Why Crowdfunding is a Bad Idea for Restaurant Financing

Whoever came up with the phrase “labor of love” either owned a restaurant, or would certainly feel right at home in the restaurant sector. Indeed, whether the challenge is to keep inventory and supply costs low, maintain proper staffing levels, keep demanding customers happy, or fend off and endless stream of competition, life as a restaurant owner is more of a calling than a vocation. You’re either totally immersed in it, or it’s wiser to check out now and find another career path.

Of course, you’re made of strong stuff, and as such you have every intention of ensuring that your restaurant survives, succeeds and thrives. And that means sooner or later (or perhaps right now), you’re going to need restaurant financing to cover a temporary cash flow shortfall, or cover a long-term expense that boosts your profitability and competitive advantage. And while there are some good options available to you (and I’ll highlight those in a moment), right off the bad you should cross crowdfunding off your list. Here’s why:

  1. You probably won’t get the funding you need.

Forget about the inspiring success stories you read about on the web, or hear about on TV. The overwhelming number of businesses (restaurants and others) that try to generate financing through crowdfunding fail to come even remotely close to their target. There’s simply too much competition, and trying to piece together a major cash infusion through $50 and $100 pledges at a time is usually an exercise in frustration – and futility.

  1. It’s not funding — it’s a trade.

Although it’s called “crowdfunding”, as PC World points out, it’s not actually funding because you aren’t borrowing the money. You’re making a trade, which means in the long-run your total cost of borrowing might become excessive and unsustainable.

  1. You don’t know who might be lending you money.

Having a good relationship with your lender (or lenders) is important, since issues and opportunities will come up down the road. But with crowdfunding, you can’t pick up the phone or send an email and have a meaningful conversation. The most you can do is post mass updates on your campaign page, website or through social media, which is hardly strategic.

  1. Your reputation is on the line.

With apologies to Shakespeare: hell hath no fury like a crowdfunder who believes that they’ve been scored (whether they actually have or not is beside the point, it’s all about perception). As such, if you decide to change direction – not because you’re avoiding commitments, but because you need to steer your restaurant in the right direction – then expect anyone and everyone who has even pledged $1 to become hostile, and shred your reputation online and offline. Remember: the vast majority of people who pledge money through crowdfunding aren’t experienced lenders or disciplined investors. They’re just everyday, ordinary people who might not even know how to plan their own personal finances, let alone know how to run a complex restaurant operation.

Moving Forward

If crowdfunding clearly isn’t the answer for your restaurant financing needs, then what is? Well, unless you have flawless personal and business credit, have been in business for at least two years, have ample collateral, and can afford to wait several months to get the cash, then your best move is to enter the alternative lending marketplace and explore a working capital loan, merchant cash advance, or business line of credit.

Any of these options can give you the quick funding infusion you need at a reasonable cost, so that you can continue your “labor of love” – while you boost competitive advantage, sales and profits.

Improving Your Credit Score Quickly

If your credit scored has suffered due to high debts, missed payments or bankruptcy, there are several ways you can improve your credit score. As your credit score consistently improves, you will be able to obtain financing and receive other new credit offers that can be used responsibly. Here are a few of the best ways to raise you credit score quickly.

Stop Using Credit Cards

Continuing to use your credit cards to make purchases will only increase your debt and lower your credit score even further. It is best to pay with cash or debit cards to avoid acquiring any more debt. One of the most effective ways to avoid the temptation to use credit cards is to take them out of your wallet and leave them in a secure drawer at home.

Increase Payment Amounts

If you still have a balance on a credit card, you can pay it off faster and raise your credit score by paying more than the minimum payment amounts each month. Doing this can also save you from having to pay as much interest and can actually prove to be the most cost-effective solution in the end.

Pay Off Small Purchases Quickly

Even though this may seem like a contradiction to the aforementioned advice, you can actually improve your credit score by using a card with a low balance to make small purchases. You can then turn around and pay off your entire balance quickly. This is often one of the easiest ways to raise your credit score, but you should make sure that you are always spending responsibly and able to pay off the balance without any delays.

