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When running a medical practice, cash flow is often a top concern. Waiting for insurance companies to pay can cause significant delays in receiving payments for services provided. This is where medical factoring comes in as a potential solution.

But what exactly is medical factoring? Let's dive into the details.

What is medical factoring?

Simply put, medical factoring is a financial transaction where a medical practice sells its invoices or accounts receivable to a third party at a discounted rate. This third party, known as a factor, then advances the medical practice with immediate cash for these outstanding invoices. In return, the factor collects payment from the insurance companies on behalf of the medical practice.

In other words, medical factoring allows medical practices to receive payment for services rendered immediately, instead of waiting for insurance companies to pay. This can help improve cash flow and allow medical practices to meet their financial obligations in a timely manner.

How does medical factoring work?

Medical factoring involves three parties: the medical practice (also known as the client), the factor, and the insurance companies. The process usually goes as follows:

1. The medical practice provides services to patients and submits claims to insurance companies.
2. The medical practice sells its outstanding invoices or accounts receivable to a factor at a discounted rate.
3. The factor advances the medical practice with immediate cash, typically around 70% to 80% of the total value of the invoices.
4. The factor collects payment from the insurance companies on behalf of the medical practice.
5. Once the insurance companies pay, the factor deducts their fees and returns the remaining amount to the medical practice.
6. The process repeats, as necessary, for ongoing cash flow needs.

Who qualifies for medical factoring?

Medical factoring is not available to all types of medical practices. Factors typically work with healthcare providers, such as hospitals, nursing homes, home health agencies, and physician practices.

In addition to the type of practice, factors also consider the following criteria when determining eligibility:

• The total amount of outstanding invoices
• Average claim size
• Payment terms with insurance companies
• Length of time in business (usually at least one year)
• Creditworthiness of the medical practice

Factors will also assess the collectibility of the invoices and may require a certain percentage to be insured against non-payment. This is known as medical receivables financing.

Benefits of medical factoring.

Medical factoring offers several benefits for medical practices, including:

1. Improved cash flow - By receiving immediate payment for services rendered, medical practices can improve cash flow and meet their financial obligations in a timely manner.
2. No debt - Medical factoring is not considered a loan, so there is no debt incurred by the medical practice. This can be beneficial for practices with existing loans or those looking to avoid taking on additional debt.
3. Flexibility - Medical factoring allows medical practices to choose which invoices to sell, giving them more control over their cash flow.
4. Faster payments - Factors have the resources and expertise to collect payments from insurance companies in a timely manner, which can help medical practices avoid lengthy delays in receiving payments.
5. Reduced administrative burden - By outsourcing the collection of payments, medical practices can save time and resources that would otherwise be spent on managing accounts receivable.

Medical factoring can be a valuable tool for medical practices struggling with cash flow issues. However, it is important to carefully consider the fees and terms associated with different factors before choosing one to work with.

Factoring Medicare and Medicaid claims.

Working with Medicare and Medicaid can often be a complicated dance for medical practices. These government insurance programs are known for their lengthy payment cycles, which can significantly impact a practice's cash flow. But, did you know medical factoring can offer a solution for this too? Absolutely!

With medical factoring, practices can sell their Medicare and Medicaid receivables to a factor, just as they would with private insurance claims. This means you don't have to wait for these programs to remit payment. Instead, you'll get an advance from the factor, typically around 70% to 80% of the claim value, providing immediate cash flow relief.

However, it's essential to be aware that factoring Medicare and Medicaid claims requires a sound understanding of these programs' unique rules and requirements. Factors with experience in these claims have the know-how to navigate the complex landscape and can help your practice receive payments quicker, relieving the financial pressure that comes from slow-paying insurance claims.

While medical factoring can provide an effective solution to the cash flow challenges posed by Medicare and Medicaid's slow payment cycles, it's still important to consider the associated fees and terms to ensure they align with your practice's needs and financial capabilities.

Conclusion

Medical factoring is a financial tool that can provide immediate cash flow relief for medical practices. By selling outstanding invoices at a discounted rate, factors can provide medical practices with immediate funds to meet their financial obligations. However, it's crucial to carefully consider the fees and terms associated with different factors before making a decision.

Thinking about solutions to manage your medical practice's finances? Check out medical practice loan options and find the one that suits your needs best.

From finance and insurance to mining to real estate, veterans are making an impact in every industry you can imagine. Veterans now own more than 2.5 million businesses in the U.S., and that number doesn’t appear to be slowing down.

“You go through so much in the military, but really what the military is teaching you is how to be resilient,” said Dawn Halfaker, founder and CEO of Halfaker and Associates. “You plan a mission, and then you execute, but nothing ever goes according to plan. Your job is to continue to lead in not-ideal circumstances.”

That sounds like entrepreneurship in a nutshell. 

If you’re a veteran looking to build a business from the ground up, then hold your head high—the odds are in your favor. And fortunately for you, there are concrete fiscal benefits to running a veteran-owned small business, and we want to help you take advantage of all of them. This guide will walk you through everything you need to know to make your business-owning dream a profitable reality. First, let’s make a plan.

Steps to starting a veteran-owned business.

1. Come up with your business idea
2. Create a small business plan
3. Register your business
4. Find financing

1. Come up with your business idea.

The first step towards starting a veteran-owned business is to come up with a compelling business idea. A good starting point is to reflect on your personal interests and passion. What are you deeply passionate about? Where do your strengths lie? A business built around your passion and skills is likely to keep you motivated during tough times.

Additionally, consider the skills and experience you acquired during your time in the military. Your unique training and perspective can provide a solid foundation for a security consultancy firm or a logistics company, for example.

Also, consider the needs of your local community. Is there a service or product the community lacks? Providing a solution to a local problem can give rise to a successful business.

Finally, don't shy away from seeking advice from other veteran entrepreneurs and business professionals. Their experience and insights can prove invaluable in helping you refine your business idea.

2. Create a small business plan.

Before you start building your business, you need a plan. Your plan will be the roadmap to your success. Where are you currently? Where do you want to be one year, five years, and 10 years from now? What do you need to do to get there? Your business plan will help you answer these critical questions, and these answers will guide your business like Siri guides your car—except better.

Don’t have a business plan yet? No problem. Take an hour or a day (or a week) to walk through our “Step-by-Step Guide to Writing a Business Plan.” This guide will help you decide which industry you should target and what kind of business you should build. Where is their demand? What startup would be best served by your skillset?

Benjamin Franklin said, “If you fail to plan, you are planning to fail!” You’d probably nod your head at that. Then, you might tack on a well-known quote from the film Valkyrie: “Remember, this is a military operation. Nothing ever goes according to plan.” Then, we would take our turn to nod ours.

Entrepreneurship is full of surprises and unknown variables. You can’t plan for everything, and even when you do, everything could still go wrong. That’s where your resilient attribute really comes in handy. When faced with challenges, others would likely throw in the towel, but you’ve been trained to grit your teeth and fight through the hard times.

If you’re struggling to come up with a viable business plan, don’t stress too much. There are plenty of veteran-specific resources we’ll discuss later that will help you fill in all the critical details. Free education, training, mentorship, online courses—there are tools available for whatever you need to find the best path forward.

Now, with your plan in hand, it’s time to start building your business. Where do we begin? You’ll need to register your business, so let’s start there.

3. Register your business.

The process of registering your business involves several steps, each crucial to ensuring that your business operates legally and efficiently. Here's a simplified guide to get you on the right track:

Step 1: Decide on a business structure

Before registering your business, decide on the type of business structure that best suits your needs. The structure you choose will impact your tax obligations and legal liabilities. The most common types include sole proprietorship, partnership, limited liability company (LLC), and corporation.

Step 2: Choose a business name

Once your business structure is defined, the next step is selecting a name. Make sure to conduct a thorough search to ensure the name you've chosen isn't already in use or trademarked.

Step 3: Register your business name

After settling on a unique business name, you must register it. The process varies depending on your state and the structure of your business. For example, if you're operating as an LLC or corporation, the business name will typically be registered when you file your articles of incorporation or organization.

Step 4: Get a federal tax ID

Also known as an employer identification number (EIN), a Federal Tax ID is necessary for tax purposes and is also often required to open a business bank account. You can apply for an EIN through the IRS website.

Step 5: Apply for state and local tax IDs

Depending on your state and the nature of your business, you may need to apply for state and local tax IDs. Check the requirements in your specific area.

Step 6: Obtain necessary permits and licenses

Depending on your type of business and your location, you may need specific permits or licenses to operate. Check with your local and state government to see what's required.

Step 7: Register with the VA

As a veteran-owned business, register with the Department of Veterans Affairs (VA) to potentially qualify for government contracts.

Remember, each state has different rules and regulations for business registration. It's recommended that you seek legal advice when registering your business to ensure all legal requirements are met.

4. Find financing.

You can find a variety of financing options for your veteran-owned business. You could secure veteran-specific programs and grants or debt financing.

Veteran financing programs

In addition to generic business loans, you can find several financing options that are veteran-specific. 

1. Veterans Business Fund (VBF)

The VBF is a nonprofit organization formed to help a growing number of unemployed veterans get access to supplemental capital to qualify for small business loans. So if you’re struggling to qualify for a loan because you don’t have the necessary base capital, apply for help from the VBF.

2. Military Reservist Economic Injury Disaster Loan program (MREIDL)

This interesting financing option is run by the U.S. Small Business Administration (SBA). MREIDL provides funds to small businesses that have been impacted by a leader or critical employee being called up to active duty with the reserves. Veterans can apply for this loan within one year of returning from active duty, but some of the terms last up to 30 years.

3. Hivers and Strivers

If you’re a veteran who graduated from a U.S. military academy, you may qualify for financing from Hivers and Strivers. Hivers and Strivers is an angel investment group that focuses on early-stage startups. Most of the group’s founders and leaders have served in the military, so they’re all about supporting young veteran entrepreneurs.

