Operations

6 steps to building a debt-free restaurant

Multi-unit Genghis Grill franchisee reveals six strategies for opening a second location with no debt.

Photo: Adobe

January 13, 2025 by Robby Berg — Sr. Director of Ops, Accounting, and HR, Fresh Restaurant Group

You and your partners have decided to enter the foodservice game, and as first-time restauranteurs have chosen the celebrated franchise model to streamline the process of getting open for business. You've had meetings with your top five brands and settled on the franchisor that feels right for your group's finances and goals.

Likely, your ultimate goal is to open several locations. As a multi-unit franchisee of Genghis Grill, I've discovered six steps to take now to ensure your second location can be debt-free.

See below

1. Don't sign a multi-unit deal

If you are taking on an SBA loan or borrowing from private equity, try to take on only enough debt to secure the future of one operating unit. Making smaller payments over a longer term can free up capital to fuel a second location and then a third and so on.

Slow growth gives you and your partners a chance to work together in the four walls, navigate the common pitfalls that come with being owner-operators and get to know one another's strengths. Maybe one of the investors has a knack for marketing, one has a head for accounting and purchasing, and another partner shows prowess in the kitchen.

2. Run the restaurant yourself

Don't invest in a general manager just yet. Aim for at least one to two years of cutting your teeth in ops, HR, marketing and bookkeeping before setting your sights on a second location.

3. Use your POS

Slow growth does not mean sluggishness in pursuing profits. Go heavy on the reporting from your POS. With a good accounting platform and regular PnL reviews, you will come to viscerally understand how every decision has a positive or negative impact on the bottom line.

4. Learn to control the guest experience

Work the kitchen and dining room. Train each new hire side by side. Negotiate with your vendors and avoid signing long-term contracts. Say no to salespeople offering luxury services. Do community outreach and sample your fare to boost brand awareness.

5. Build up profits

This is not the time to take profit distributions. If the owner/operators are taking a management salary, stop taking this salary when you train your first GM.
Open a savings account and transfer in the profits from each accounting period. This account will be your piggy bank for building the second unit. Make an agreement that all partners have to greenlight before transferring money out of the growth fund.

Once your first business can operate semi-autonomously, make payments on its debt, and contribute to your second restaurant fund, it is time to look at the brand and location for what is going to be your debt-free restaurant.

6. Review what you learned

Consider what you have learned in your first year(s) of operating. If you opened a family dining restaurant, a quick-serve or a bar and grill, are you in the right restaurant sector to achieve your business aims? If the first concept you opened is not generating the revenue you and your partners sought, the fact that you didn't sign a multi-unit development deal frees you up to look at a different brand. Check with your franchisor to see if they have acquired any new concepts worth looking at, or you could enlist the services of a broker to see what's for sale.

Opening a second restaurant without taking on debt really allows the team to rest easy at night (of course, after a hard day's work!). But if your first restaurant's reserves don't quite stretch all the way to cover the next unit's opening costs, don't lose too much sleep. Pat yourselves on the back that your prudent decisions took you most of the way there! Maybe you get financing on kitchen equipment, for example, or on dining room furniture and decor. Low debt can be something to brag about, too! Secure the terms that are right for you, and try to get an agreement without a penalty for early payoff.

After all, you and your investment team have the hands-on experience at this point to maximize profits in just about any operating environment. Slow growth allows you to scale up and bolster your family of restaurants to withstand the fickle winds of economic conditions and changing consumer preferences.
The best thing about slow growth? It's only slow at the beginning. Using these principles, your team can use its largely self-funded portfolio as a catalyst for rapid expansion — expansion not fueled by creditworthiness and risk alone but by operational acumen and sound business decisions.