Set Payment Reminders

Forgetting to make a payment on time can make it especially difficult for you to build your credit score. You can set reminders if you have a difficult time remembering when each payment is due. There are many apps you can use to set reminders, or you can simply write memos on a calendar that you look at regularly. You may even be able to request certain creditors to send you reminders by email each month before your payment due dates pass.

Request Your Credit Report

There are many reputable companies you can find online that will give you a free credit report. You should check to make sure all your personal information, inquiry history and creditor information is all correct. With this report, you will be able to see whether there were any instances of someone fraudulently using any of your lines of credit, which can have devastating effects on your credit score. If you notice any fraudulent activates, you should immediately notify the proper authorities to avoid further impact on your credit. There may also be certain errors on your report that can lower your credit score.

Keep Accounts Open

It will look more impressive on your credit report if you show that you have long-term credit. Even accounts that have no balances should be kept open. If you never plan to use a certain account again, keeping it open anyway can help you raise your credit score.

Examine Your Debt Ratio

Even though it may seem like you have a low balance on a particular credit card, this can still lower your credit score if the amount you owe is almost up to the amount of the spending limit. You should prioritize paying off these cards first if you want to see your credit score jump up quickly. If you cannot completely pay off these credit cards promptly, you should at least keep your balances at 50 percent lower than the spending limits.

Consider Refinancing

Applying for refinancing on a home or auto loan can actually improve your credit score. This option might help you avoid having to apply for multiple loans, which can negatively impact your credit score when potential creditors run inquiries on your credit report. Refinancing often comes with a lower interest rate and can make it even easier to pay off your debt and raise your credit score faster.

See a Credit Counselor

If you are having trouble making all your payments to your debtors, a credit counselor can help you work out a deal that may keep your credit score from dipping further. Your credit counselor may advise you to consolidate your payments, which will make it possible to pay several of your debtors with just a single monthly payment. Plus, you can feel even more motivated to raise your credit score if you work closely with an advocate who will hold you directly accountable for your actions.

Raising your credit score is one of the best ways to gain a greater sense of financial stability in your life. Taking the necessary steps and following through on your commitments can make your credit score jump up even quicker than you may think is possible.

If You Can’t Brush Your Teeth, You Likely Can’t Manage Money: Why Financial Literacy Is Important

Image_1This blog wouldn’t exist if I didn’t have stories to share about the lessons I have learned when it comes to years of managing my money. I say my money but I should include my husband and call it our money.

This past year has been monumentally huge for us. Last June we had our baby girl and since then I have been on maternity leave (Thank you Canada for allowing me to be off for a year). Having our daughter was a huge wake-up call for us and our finances. Sure we always paid our bills on time but if I’m being honest we lived our lives with our heads in the sand. I talked previous about how not owning up to my debt was a huge mistake. It took bringing our daughter into the world to grow up in terms of our finances.

I’m not going to pass blame on anyone for my debt since I was an adult when the debt was accumulated. I accept that there was an onus on me to educate myself about anything and everything related to my money. From budgeting to investing, I should have known more than I did. Hindsight is 20/20 they say. I can honestly say that had I received financial education in high school, things would be different.

Need For Financial Literacy 

The argument about who should teach financial education continues to be discussed. Parents or school? People continue to argue that the curriculum in high schools is already too full, not enough teachers, more training for teachers blah,blah,blah. Here’s the thing. We don’t know what goes on in a child’s life outside of the protected brick walls of a school. They may not have someone to teach them. We send our children to school to learn all skills needed for life so upon graduation we can send them into this big bad (and down right terrifying) world with all the basic skills they need.

In my opinion, teaching financial skills like how to make a budget, organizing finances, basic investment knowledge, how to file a tax return and managing with debt is an absolute necessity. These are invaluable skills that need to be taught if we want to ensure the utmost success for our children.

If we don’t teach these skills, and kids have no one at home to teach them these skills, and they’re overwhelmed with LIFE (because let’s be honest, being a kid in today’s world is anything but easy) who will teach our children?