4.SBA Express Loan Program 

Veterans can have the upfront guarantee fee waived if they qualify for an SBA Express loan. Maximum funding through the SBA Express Loan Program is capped at $350,000, but that’s really the only downside to this financing option.

5. Lendio

Lendio’s marketplace can help you find the right veteran business loan, even if you’ve already been turned down by a bank. With a 15-minute application, we’ll connect you with a loan from our network of more than 75 lenders.

This list is by no means definitive, but it’s a great place to start looking for veteran-specific financing options.

Veteran Grants

Grants are considered by many to be the holy grail of business financing. Unlike loans, which a borrower must pay back with interest, grants are awarded for a specific purpose, with no repayment requirements. However, VA grants tend to be more difficult to secure than loans. Each grant has its own specific requirements, so do your research before applying to get the best shot of being approved.

Here are a few of the VA grant options available:

Honor Courage Commitment’s Veteran Entrepreneur Training Program

The Veteran Entrepreneur Training (VET) program grant gives you a chance to attend training sessions at the HCC Veteran Business Center in Dallas, Texas. It also offers the opportunity to receive grants for specific phases of your business, including building your idea and getting legal help, as well as the building phase, where you’ll receive aid for advertising. They also provide training about other forms of business financing.

Second Service Foundation's Military Entrepreneur Challenge

If you are an ambitious veteran looking to make your mark in the business world, the Second Service Foundation's Military Entrepreneur Challenge could be an excellent opportunity for you. The Military Entrepreneur Challenge is a grant competition wherein veterans submit their business plans for scrutiny by a panel of experts. Winners of this competition are awarded grants that they can use to kick-start or expand their businesses. This challenge is not just about the grant money; it's also an avenue to receive valuable feedback about your business plan and a chance to connect with a network of successful entrepreneurs and investors

GrantWatch

Title aside, this isn’t an actual grant. However, it does showcase resources and grants available to veterans, including business grants. It’s worth keeping an eye on this site because the offerings change frequently and have different deadlines.

Veteran-owned small business resources.

Money is only one part (although a large one) of building a business. You also need the know-how to use that money wisely. Veterans can gain this know-how and get a leg up on the competition with access to several veteran-specific small business resources. There are a lot of resources available, but here are a few of our favorites:

Patriot Boot Camp

Patriot Boot Camp (PBC) is an accelerator program (presented by Techstars) that helps veterans and their spouses create tech companies. PBC’s flagship program is a free three-day event that includes education training and one-on-one mentorship. If you’re thinking of starting a tech startup, trust PBC to give you the tools and talents you need to kick things off with a bang.

Veteran Business Outreach Centers

The SBA provides veteran-specific business training all over the U.S. right in the heart of their communities. Check the SBA’s local assistance page to find a center near you. These Veterans Business Outreach Centers offer training, counseling, and mentorship to help you start and grow your business. Plus, the professionals helping you are from your community—so they’ll be best positioned to answer your questions and guide you in the right direction.

Boots to Business

Boots to Business (B2B) is another SBA-offered program that provides business and entrepreneurship training to veterans. Registrants start with a two-day, in-person program to learn the fundamentals. Afterward, participants can advance their studies with a free, eight-week online course that walks students through creating their business plan and other critical elements of a startup. 

Veteran Entrepreneur Portal

The VA’s Veteran Entrepreneur Portal (VEP) is a go-to resource for all things startup. Whether you’re looking for best practices, financing, government contracting opportunities, or training, the VEP has it all and much more. All veteran business owners should spend some time scrolling through the incredible amount of free information and resources on this platform.

Warrior Rising - VetToCEO Business Accelerator

Warrior Rising is a non-profit organization committed to empowering U.S. military veterans and their immediate family members by providing them with the resources to start and grow their own businesses.

The organization's flagship offering is the VetToCEO Business Accelerator program. It’s designed to help veterans transition from service to entrepreneurship. The program is a seven-week online course that takes participants through a step-by-step process of launching their own businesses. Each week, participants are required to complete assigned tasks related to their business. These assignments are reviewed and critiqued by established veteran entrepreneurs, providing valuable feedback and guidance.

In addition to the accelerator program, Warrior Rising also provides ongoing mentorship, networking opportunities, and access to capital to help veteran businesses grow and prosper. The organization not only fosters entrepreneurial skills, but also helps veterans create sustainable businesses that contribute to the economy and create jobs.

Thank you for your service.

Free resources, simple financing, and federal contracts won’t come close to repaying you for the service you’ve rendered to our country, but hopefully, they can play an important role in getting your veteran-owned business off the ground. 

Let’s be honest. You don’t need any of these additional advantages, but they sure can help. You now have a business plan, financing to get it off the ground, veteran certification, and every resource you could imagine. Plus, you have the training, experience, discipline, and leadership to create a successful business. Now you just need to take action to make your business-owning dream a reality.

There’s a reason close to half of all American World War II veterans went on to become business owners. You notice problems and work hard to find solutions. You have the tenacity to fight for what you believe in, even if it’s not easy.

We thank you for your military service to our country, and we hope you can continue to make America a great place in a different capacity. As a small business owner, you can still play a significant role in your community, the government, our country, and the world. Now go get after it, entrepreneur.

According to Small Business Administration (SBA) data, the median cost to start a restaurant in 2018 was $75,000. A survey from restaurantowner.com found that pre-opening expenses range from $10,000 to $50,000, with total costs ranging from $175,500 to $750,000.

But what exactly do these startup costs include? And how can you accurately estimate and manage them for your own restaurant?

Up-front startup costs for your restaurant. 

Your up-front startup costs are the costs you’ll incur before you even open the doors on the big opening night. Before customers start flooding in, you need a physical space, tables, menus, ovens, employees, and much more. Let’s start with what are typically the most expensive assets of all—the location and property.

Typical startup costs for a restaurant

Here is a list of some common startup costs you'll likely encounter as you prepare to open your restaurant:

1. Lease or purchase of property - The cost of leasing or buying a property can vary widely depending on location. Prime real estate in popular areas will be more expensive. According to restaurantowner.com, the median monthly cost for leasing a restaurant space is $5,000.
2. Renovation and interior design - Making the space fit your restaurant's theme and ensuring it meets health and safety codes can be a significant expense.
3. Kitchen equipment and furnishings - This includes everything from ovens and stoves to commercial refrigerators and dishwashers. Tables, chairs, bar stools, and other furniture will be needed to make your guests feel comfortable.
4. Licenses and permits - Various permits and licenses are required to operate a restaurant, such as a food service license, liquor license, and health department permit.
5. Initial inventory - This includes food, beverages, and other consumables you need to start serving.
6. Staff wages and training - Before opening, you'll need to hire and train staff. This cost includes their wages and any training materials.
7. Marketing and advertising costs - To attract customers to your new restaurant, you'll need to invest in marketing and advertising.
8. Technology - A point of sale (POS) system, payment terminal, cash drawer, employee scheduling software, kitchen display system, and reservation tool are all basic technology to acquire.

Remember, these costs can vary significantly based on your location, the size of your restaurant, and the concept you've chosen. Be sure to do your homework to accurately estimate these costs.

1. Location and property

Location is a crucial consideration in the restaurant business. Choosing a back-alley spot with low foot traffic may be cost-effective, but a prime location in a busy area comes with a higher price tag. Unlike brick-and-mortar restaurants, food trucks have the advantage of mobility.

Before opening a restaurant, assess the market value of the planned location using tools like LoopNet. This will help you find a space that aligns with your budget and goals. Keep in mind that most spaces require some remodeling, which can range from a simple paint job to a full-scale renovation.

Consider the needs of your restaurant and the available space. Will you have enough room for a kitchen, serving area, and seating? Prioritize customer seating, if necessary. Take into account the costs of renovations, both inside and outside the restaurant. Don't overlook branding expenses like logo design and signage, as they can add up quickly.

Buying vs. leasing a property

One of the first decisions you'll encounter when setting up your restaurant is whether to buy or lease your property. Both options come with their own pros and cons.

Purchasing a property can be a significant upfront expense, but it means you own the space and have complete control over it. You can customize it to your heart's content without having to get a landlord's approval. However, it may tie up a large amount of capital that could be used elsewhere in the business.

Leasing, on the other hand, often involves a lower initial outlay, leaving more funds for operational expenses and growth. It also offers more flexibility if your business needs change. However, you're at the mercy of your landlord when it comes to rent increases, renovations, and lease renewals. When making this decision, consider factors such as your budget, long-term business goals, and the real estate market in your desired location.

2. Renovation and interior design

An essential element of your restaurant's startup costs is the renovation and interior design. This process makes the space align with the theme and vibe of your restaurant, giving it a unique personality and creating an atmosphere that resonates with your target audience. It's not just about aesthetics—your restaurant's interior design should also prioritize functionality and comply with health and safety standards.

The cost of renovation can vary dramatically depending on the scale of changes needed. If your space previously housed a restaurant and the layout suits your concept, you may need to do little more than a paint job and some minor updates. However, if you're converting a different type of space into a restaurant, you could be looking at extensive plumbing, electrical, and construction work.

When budgeting for interior design, also consider the cost of hiring professionals, if needed. For example, an interior designer could help bring your vision to life, while a contractor will oversee the construction work.

3. Equipment and supplies

Now that you have the location, you’re going to need the equipment to get cooking and serving. There’s a lot to consider:

• Tables and chairs - Whether you’re splurging on chic restaurant chairs or going homely with long wooden benches, you’ll need to budget accordingly.
• Commercial cooking equipment - Your typical kitchen oven isn’t going to do the trick when you’re cooking for a room of 75 to 150 people. You’re going to need commercial-grade ovens, stovetops, blenders, deep fryers, and much more.
• Specialty cooking equipment - Don’t forget to incorporate the cost of specialty equipment. For example, if you need a stone oven to make your signature pizza, you’re looking at a $10,000 to $20,000 investment, at minimum.
• Plates, cutlery, and cooking utensils - You’ll need to supply everything from the napkin your customer uses to the spatula your chef wields to flip pancakes.  

