing down the entire business operation,” says Corigliano. “Usually the operator is emotionally involved in the expansion opportunity and might be looking through rose coloured glasses.”
Corigliano urges operators to consider the best, likely, and worst-case scenario when expanding. Can the existing and new business survive in the worst-case scenario? And most importantly, do the maths, stick to the plan and cross your fingers. “The expansion of a successful hospitality operation needs critical assessment of the existing business, careful planning of the new venture, robust financial analysis and a reasonable amount of luck.”