If you’re reading this blog you don’t count. The very fact that you care enough about money to read a personal finance blog puts you well above the average individual. As a university educated person, who is usually surrounded by well-educated friends and family, it is easy to forget the general public knowledge base. I see it everyday at work. Any job that deals with the public will ground you and you gain a new respect for how little people know. Just to put things into perspective, on more than one occasion I have had parents gasp in honest surprise when I instructed their child to brush all surfaces of their teeth. ”What do you mean Mrs?! You don’t just brush the top bits?!” This is the general public.

If they can’t properly brush their teeth, they likely can’t properly manage money. Let alone teach money management skills to their kids.

Where We Are Today

It’s taken us many years and many mistakes but can finally say that we’re comfortable for the first time with our money. We know where it comes from and where it goes because we have a monthly budget. Just tonight we sat down and figured out our ”Catherine back to work” budget in a worst case scenario which really excites me. It means any penny I make over what we budgeted will go towards debt- what I’m calling bonus money.

We still have a ways to go (like actually get out of debt and establish retirement funds) but once we have a better idea about my income, and how much extra we will comfortably be able to put towards debt, we will sit down and finalize a ”debt free date”.

It takes NO time at all to get into debt, I just need to remind myself how far we’ve come and that it’s all about baby steps. I’m constantly learning from all you amazing PF bloggers. I would be nowhere near where I am without all of you.

A special thanks to Shannon to putting this carnival together for Financial Literacy Awareness Month.

I WILL Partake in Lifestyle Inflation

Michelle over at Sense of Cents recently had a great post about how she’ll never be a frugal blogger and I appreciate her honesty. I know she’s not alone and, as I commented on her post, I completely relate to what she’s saying. I’m here to say that I will be partaking in lifestyle inflation when our debt is paid off.

While I don’t mind living a super frugal lifestyle while we’re in debt repayment mode, I will not be floating through the rest of my life like this, never really enjoying the money hubby and I worked our butts off to enjoy.

I’m not saying we’re going to start spending beyond our means and not prioritize our financial responsibilities like our daughters educational savings or our retirement. What I am saying is that when we become (non-mortgage) debt free we will:

  • Have a dedicated vacation savings account and see the world however our vacation budget allows.
  • Buy a second car. To save money I currently take public transit (about 1hr each way) to work. I could drive it in at least half this time but would have to spend money on gas and parking. It doesn’t have to be fancy but something reliable. If my dream of working from home ever comes true, this may change again.
  • Give ourselves more personal spending money. Currently we have close to nothing in this category. I actually felt sort of crappy about spending $10.00 for my facewash last week. It’s ridiculous that I feel this way and want to know we each have a little spending money each month for whatever we want- clothes, facewash, coffee, whatever we want. Again, I deal with the deprivation now because it’s short term while we pay debt off.
  • Buy a bigger home. I did a whole post about this last week but we are already at our homes  full capacity. Yes there are things I could get rid to gain a little room like the storage space under our stairs which is jam-packed FULL of camping stuff? We enjoy that stuff. We need more room.
  • Increase our grocery budget. This is sort of a necessity since food prices keep going up and our family is growing but we need to up the budget by probably $25.00/week.
  • Spend more on hobbies. Maybe this will come out of our personal spending money, maybe not. Hubby and I both have hobbies that we enjoy but other than blogging (for both of us) we haven’t done much of it. Hubby’s loves to golf but it ain’t cheap!
  • Get a rec-center membership. I say rec-center rather than gym because it has a pool, skating rinks, tracks, fitness, dance, lifestyle classes, library you name it this place has it. I had a membership here through my mom’s family membership for over 15 years and loved it. Now that kiddo is here, I want to re-join in a few years so we can do family stuff like swim, put her in classes (swimming lessons, dance) and use the gym again. I loved it when I was there. Bonus for us here in Canada? We’re allowed to tax deduct a portion as a child-fitness tax credit- an incentive the government has to encourage families to keep kids active.

Budgeting is about financial responsibility, not necessarily living on bare bones. Some people choose to live this way though in order to fatten up their retirements, vacation funds, whatever. It’s not for me. I want to live my life to it’s fullest because, as we all know, we can’t take the money with us when we die.