4. Licensing and paperwork

This is probably the least fun part—sorry! To avoid the government kicking down your doors, you’ll need to obtain all the necessary licenses and permits.

Toast provides a handy checklist of all the licenses and permits you’ll need. Here’s a quick list for reference:

1. Business license
2. Employer identification number (EIN)
3. Certificate of occupancy
4. Food service license
5. Sign permit
6. Music license
7. Resale permit
8. Building health permit
9. Employee health permit
10. Seller’s permit
11. Liquor license
12. Valet parking permit
13. Dumpster placement permit
14. Live entertainment license
15. Pool table license

The cost of any individual license can range from $100 to $5,000 or more, depending on your state.

5. Initial inventory

When estimating how much food you’ll need and how much it’ll cost, try working backward. Look at your menu first and determine what ingredients you’ll need for each dish. Then, figure out the price of the amount of ingredients in that single dish. Once you know how much it costs to produce that meal, multiply that by the number of meals you plan to serve in your first week.

6. Dream team hiring and training

Before your restaurant can open its doors, it's crucial to assemble a team that will help deliver an exceptional dining experience. The number of employees you'll need can depend on factors such as your restaurant's size, layout, and service style. For instance, a small cafe may only require a handful of staff members, while a large fine dining restaurant may need a significant team across various roles, including kitchen staff, waitstaff, bartenders, hosts, and managers.

Budgeting for staff involves not only their wages, but also the costs associated with recruitment, training, and employee benefits. When determining how much to budget for staff, start by considering the roles you need to fill and the industry's typical pay rates for these positions. Then, factor in additional costs, such as uniforms, training materials, and payroll taxes. Also, keep in mind that labor costs can fluctuate and may increase during peak times when you may need additional staff.

7. Marketing and public relations

Regardless if you’ve secured a prime location in the heart of the city or if your to-die-for burrito is absolutely irresistible, you’re going to need a healthy marketing budget to gain momentum. Don’t make the mistake of thinking social media and word of mouth will suffice—there’s only so much a few tweets and your best friends’ network can do.

Signage, ads, PR services, and digital marketing could cost you thousands of dollars, even before the grand opening. You don’t want to get talked into an expensive, lengthy contract with a marketing agency before you’ve seen the ROI (return on investment), but you also don’t want the opening night to be a penny-pinching ghost town. You’ll need to find the delicate balance and decide how much you’re willing to invest in marketing your restaurant.

Do some market research and see what similar businesses and competitors did for their initial marketing efforts. What do you feel went right? What went wrong? A basic analysis like this will help you decide where (and where not) to invest your valuable capital. 

8. Technology stack

Lastly, you’ll need to consider the cost of the technology you use. This stack is everything from your POS system to your reservation management tools to your kitchen display systems.

Different options for a POS system

Choosing the right POS system is pivotal in the smooth operation of your restaurant. The POS serves as the central component for your business, where sales, inventory, and customer management merge. Here are a few options to consider:

1. Square POS - Square is a popular choice for small businesses, including restaurants. It offers a free software option and affordable hardware with a unique pay-as-you-go payment processing system. A square payment reader can cost as little as $10.
2. Toast POS - Designed specifically for the restaurant industry, Toast offers features like tableside ordering, menu management, and real-time reporting. It also comes with a robust kitchen display system. The pay-as-you-go model provides all of the software and hardware up front at no cost with a slightly higher processing fee than if you pay for the hardware up front.
3. TouchBistro - TouchBistro is an iPad-based POS system designed for restaurateurs. It provides tableside ordering, floor plan and table management, and the ability to process cash, card, and mobile payments. Pricing starts at $69 per month.
4. Upserve - Upserve by Lightspeed offers an all-in-one restaurant management system that includes an intuitive POS, inventory tracking, and detailed analytics—all aimed at improving your bottom line. Pricing starts at $69 per month.
5. Clover - Clover offers both small handheld devices and larger countertop setups, making it a suitable option for various types of restaurants. It's a versatile system with an app market for customization. Pricing starts at $100 per month.

Reservation systems for restaurants

Managing reservations effectively is crucial to the smooth running of your restaurant. A reliable reservation system can help you manage your tables efficiently, reduce no-shows, and enhance your customer experience. Here are a few options to consider:

1. OpenTable - OpenTable is one of the most widely used reservation systems worldwide. It allows customers to make online reservations and reviews, and it offers a rewards program for frequent diners. Its comprehensive features include table management, reservation management, and guest management. Pricing starts at $39 per month.
2. Resy - Resy is a robust platform that offers not just reservations, but also waitlist management, table management, and ticketing for events. Resy's system is designed to give restaurants greater control over their dining rooms and a direct line to their guests. Pricing starts at $249 per month.
3. Yelp Reservations - Yelp Reservations comes with table management, waitlist management, and a reservation system. It's perfect for small to midsize restaurants looking for a straightforward, user-friendly solution. Pricing starts at $99 per month with the first 60 days free.
4. EatApp - This system is a comprehensive restaurant management software that provides online booking, table management, sales analytics, and more. EatApp also integrates with other systems, including POS and delivery platforms, making it a fitting option if you prefer an all-in-one solution. Pricing starts at $0 per month.
5. Tock - Tock is a more expansive platform that offers pre-paid reservations, deposit reservations, and traditional reservations. This system is ideal for restaurants that offer unique dining experiences or host special events. Pricing starts at $249 per month.

Upkeep expenses for your restaurant. 

Once the doors are open, you’ll also need to plan for how you’re going to keep them open. Some of your upfront startup costs will suffice, but you’ll need additional cash on hand to handle the upkeep.

1. Cost of goods sold

The cost of goods sold (COGS) is the total direct costs of producing the products or services you sell. It includes all expenses related to purchasing and manufacturing your menu items, such as ingredients, packaging, and labor. Tracking your COGS is essential for managing costs and setting prices that will help generate a profit. You’ll need to watch inflation, supplier cost fluctuations, and demand to make sure you’re adequately stocked and correctly pricing your menu.

2. Ongoing hiring and training

Unless you magically solve the restaurant turnover problem, you’re going to need to account for ongoing hiring and training. With most restaurant employees lasting less than a year, you’ll be continually hiring and training new employees—it’s a never-ending process. Plus, you’ll need to keep current employees’ skills and discipline fresh, as well.

Investing money into training your staff can also help you avoid costly mistakes. Trained staff may be more expensive, but they’ll also work more efficiently and improve the customer experience.

3. Building and equipment maintenance

No matter how new or nice your equipment is, it’ll eventually break—it always does. Instead of waiting for your equipment to die so you can replace it, invest money to regularly clean and maintain your existing machines and devices. If disaster strikes and your necessary equipment kicks the bucket without much notice, look into getting equipment financing to help cover the immediate fixes.

An unexpected burnt-out oven can put a real dent in your financial forecasts—plan ahead! Make sure to include building and upkeep costs in your monthly and annual budgets. 

4. Permits and licensing renewal

Remember all those fun permits and licenses we talked about before? Unfortunately, you’re going to need to renew most of these licenses at one point or another—and some you’ll need to renew annually. While it’ll only cost you a few hundred dollars here or there, keep these expenses in mind when doing your budgeting.

5. Ongoing marketing

Marketing is far from a one-and-done deal. After your grand opening and as time goes on, you’ll secure (or hopefully you’ll secure) a favorite place in the hearts of a select few. You can count on these people to be your regulars. Not only will these individuals feed themselves on the regular at your restaurant, but they’ll also advocate for you and occasionally bring in some new business. 

But unless you’re being featured as a top restaurant in town—or you have a gigantic fluorescent sign that everyone in a highly foot-trafficked location can see—you’re going to need to further market your restaurant. Digital ads, social media, email marketing, review sites, local news coverage—anything will help! Try new ideas, drop old ones, and continue experimenting to see what works best. But whatever you do, never stop marketing your business…ever.

6. Utility costs

You can expect to spend around 5% of your total costs on utilities, and while that might seem tiny, it’s an expense you have to plan on month after month. Depending on the size of your restaurant, you could be paying anywhere from $5,000 to $20,000 annually. Here are the utilities you’ll need to budget for:

• Electricity
• Water
• Natural gas
• Internet
• Cable

These are the major ongoing expenses you can expect, but your unique restaurant will likely have unique expenses. Don’t forget to budget for those, too.

7. Professional services

As a small business owner, you’re likely tempted to go it alone and wear all the hats: owner, floor manager, baker, waiter, accountant, lawyer, and more. Don’t get stuck in this trap—learn early on to delegate, delegate, delegate. Starting day one, consider who you can pay to help you and if they’ll be worth it:

• Attorneys - There are permits to be had, licenses to be acquired, and regulations to be followed. Instead of sifting through mountains of paperwork and legal jargon, think about paying for some help.
• Accountants - From your taxes to your bookkeeping to your business strategy, accountants can help with it all. Don’t wait until tax season to finally get some financial help.
• Construction contractors - We all want to be Chip and Joanna Gaines, but this desire could lead your restaurant construction to drag on like your unfinished garage project. Let the pros do it right from the start.
• Marketers - The physical and digital marketing landscapes are tricky beasts to navigate. If you don’t have any marketing experience, consider hiring a freelancer or an agency to lend you a hand. 

8. Insurance

Insurance is an indispensable part of operating a restaurant business. It safeguards your investment against unforeseen circumstances like property damage, employee injuries, or customer lawsuits. Here are the types of insurance you should consider:

• General liability insurance - This broad insurance coverage protects your restaurant from claims such as bodily injury, property damage, or personal injury. It's essential in handling customer injury or property damage claims.
• Property insurance - This policy covers your restaurant building, the property inside it, and loss of income due to a disaster. It's vital if you own your restaurant building or have invested heavily in kitchen equipment.
• Workers' compensation insurance - It's mandatory in most states if you have employees. This policy covers medical treatment, disability, and death benefits in the event an employee is injured or dies as a result of work with your business.
• Liquor liability insurance - If your restaurant serves alcohol, you'll need this policy. It covers your legal fees and damages if you're sued over a patron's actions after they consumed alcohol at your restaurant.
• Food contamination insurance - This covers your losses if you have to close your restaurant temporarily due to a contagious disease outbreak or if a power outage spoils your food.

The cost of insurance varies based on your restaurant's location, size, and offerings. It's advisable to work with an insurance agent who specializes in restaurant insurance to get the most suitable coverage.

9. Payment processing fees

Every time a customer pays with a credit or debit card, your restaurant will incur a payment processing fee. These fees are charged by the card networks (like Visa, MasterCard, and American Express) and your payment processor. The exact amount varies, but it typically ranges from 1.5% to 3.5% of the transaction amount.

Keep in mind that premium cards and online transactions usually have higher fees. Also, don't forget about PCI compliance costs and any fees associated with your POS system. To manage these expenses, shop around for a payment processor that offers competitive rates and fully understands the needs of your restaurant business.

Raising funds for your restaurant.

Raising funds for your restaurant can be a challenging task, but with the right approach, it's attainable. Here's how to secure funding for your gastronomic venture:

1. Personal savings and friends and family - Personal savings are often the first source of funding. You might also consider reaching out to friends and family who believe in your vision and are willing to invest in your restaurant. Make sure to formalize all agreements to avoid any misunderstandings in the future.
2. Bank loans - Traditional bank loans are a common source of funding for restaurants. You'll need a solid business plan, a good credit history, and possibly some collateral. The SBA offers loan programs that can make it easier to qualify for a bank loan.
3. Online lenders - Online lenders can be a good option for restaurant owners who need funds quickly or don't qualify for traditional bank loans. These lenders often have less stringent criteria and faster approval times, but their interest rates can be higher.
4. Angel investors and venture capitalists - These are individuals or firms who provide capital to start-ups in exchange for equity. They are typically interested in high-growth businesses, so you'll need a compelling business proposal and a clear path to profitability to attract these types of investors.
5. Crowdfunding - Crowdfunding platforms like Kickstarter and GoFundMe allow you to raise money from the general public. This can be a great way to generate funds and create buzz for your restaurant, but it also requires a strong marketing strategy.
6. Equipment financing - Equipment financing allows you to borrow money specifically for buying restaurant equipment, often with the equipment itself as collateral. This can be a good option if you need expensive kitchen appliances or other equipment.

Remember, every funding option has its pros and cons, so it's crucial to thoroughly research and consider each one before deciding. Professional advice from a financial advisor or accountant can also be beneficial in making your decision.

Put it all together.

After researching and selecting options for each of the categories discussed, create a final budget for your restaurant.

1. Building rent or mortgage
2. Renovations
3. Equipment and supplies
4. Reservation system
5. Cost of goods sold (COGS)
6. Hiring and training
7. Building and equipment maintenance
8. Permits and licensing
9. Marketing
10. Utility costs
11. Professional services
12. Insurance
13. Payment processing fees

Looking for funding for your restaurant? Learn more about restaurant business loans.

If you own or run a restaurant, you know all about the disruption in the industry. Digital technologies are opening up new avenues for customers to purchase food, and shifting consumer tastes are leading to demand for more varied menu items. While this kind of change can bring uncertainty, it also creates possibilities. Regardless of how much you want your business to evolve in the coming year, boosting restaurant sales is a priority for everyone.

Whether you’re looking to revolutionize your menu, open a new location, or increase local awareness, here’s a look at 15 tried-and-true strategies to help you grow your restaurant.

1. Attract new customers to your restaurant.

The best marketing options for many restaurants involve hyperlocal promotions that bring nearby residents through the doors. Digital advertising via the web, email, and social media is also critical in broadening your audience. When it comes to boosting sales, blending email marketing, classic options like direct mail, and online relationship-building through social media can drive brand awareness and help get the attention of the locals.

Building your Yelp community by engaging with reviewers and venturing into similar online sites can also help you gain recognition from locals and also attract visitors from out of town, boosting restaurant sales in the long run. While these tactics are powerful, they also come with costs. Strategic small business loans can give you the jolt of funding necessary to get off the ground in this area. Online lenders can offer short term financing options that let you launch new projects without risking significant debt.

2. Use retention strategies to build loyalty.

Retaining existing customers is often less expensive than attracting new ones. Launching a customer loyalty program that rewards regulars can help you keep customers coming back. You may also want to consider giving customers an opportunity to voice their opinions about your menu or ambiance through online surveys or similar feedback tools.

3. Offer diverse purchasing options.

Technological advances have made it possible to give restaurant customers a choice in who and how they patronize. Boosting restaurant sales is easier if your patrons can make purchases however they prefer. Digital sales platforms, however, come with a caveat. Many online food ordering apps are popular among consumers, but they also take a cut of sales. Building your own online ordering system and mobile app lets you provide convenience without losing a portion of the sales. A small business loan can help you upgrade your web systems and build a smartphone app.

In addition to enhancing your digital offering, keep in mind that delivery, prepared dishes, and similar services can also diversify customer ordering options, boosting restaurant sales. A small business loan can provide funding for you to hire delivery drivers or purchase in bulk from suppliers to create those ready-to-go meals.

4. Maximize table turnover rate.

Moving more customers through the restaurant—without adversely affecting their experience by making them feel rushed—is a great way to increase revenue. A few options to improve efficiency include:

• Deploying self-service kiosks at tables.
• Implementing fully integrated kitchen management and point-of-sale solutions to ensure that kitchen workers get orders as quickly as possible and simplify operations for servers.
• Hiring more front-of-house staff to ensure prompt, efficient service.

Whether you’re making equipment investments or trying to cover salaries while you try new things, small business funding can position you to improve your table turnover rate.

5. Train your staff.

Ensure your staff is well-trained and knowledgeable about your menu items. Customers appreciate recommendations, and good service can create loyal patrons. Offering ongoing training can also keep your staff motivated. Happy employees make for happy customers and ultimately result in increased sales.

To maintain high-quality service and keep your team well-informed and motivated, consider implementing one or more of these restaurant staff training programs:

• Product knowledge training - This program focuses on educating staff about the details of your menu items, including ingredients, preparation methods, and ideal pairings. It helps waitstaff offer informed recommendations and answer customer queries with confidence.
• Customer service training - This training focuses on enhancing communication skills, managing customer expectations, and resolving complaints effectively. It can help improve customer satisfaction and loyalty.
• Health and safety training - Essential for all staff, this program teaches hygiene practices, safe food handling and preparation, and emergency procedures.
• Certification programs - These can include ServSafe Certification for food handling or Sommelier courses for wine knowledge. They provide professional growth opportunities for staff and improve the dining experience for your customers.
• Leadership training - For staff who are either in or moving into management roles, this program focuses on team management, conflict resolution, and leadership skills. It can help maintain a positive and productive work environment.

Remember, investing in staff training can lead to better customer experiences and increased restaurant sales in the long run.

6. Leverage social media.

Social media is not just a platform for social interaction, it's a powerful marketing tool. Properly utilized, it can be an effective element in your strategy to increase restaurant sales.

Promote user-generated content

Encourage your customers to share their dining experiences on their social media platforms. You can run contests where customers post pictures of their favorite dishes with a unique hashtag related to your restaurant. User-generated content not only increases your online presence but also builds trust and authenticity.

Collaborate with influencers

Consider partnering with food bloggers, influencers, or local celebrities who can promote your restaurant to their followers. This kind of promotion can dramatically boost your restaurant's visibility, especially if the influencer's audience aligns with your target demographic.

Share behind-the-scenes content

Customers appreciate transparency, and providing behind-the-scenes content can help humanize your brand. Share images or videos of your kitchen staff in action, the journey of your dishes from prep to plate, or even your team's fun moments. This gives your audience a glimpse into your restaurant's operations and showcases your commitment to quality and service.

Utilize Instagram stories and highlights

Use Instagram's Stories feature to promote daily specials, events, or limited-time offers. You can also showcase customer testimonials or positive reviews in your stories. Further, make use of the Highlights feature to permanently showcase important stories like your menu, special events, and customer experiences. This helps new followers quickly understand what your restaurant has to offer.

7. Offer special promotions.

Regularly run special offers or promotions to encourage more visits. This could be a happy hour, a discount on certain days of the week, or a seasonal offer.

Here are some steps to create an effective promotion:

Identify your goals

Firstly, define what you hope to achieve with the promotion. Do you want to attract new customers, encourage repeat visits, or perhaps generate more sales during a particular time slot? Understanding your objectives will guide you in creating a promotion that yields the desired results.

Know your audience

Understand who your customers are. What kind of deals would attract them? Are they more likely to respond to a discount on a specific meal or a 'buy one get one free' offer? Your promotion should be tailored to appeal to your target demographic.

Design your promotion

Craft your offer to be tempting to customers and profitable for your business. The design of your promotion should also be aligned with your brand. Keep the offer simple and ensure the terms are clear and easy to understand.

Promote your promotion

Spread the word about your promotion using various channels. Send emails to your mailing list, post them on your social media platforms, and display them prominently on your website. Consider using local advertising or even word of mouth to reach people in your community.

Analyze the results

After running the promotion, evaluate its effectiveness. Was there an increase in sales? Did you attract new customers or increase repeat visits? Analyzing the results will help you understand what worked and what didn't, and this information can be used to improve future promotions. Remember, the goal is not just to increase restaurant sales, but to also provide value to your customers and foster loyalty.

8. Optimize your menu.

Your menu is a critical marketing tool. Make sure it's well-designed and highlights your special dishes. You can also use upselling techniques on your menu to increase the average spend per customer.

Use strategic pricing

Strategic pricing can greatly influence a customer's decision to order a particular dish. Place your higher-profit items near cheaper ones to make them seem like a better value. Consider using bundle deals or "meal deals" to encourage customers to spend more.

Highlight seasonal items

Customers appreciate variety and are often drawn to limited-time offerings. Promote seasonal dishes or drinks to create a sense of urgency and entice customers to order them before they're gone.

Offer health-conscious options

With the growing trend towards health and wellness, offering healthy menu items can attract a new demographic of customers. Clearly mark these items on your menu to make it easy for health-conscious individuals to find them.

Create a well-organized menu

Group related items together and use clear, readable fonts. A well-organized menu improves the customer experience and makes it easier for them to make a decision.

Use mouth-watering descriptions

Good food descriptions can make a dish more appealing. Use evocative language to make your menu items sound irresistible.

Remember, your menu is often the first point of contact between your customers and your food. Making it as appealing and easy to navigate as possible can go a long way in boosting your restaurant sales.

9. Host events

Hosting events such as trivia nights, live music, or cooking classes can attract new customers and create a vibrant atmosphere.

How to host an event at your restaurant

1. Understand your customer base

Before planning the event, take a moment to understand your customers. What interests them? What type of events are they likely to attend? Use this information to decide on the type of event that would resonate most with your target audience.

2. Plan the event

Once you have decided on the type of event, it's time to plan. What will be the theme? How will you decorate the restaurant? What food and drink specials will you offer? Remember to consider the logistics, such as the date, time, and number of staff needed.

3. Promote the event

Start promoting your event well in advance. Use all available channels—your website, social media, newsletters, in-house posters, local newspapers, and even word of mouth. Provide clear information about the event—date, time, cost, special offers, and what attendees can expect.

4. Prepare your staff

Make sure your staff is well-prepared. They should understand the timeline of the event, their responsibilities, the menu changes, and to expect a higher-than-usual volume of customers. This preparation can help ensure smooth operations on the event day.

5. Create a festive atmosphere

On the day of the event, make your restaurant feel special. Decorations, music, and lighting can all contribute to the atmosphere and make your guests feel excited and welcomed.

6. Capture the moments

Consider hiring a professional photographer or encouraging your staff to take photos. These images can be used later for promotional purposes and to share on social media, creating anticipation for future events.

7. Gather feedback

After the event, take the time to gather feedback from your customers and staff. This will help you understand what worked well and what could be improved for future events.

Hosting events in your restaurant is a great way to bring in new customers, delight existing ones, and create a vibrant, community-oriented atmosphere. With careful planning and execution, these events can significantly boost your restaurant's reputation and sales.

10. Partner with local businesses.

Collaborate with local businesses to cross-promote each other. This can be a great way to reach new potential customers in your area.

Consider partnerships like hosting a joint event with a local business that complements your services—such as a wine tasting with a local vineyard or a dessert pairing with a local bakery. You might also consider partnering with nearby hotels or tourism companies to offer special deals or packages for travelers.

Additionally, cross-promotion can be as simple as trading promotional materials—leaving your menus or coupons at a local retailer, while displaying their flyers or products in your restaurant.

Engaging in community events, such as local festivals or markets, can also facilitate beneficial partnerships and increase visibility. Lastly, consider a loyalty program that integrates rewards from other local businesses, motivating customers to support not just your restaurant, but your local business community as a whole.

11. Upselling and cross-selling.

One way to increase restaurant sales is through the techniques of upselling and cross-selling.

Upselling involves suggesting higher-priced items or add-ons to customers to increase the overall value of their orders. For example, offering premium sides, encouraging a move from a regular to a large size, or suggesting superior-quality beverages can enhance the customers' dining experience while increasing your sales.

Cross-selling is the practice of suggesting related but different items. For instance, if a customer orders a steak, suggest a suitable wine pairing or recommend a complementary dessert. However, it's essential to train your staff appropriately so that upselling and cross-selling feel like excellent customer service, rather than pushy sales tactics. These strategies not only boost your sales, but also allow customers to discover new favorite items on your menu.

12. Provide excellent customer service.

Excellent customer service can turn first-time visitors into loyal customers. Ensure your staff is attentive, friendly, and professional.

Train your staff for personalized service:

• Get to know regular customers, remember their preferences, or even their names.
• Build a strong customer service culture to significantly boost customer satisfaction and increase sales.
• Implement a comprehensive employee training program to enhance skills in dealing with different customers and situations.
• Empower staff to make customer-centric decisions for improved satisfaction and loyalty.

Assess and improve service quality:

• Consider conducting customer surveys to assess service quality and identify areas for improvement.
• Handle customer complaints promptly and professionally.

13. Update your décor.

The ambiance of your restaurant can contribute to your customer's overall dining experience. Consider updating your décor to make your restaurant more appealing.

Lighting

This includes considering the lighting, which should enhance the mood of the restaurant. Soft, warm lighting can create a cozy and intimate atmosphere, while bright, cool lighting can make the space feel energetic and lively.

Music

The choice of music can also significantly impact the ambiance of the restaurant. Choose music that matches the theme of your restaurant and the preferences of your clientele.

Seating

Comfortable seating arrangements and high-quality furnishings also add to the overall experience.

Decor

Consider showcasing local art or cultural elements to give your restaurant a unique character and a local touch.

14. Implement a reservation system.

If you don't already have a reservation system in place, consider implementing one. A reservation system provides numerous benefits that can increase restaurant sales.

Firstly, it allows for efficient table management, ensuring that you can maximize occupancy and serve as many customers as possible.

Secondly, it provides a convenient way for customers to ensure they have a table, increasing their likelihood of choosing your restaurant over others.

Thirdly, having advanced knowledge of reservations can help with staff scheduling and inventory planning, reducing operational costs and waste.

Finally, a reservation system can also provide valuable customer data, allowing you to understand peak times and customer preferences, and enabling personalized marketing.

15. Offer catering services.

Expanding your business to offer catering services can significantly boost your restaurant's revenue. Catering allows you to serve large groups at once and exposes your food to new potential customers.

However, successful catering requires careful planning and execution. Consider investing in high-quality equipment and training staff to handle larger orders efficiently. Additionally, be sure to market your catering services through various channels such as social media and word-of-mouth advertising.

Catering can also lead to repeat business as satisfied customers may choose to host more events with your restaurant's food.

Funding holds the key to boosting restaurant sales.

Boosting restaurant sales is easier when you have capital on hand to support operations. The good news is that small business lending is changing. Restaurant owners today have more options than ever to seek a variety of loan types, so their financing strategies align with their growth strategies. Learn more about restaurant business loans.

When it comes to starting your own business, restaurants aren’t exactly the easiest choice. Luckily, foodie culture has hit its stride, and restaurant sales have been on the rise for several years now.

It will be a challenge, but as long as you come to the table fully prepared for success, the odds are in your favor. Here’s everything you need to know about starting a restaurant business.

How to open a restaurant.

Let's dive into the step-by-step roadmap of opening a restaurant, addressing everything from securing startup funds and choosing the ideal location, to devising a standout menu.

1. Decide what kind of restaurant to open.

You’ll want to consider many factors when deciding what type of restaurant to start. Pay attention to your target location and what kinds of restaurants find success there, while also avoiding oversaturated markets. Ultimately, you want your restaurant to fill a need.

Your budget is also important to consider. Some types of restaurants require bigger initial investments due to expensive machinery or the space required to execute the idea. Be realistic about what you can afford.

Franchise vs. independent restaurant

For some prospective restaurant owners, a franchise is the way to go. While you may have less creative control and need to pay fees, franchises already come with built-in brand recognition. On the other hand, independent restaurants allow for full creativity and uniqueness, but require more work in terms of establishing your name.

Pros and cons of opening a franchise

Pros and cons of starting an independent restaurant

Consider these factors to decide whether a franchise or an independent restaurant is the right choice for you.

Fast food vs. casual dining vs. fine dining

Each type of restaurant—fast food, casual dining, and fine dining—serves a distinct market and has its own unique set of considerations, pros, and cons. It's crucial to understand these differences when deciding what kind of restaurant you want to open.

Fine dining

Consider opening a restaurant in an area where people enjoy and can afford fine dining. This type of restaurant typically offers high-quality food, a sophisticated ambiance, and a higher price range. Fine dining establishments often come with significant startup costs.

Fast food

If your restaurant is located in a youth-oriented area (Ex: near a college campus) fast food or casual dining might be a better fit. Fast food restaurants serve food that is ordered and served quickly, targeting customers who prioritize convenience over a fine dining experience.

Fast-casual

Fast-casual restaurants, like Chipotle or local food trucks, offer a balance between fast service and higher-quality food, compared to traditional fast food chains like McDonald's or Taco Bell. This concept combines the efficiency of fast food with a more casual dining experience.

Fast-fine

Fast-fine dining is a newer concept that combines the elements of fine dining with more accessible prices and shorter wait times. These restaurants offer creative and elevated dishes, such as gourmet burgers or elevated pizza. Starting a fast-fine dining restaurant is more affordable compared to traditional fine dining establishments, making it a viable option for entrepreneurs with limited investment capital.

2. Create your menu.

Your menu is a crucial element of your restaurant, as it will ultimately determine the type of experience you provide for your customers. It's essential to strike a balance between creativity and practicality when devising your menu.

• Consider incorporating popular dishes and ingredients that appeal to a wide range of tastes.
• Be creative and offer unique items that set you apart from other restaurants in your area.
• Keep in mind the cost of ingredients and equipment needed to execute your menu items efficiently.
• Remember to consider dietary restrictions, such as vegetarian or gluten-free options.

3. Develop a restaurant business plan.

Once you’ve nailed down your idea, you’ll need to create a business plan. This step can feel like a lot of work, but it’s necessary. You’ll need to do extensive research regarding your restaurant’s concept and menu, the market for your restaurant, competitors, your management and employee team, marketing, financial projections, location, and more.

Here are the main components of most restaurant business plans.

1. Introduce your restaurant brand, which includes your logo, colors, and sign
2. Provide an overview of your restaurant concept
3. Give a sample menu with prices
4. Explain your management and employee plan
5. Lay out your restaurant design
6. Analyze your industry and target market
7. Investigate your competitors
8. Offer an analysis of your location
9. Write out a marketing plan
10. Create financial projections

You will rely on this document throughout the creation of your business, and you’re welcome to amend it as time goes on and your goals and projections shift. If you need to raise money from investors for your restaurant or apply for a business loan, your business plan will come in handy.

4. Obtain funding for your restaurant.

There are many options when it comes to finding money to start your restaurant. Whether you want to borrow from a bank, fund the restaurant yourself, or seek out investors, it’s important to explore all of your options before deciding on a funding method.

Bootstrapping

Bootstrapping is a startup funding method that doesn't involve external investors or credit. It aims to self-fund, starting with a small amount of initial "seed money" from personal savings or a friend/family. The business quickly generates revenue and reinvests it for growth.

The benefits of bootstrapping include avoiding debt and maintaining control and equity. However, seed money is limited, resulting in a small initial operation.

Business term loans

Business term loans are a traditional type of commercial loan where a lender provides a lump sum of cash up front, which is then repaid over a set period (the term) with a fixed or variable interest rate. These loans are incredibly flexible and can be used for various purposes, including working capital, business expansion, or purchasing equipment. However, they typically require a solid credit history and demonstrated ability to repay.

SBA loans

The Small Business Administration (SBA) doesn't lend money directly to small business owners. Instead, it sets guidelines and partners with lenders, community development organizations, and micro-lending institutions to provide these loans. SBA loans are renowned for having some of the best rates and terms available, making them a desirable option for many small businesses. They can be used for most business purposes, including long-term fixed assets and operating capital. However, the process for applying and qualifying can be lengthy and complex.

Equipment financing

One of the most significant upfront expenses for restaurant owners tends to be kitchen equipment, from pizza ovens to industrial refrigerators and POS systems. Many business owners use equipment financing to pay for these expensive pieces of equipment so they can maintain their restaurant’s cash flow.

Crowdfunding

Crowdfunding, a funding method where you accept small contributions from many people (like Kickstarter and Indiegogo), is similar to bootstrapping. It allows you to maintain control over your business and avoid debt. This funding is popular with startups selling physical products, as they can offer the product as a reward. Restaurants typically don't use crowdfunding, but it's possible. If you have a decent following or people who support your idea, crowdfunding might work for you.

Finding an angel investor

Startups often struggle to secure funding initially. Traditional banks typically require a couple of years in business before considering a loan, while investors demand proof of viability. This is where angel investors step in. They fund early-stage startups, even if they're risky because they believe in the idea and the people behind it. While accepting their money means giving up ownership, it doesn't need to be repaid if the business fails. However, angel investors may push for rapid growth. Learn more about the pros and cons of angel investors here.

5. Choose a location.

The most important factor when it comes to location is making sure that there’s a market for the type of restaurant you want to open in the place where you want to open it. However, that’s not the only factor.

Central vs. off-the-beaten-path

Typically, building a restaurant in a central, highly trafficked location means more business for you but also far higher rent prices. You may only be able to afford a location that’s a little off the beaten path. This location doesn’t mean you can’t succeed, but it does mean you’ll want to choose wisely. Consider whether this location is in a quieter area that’s easy to get to or a place that’s truly out of the way for most people. Don’t forget that hungry patrons value convenience heavily.

Parking

You might be tempted to snag a prime spot in a downtown area, but if parking is a hassle, that central location could actually hurt you. Consider first whether there’s any space for you to build parking into your restaurant’s design. 

Some restaurant types can get away with little to no parking—for example, food trucks, windows, and restaurants located at or very close to public transportation—but for the most part, no parking is a no-go. Again, this goes back to convenience.

Size

You need to make sure that the size of the lot or building you’re considering is appropriate for the business you want to open. The more involved your food, the bigger your kitchen will need to be. If you’re serving alcohol, you’ll need space for a bar. The equipment you’ll need is very important to keep in mind, as restaurant equipment can eat up more square footage than you’d think.

Clientele

You’ll need to consider the type of people who frequent the area you want to start your restaurant in, which includes both their taste in food and their purchasing power. You can have the best food in the world, but if the people in your neighborhood can’t afford it, you’ll never be successful. On the other hand, if you’re serving fast food burgers in a neighborhood that’s hyper-health-conscious and mostly vegetarian and vegan, you’ll struggle.

Design

The ambiance of your space depends largely on the location you choose. You need to pay attention to detail when browsing potential spaces to rent. If you’re opening a brunch spot or a cafe, natural light is a must, and a patio or outdoor space doesn’t hurt. If fine dining is your thing, you’ll want a space that’s impressive at first glance, whether for its modern features, its historic charm, or its vaulted ceilings.

Building code

You probably don’t want a space that’s going to involve lots of renovations before you can even get started. Make sure the space you’re looking at is up to code and safe. Also, assess whether or not it’s accessible to people with disabilities. Not only is this the right thing to do, but there are also a number of accessibility guidelines restaurants legally have to meet in order to be ADA-compliant.

6. Licenses and permits for opening a restaurant.

The restaurant business is one of the most highly regulated industries, and as such, you’ll need to secure a number of different licenses and permits before you can open your doors. The exact requirements vary by state, and it’s best to get a lawyer involved to make sure you have everything squared away.

Some of the more common licensing requirements include:

• Business licenses - These are issued at the state level.
• Food handler’s permit - All employees should obtain this.
• Liquor license - This is only for restaurants serving alcohol.
• Music license - This gives you permission to play copyrighted music in your establishment.

The U.S. Small Business Administration is a great resource for more information on applying for business licenses.

7. Designing your restaurant space.

Designing your restaurant space is just as important as crafting your menu. The ambiance and layout of your restaurant can greatly influence your customers' dining experience. Here are some key factors to consider:

• Dining area layout - Your dining area should be spacious and comfortable. Arrange the tables in a way that makes it easy for customers to move around and for staff to serve.
• Kitchen design - The kitchen should be designed for efficiency and safety. You'll need enough space for cooking, food preparation, storage, and dishwashing. The layout should facilitate a smooth workflow.
• Color scheme - Choose a color scheme that matches your restaurant's theme. Different colors can evoke different emotions—for example, reds and yellows are warm and appetizing, while blues and greens are calming.
• Lighting - Good lighting can set the mood for your restaurant. Consider using a mix of ambient, accent, and task lighting to achieve the desired atmosphere.
• Furniture - Invest in quality furniture that is durable, comfortable, and fits your restaurant's style. Remember, comfort can significantly enhance a customer's dining experience.
• Decor - The decor of your restaurant should reflect its concept or theme. This includes art, accessories, and table settings.
• Music and acoustics - The right music can enhance the ambiance of your space. However, it's also important to consider acoustics. Good acoustics can reduce noise levels and make the dining experience more pleasant.
• Restrooms - Don't forget about the restrooms. They should be clean, well-stocked, and accessible to all customers.

Designing your restaurant space is a great opportunity to express your restaurant's identity and create an environment where customers will enjoy dining.

8. Hiring management and employees for your restaurant.

This step is crucial for your restaurant's success. Your team can make or break your startup. Avoid common hiring mistakes like rushing the hiring process, overlooking contract workers, and not accepting support and delegation throughout.

Some tips for hiring include:

• Recruit talented and committed individuals by offering competitive pay and benefits.
• Don't skimp on compensation or hiring quality.
• Match industry rates and provide benefits.
• Identify potential rather than proven success to find valuable contributors without high costs.
• Offer non-monetary perks like upward mobility, employee incentives, and profit-sharing.
• Get creative by partnering with local businesses for discounts.

Common restaurant staff requirements

Running a restaurant requires a diverse set of skills. Depending on your restaurant's size and concept, you may need to hire for several different roles. Here's a quick overview of some common restaurant staff requirements.

• General manager - The general manager oversees the entire operation of the restaurant. They're responsible for hiring and training staff, ensuring customer satisfaction, and managing the restaurant's finances.
• Chef/cook - The chef or cook in your restaurant is responsible for preparing meals. They must be skilled in food preparation and knowledgeable about food safety standards.
• Kitchen staff - This includes various roles such as sous chefs, line cooks, and dishwashers. They assist the chef in food preparation and maintaining kitchen cleanliness.
• Server - Servers interact directly with customers, taking orders, serving food, and handling payments. They should be friendly, attentive, and have excellent communication skills.
• Bartender - If your restaurant serves alcohol, you'll need a bartender. They should have knowledge of a variety of drinks and excellent customer service skills.
• Host/hostess - The host or hostess greets customers as they arrive, escorts them to their table, and manages reservations.
• Busser - Bussers clear tables once customers have finished their meals, making the table ready for the next customers. They often assist servers and host/hostesses with various tasks.

Remember, each of these roles plays a crucial part in your restaurant's success. Therefore, it's important to take the time to find the right people for each position.

9. Finding suppliers for your restaurant.

A key aspect of running a successful restaurant is having reliable suppliers. From food ingredients to kitchen utensils, the quality of what you purchase impacts the overall experience you offer to your customers. Here are some types of suppliers you'll need, and some tips on where to find them.

Types of suppliers you'll need

• Food and beverage suppliers - These are perhaps the most crucial suppliers for your restaurant. You'll need to secure a steady supply of fresh produce, meat, dairy, baked goods, and beverages.
• Equipment suppliers - Your kitchen will need professional-grade cooking equipment, utensils, and appliances. This includes ovens, grills, refrigerators, cutlery, pots, and pans.
• Furniture suppliers - To create a comfortable and inviting environment, you'll need quality furniture. Suppliers can provide tables, chairs, booths, and outdoor seating.
• Cleaning supplies suppliers - Hygiene is paramount in any restaurant. Suppliers of cleaning products and sanitary equipment are therefore vital.
• POS system suppliers - A reliable point of sale (POS) system is crucial for managing orders, receipts, inventory, and sales data.
• Uniform suppliers - If your staff will be wearing uniforms, you'll need a supplier for these as well. The uniforms should be comfortable and stylish, reflecting your brand image.

Where to find suppliers

• Industry trade shows - These events are great opportunities to meet potential suppliers, see their products firsthand, and negotiate deals.
• Online directories - Websites, such as ThomasNet or Alibaba, list thousands of potential suppliers for all kinds of restaurant needs.
• Local farmer's markets - If you're committed to serving fresh, local produce, farmer's markets can be an excellent source for suppliers.
• Wholesale retailers - Stores like Costco or Sam's Club can provide bulk goods at discounted prices.
• Industry associations - Joining a restaurant association can provide you with access to their list of vetted suppliers.

Finding the right suppliers requires time and research. It's important to consider not just the cost, but also the quality of products, reliability, delivery schedules, and communication skills of the supplier. Remember, your suppliers are partners in your business, and their performance can impact your restaurant's success.

10. Launching and marketing your restaurant.

Once everything is in place and you’re finally ready to launch your restaurant, it’s time to publicize and spread the word! You’ll probably want to host a big event for the day or weekend your restaurant opens its doors to bring in new customers, but you should start marketing your restaurant and that launch date far in advance.

Online presence

Digital marketing is huge, and you should have an online presence that includes a website and at least a couple of social media channels. Facebook and Instagram are two of the most popular social media platforms for restaurants.

Spread the word

Consider offering a taste test to local food writers, bloggers, and influencers so they can spread the word. Also, contest marketing is highly effective and a great way to gain new followers. It can be wise to contract a digital marketing specialist to help you with this project.

On-the-ground marketing

While social media is important for publicizing your restaurant, on-the-ground marketing within your community is critical. Hang flyers around the neighborhood and inside other local businesses, and ask your friends to tell everyone they know.

Offer incentives

Spreading the word only goes so far. You have to offer an incentive for people to come and try something new. Host a launch party that’s packed with freebies, like samples, a live DJ, a giveaway, and more. Team up with local artists or artisans to host a pop-up in your restaurant. The more you collaborate, the further your network will spread.

Customer loyalty

You can also consider implementing a customer loyalty program, so that all of these new people feel compelled to come back to your restaurant. Most casual dining spots go with punch cards, whereas more upscale establishments might consider starting a points system of some sort. Opening a restaurant is an enormous task. However, with proper planning and preparation, it’s possible to make all of your culinary dreams come true. Looking into funding for your restaurant? Learn more about restaurant business loans.

With 10 million new small businesses opening their doors in the U.S. in 2021-2022—the highest years on record—a Lendio study reveals the top industries for starting a business. 

As the U.S. experiences this small business boom, Lendio analyzed which industries are most likely to grow and succeed in the next decade, helping to answer the question: What industry should new entrepreneurs explore?

Key findings

Lendio analyzed four metrics to determine the best industry to start a business, gauging the growth potential, ease of getting started, and longevity of the opportunity. Specifically, Lendio explored analysis on employment projections, production rate, 10-year survival rate by industry sector, and overall startup costs.

Our key findings include: 

• Healthcare opportunities remain hot. Five of the top industries that made the list are within the healthcare sector. Real estate, software publishing, office administration, print publishing, and manufacturing also made the cut.
• Agriculture, manufacturing have the best survival rates. Commodities, healthcare, and real estate rounded out the list with the highest survival rates compared to others.
• Professional, scientific, and technical services come in at the lowest cost of entry. Not far behind are construction and agriculture, clocking in with the lowest cost to start or acquire.

Top industries to start a business.

1. Home healthcare services

With the percentage of Americans over the age of 65 projected to reach over 20% of the population by 2040, it’s no surprise home healthcare is an industry with a big growth trajectory, expected to grow at an accelerated rate over the next 10 years. There are many factors that are driving this growth, including an increasing demand for medical services and home care benefits for Medicare recipients.

2. Outpatient care centers

Similar to home healthcare, an increase in the aging population is driving demand for outpatient care, which normally includes healthcare services that don’t require hospital admittance, such as X-rays, bloodwork, and routine checkups. For the population in general, technological advancements in the medical industry are producing a faster and more accessible patient experience for all ages. Moreover, demand for more local outpatient facilities has grown significantly in the post-pandemic period.

3. Individual and family services

Welfare assistance for individuals and families is a growing necessity. The U.S. market was valued at $233.6 billion in 2022, and the global market is expected to reach $2 trillion by 2030, at a compound annual growth rate (CAGR) of 10.8%. According to the U.S. Department of Health & Human Services, nearly half of the U.S. population lives in what is called a “health professionals shortage area,” with an estimated 8,326 mental health practitioners needed. 

4. Software publishers 

In today’s tech-powered world, software and software as a service (SaaS) are in high demand, especially at the enterprise level. Businesses are continuously looking for ways to streamline data and processes, which often leads to high payouts for publishers and developers. And demand for software is only expected to grow in the coming years, with revenue forecasts for the software industry are expected to reach more than $414 billion by 2028.

5. Computer systems design and related services

Staying on the tech train, these services help design, support, and update computer hardware and software for other businesses. Evolving applications of software and a need for robust technological systems in a number of industry sectors contribute to the forecasted growth of this industry, which is estimated to be around 26% over the next 10 years.

6. Office administrative services

Any business owner can attest to the need to—and importance of—effectively running day-to-day operations. Tasks such as bookkeeping, hiring and logistics, to name a few, are often immediate needs. It’s expected that this industry will grow up to 10% year over year in 2023, with continued growth forecasted in the years beyond. As businesses expand and tap into new markets, having the right service provider for everyday tasks becomes a necessity, as advanced technology and interconnectivity across the globe lead the charge.

7. Medical and diagnostic laboratories 

The U.S. medical and diagnostic laboratory services market is increasingly competitive among large and small providers. People need to know if they’re healthy, and these facilities provide the necessary analyses of bodily fluids, genetic testing, and more for healthcare professionals to determine this. Rising rates of chronic illnesses, such as diabetes, cancer, and heart disease, are increasing demand in this industry. Industry revenue in the U.S. reached up to $71 billion in 2022 and is expected to grow to $141 billion by 2030. 

8. Physician offices

The height of the pandemic exposed many points of weakness in the medical industry, including a shortage of physicians, nurses, staff, and equipment to handle the sudden influx of patients. Looking towards the future here, improved accessibility and a greater influx of in-person visits will drive an explosion in demand for more private practitioners, such as family medicine, internal medicine, and pediatrics. 

9. Publishing industries

Reading is power, and increasing numbers of consumers like to read on the go, making digital print a growing medium. But physical print still remains an important part of the industry and the preferred outlet for readers. Textbooks also continue to create consistent growth for the printed word. However, transitioning to digital media, at least partly, has expanded revenue streams for publishers. Audiobooks in particular have increased their share of the U.S. book market over the past 10 years, reaching $1.8 billion in 2022, making it the fastest-growing segment within the industry. 

10. Management, scientific, and technical consulting services

Running a business can get complicated, so across different sources, companies turn to the experts more often than not. From improving processes to lowering maintenance and operational costs, these providers help drive efficiency and develop strategies. The market value was valued at  $316.6 billion in 2021, and that is expected to more than double by 2031, to $814.6 billion.

Runners up

1. Real estate

The current housing market is muddied with rising interest rates. But it’s beginning to rebound, forecasted to grow at a CAGR of 4.7% from 2023 to 2028. While this industry encompasses both residential and commercial real estate, residential real estate accounts for the largest share of revenue in the United States, with a market volume projected at around $88.91 trillion for 2023. Although this industry is highly competitive, it’s relatively easy to break into—required courses and certifications take around four to six months, on average, to complete. However, reaching high earnings will take a lot of hard work and dedication. 

2. Motor vehicle manufacturing

Even though the automotive industry was one of the most affected by the pandemic, the lack of sales ultimately led to an increase in inventory. More cars means more sales opportunities, so the market is expected to go up and to the right. That—coupled with advances in technology, rapid urbanization, and a push toward electric vehicles—will lead to greater opportunities for revenue generation. 

Methodology

We used publicly available data from a variety of federal government sources to identify the best industry in which to start a business in 2023. Our examination included:

• Projected growth in output and employment by industry from 2022 to 2032. Selected industries must have a positive projected growth in output. (Bureau of Labor Statistics)
• Ten-year survival rates of businesses starting in 2012. (Bureau of Labor Statistics)
• Amount spent to start or acquire a business excluding costs of $1 million+ Census.gov 

Final thoughts

Your chosen industry can have an effect on your day-to-day operations, revenue projections, and timelines, as well as growth over time. As you choose your business venture, consider crucial aspects of running a business, such as overall production costs, location, and consumer demand.

Regardless of the industry you’re in, a business owner faces a unique set of challenges. If you work through these with a solid plan in place and the right amount of capital to give you a financial lifeline, you’ll be in a better position to achieve long-term success.

The IRS announced an immediate moratorium on processing new Employee Retention Credit (ERC) claims on September 14, 2023. The moratorium will last through at least the end of the year in an effort to protect small business owners and taxpayers from scams and fraudulent claims.

As a small business owner, you may be wondering what this moratorium means for you and your business. Here’s everything we know and how you may still be able to apply for the ERC during the moratorium.

What we know.

We know that the IRS is continuing to process ERC applications that were received prior to the moratorium. However, processing times will be longer, the IRS advised in its Sept. 14, 2023 update — potentially going from a 90-day turnaround to 180 days or more. The agency has increasingly shifted its focus to review claims for compliance concerns and recently announced that thousands of ERC claims have been referred for audit. It is also working on hundreds of criminal cases on promoters and businesses filing suspicious claims. 

Payouts for these previously filed claims will continue through the moratorium, but at a slower pace due to the more in-depth compliance reviews. This payout period will extend to 180 days from its previously standard processing goal of 90 days, according to the IRS. However, a payout may take even longer if its claim requires the IRS to further review or audit it.

The IRS is implementing this more scrutinous compliance review period to protect businesses from facing penalties or interest payments that stem from bad claims that aggressive marketers pushed.

For any business owners wanting to submit claims after September 14, 2023, while the IRS is not reviewing new applications until at least January 1, 2024, you can still submit an ERC claim during the moratorium.

Applying for the ERC.

Small business owners planning to submit an ERC claim after September 14, 2023 should ensure that their businesses are eligible for the tax credit prior to filling out the stringent application.

Pay qualified wages.

First, ensure that your business paid qualified wages to your employees. The definition of qualified wages varies depending on the amount of employees your business had on the payroll in tax years 2020 and 2021.

For tax year 2020, the IRS defined a small business as a business that averaged 100 or fewer full-time monthly employees in 2019. For tax year 2021, it expanded the definition to include businesses that averaged 500 or fewer full-time employees in 2019.

Larger employers can claim the ERC but only for wages and some healthcare costs paid to employees who did not work.

Small businesses can claim the credit for all employees, whether they worked during the period or not.

Government-mandated full or partial suspension.

Your business must have been impacted by either a government-mandated lockdown or decrease in revenue to be eligible for the ERC. You can qualify if your business was impacted by a full or partial suspension of operations due to a government COVID-19 order during any quarter (this includes restrictions on hours or capacity).

This area of eligibility criteria can be complex, so make sure to work with a vendor who is familiar with government orders, their impact, and the timeframe they were enacted.

Significant decline in gross receipts.

If your business experienced a “significant decline” in gross receipts as defined by the IRS, then it can be eligible for the ERC. For tax year 2020, a significant decline means that gross receipts for a quarter are less than 50% compared to the same period in 2019. For the first 3 quarters in 2021, a significant decline means quarterly receipts are less than 80% compared to the same period in 2019.

If your business did not see a 20% decline in gross receipts in the first 3 quarters of 2021 compared to 2019, you can also elect to use the immediately preceding quarter for comparison. This means that if a business’s Q2 of 2021 isn’t eligible compared to Q2 of 2019, it can instead use Q1 or 2021 and compare it to Q1 of 2019 to meet eligibility requirements.

Recovery startup business.

The ERC was amended in 2021 by The American Rescue Plan to let newer businesses gain access to the tax credit. A recovery startup business is defined as one that opened after February 15, 2020, and has annual gross receipts under $1 million. As long as you meet these two criteria and have one or more W2 employees, you don’t have to meet the other eligibility requirements. If your business qualifies as a “recovery startup business,” you can apply for the credit for Q3 and Q4 of 2021, and your business can receive a maximum of $50,000 in ERC per quarter.

If your business meets these requirements, then it may be eligible for the ERC. When applying, make sure that you have gathered thorough records proving wages paid, gross receipts, government orders, and other required documentation. Please note that businesses that improperly claim the ERC will be required to pay it back, potentially with penalties and interest.

Applying for the ERC during the moratorium period.

You should consult an accountant or tax professional prior to filling out any forms. They will help guide your business through this stringent and potentially confusing process. 

You can apply for the ERC during the moratorium period through Lendio. We’ll help you identify what documents you need to claim the ERC. We’ve partnered with ERC and tax experts to aid you in the complex application process. They can help navigate you through tricky tax laws and avoid costly mistakes while calculating the full tax credit that you qualify for. After your application is complete, we’ll file your ERC claim with the IRS.

Please note that this process will be extended significantly due to the moratorium. While you will be able to submit your application to the IRS prior to January 1, 2024, it will not be reviewed until after that date (and with more stringent compliance review terms).

If you have additional questions regarding the ERC and/or the ERC moratorium period, check FAQ resources from the IRS and Lendio.

The Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) were created to help businesses stay afloat during COVID-19. If the pandemic has had a negative impact on your small business, you might wonder whether you can take advantage of both of these programs. Keep reading to find out.

Key Points:

• The PPP was a forgivable loan. The ERC is a refundable tax credit.
• The PPP loan program is no longer available. The ERC can still be claimed retroactively.
• Businesses that received a PPP loan can still apply for the ERC.
• Employee wages used to receive PPP loan forgiveness cannot be used in your ERC claim.

What Is the Paycheck Protection Program?

Established by the CARES Act and administered by the U.S. Small Business Administration (SBA), the PPP offered loans of up to $10 million to small businesses that faced financial hardship as a result of COVID-19. 

As long as you qualified, you could have received a loan for up to 2.5 times of your average monthly payroll costs. The loan can be forgiven completely if you file a forgiveness application and show you used the proceeds to cover rent, utilities, payroll costs, and other qualifying expenses.

What is the Employee Retention Credit?

The ERC is a refundable payroll tax credit for qualified wages paid to employees in 2020 and 2021. It was created under the CARES Act and administered by the Internal Revenue Service (IRS) to encourage businesses to retain their employees during the pandemic. 

You may qualify if you experienced partial shutdowns due to government orders or significant declines in quarterly gross receipts due to COVID-19. If you meet certain eligibility criteria, you can claim as much as $5,000 per employee in 2020 and as much as $21,000 per employee in 2021.

Differences Between PPP and ERC

While the PPP and ERC were both designed to support businesses that have struggled financially as a result of the pandemic, there are several noteworthy differences between these two programs.

Type of Funding

The PPP offers a forgivable loan. If you used the funds on payroll, rent, and other qualifying expenses, you wouldn’t have to pay it back. In the event you used part of the loan for non-qualifying reasons, that portion won’t be forgiven. You’ll have to repay it with a fixed interest rate of 1% over a period of either two or five years. The ERC, on the other hand, is a tax credit you won’t have to repay.

Funding Time

If you qualified for the PPP loan, you would have received the funds via direct deposit, usually within ten days of approval. The ERC, however, will be distributed to you after you file Form 941-X and the IRS has reviewed your claim. The IRS will process the credit you’re owed and send you a check. The IRS can take anywhere from 3-6 months+ to process your credit. We highly recommend reserving your place in line now by filing the necessary paperwork with the IRS.

Cost 

It was free to apply for the PPP loan. You would only incur a cost if you don’t use the loan proceeds on qualifying expenses and must pay it back. There’s no governmental fee to receive the ERC either. It’s a tax credit that you can receive by filing an amended payroll tax form for each of the tax periods that you qualify for. The only expense you may face will be service charges if you ask an accountant or tax professional to assist in preparing and filing your tax forms.

Eligibility 

The eligibility requirements for the ERCwere updated in 2021. 

2020 qualifications:

• Qualifying wages of up to 100 full-time employees
• A decrease in gross revenue of at least 50% compared to the corresponding quarter in 2019
• Or either a full or partial suspension of business operations created by a government mandate 

2021 qualifications:

• Qualifying wages of up to 500 full-time employees
• A decrease in gross revenue of at least 20% compared to the corresponding quarter in 2019
• Or either a full or partial suspension of business operations created by a government mandate

PPP loan requirements included:

• A small business with 500 employees or less
• The business was operational before February 15, 2020
• For second-draw loans, the business must have used up previous loan funds and demonstrate a 25% or more reduction in gross revenue.

Can You Get Employee Retention Credit and PPP?

Initially, a business that received a PPP loan was not eligible for the ERC. Thanks to the Consolidated Appropriations Act of 2021, however, a business that received a PPP loan may also apply for the ERC retroactively back to 2020. 

The caveat, however, is that you can’t use the wages that qualify you for PPP loan forgiveness to determine your ERC amount. You’ll need documentation that proves you’re not “double dipping” and using both programs to cover the same wages. 

Let’s say you used your PPP funds to pay for $50,000 in wages and you expect to qualify for forgiveness. In this scenario, you can’t use those wages that have been forgiven to calculate your ERC.

How to Apply for PPP and ERC

You can no longer apply for a PPP loan, but you can still fill out an application for the ERC. If you’d like to claim the ERC, you can do so on Form 941-X. Don’t hesitate to consult a tax professional for assistance.

How to Maximize the PPP and ERC

There are a few ways you can maximize the benefits of both the PPP and ERC, including: 

• If you included non-payroll costs in your PPP loan forgiveness application, show you used a minimum of 60% of the total loan on payroll. This way you’ll be eligible for full forgiveness. 
• In the event you don’t list qualifying non-payroll costs on your application, you must prove that you used 100% of the loan amount on payroll to get your loan completely forgiven.
• Provide detailed explanations to help the tax professional you work with understand exactly how the government orders impacted your business. This will help them maximize the amount you qualify for.
• Don’t forget to separate the total payroll costs you used for the PPP loan from the total payroll costs you list with the ERC. This can help you avoid getting denied for using the same payroll costs for both programs.
• Use a tax professional vs. filing yourself. Though you may pay money, these professionals often understand the program much better than you ever could on your own. As a result, they often can help you qualify for more money than you would on your own. They also will help ensure that you file the credit correctly so that in the event of an audit all of your i’s are dotted and t’s are crossed.

Reap the Benefits of the PPP and ERC

If you previously applied for PPP, there’s no reason not to apply for the ERC. By doing so, you can mitigate the financial losses you may have incurred during the pandemic and set your business up for future success.