You’ve probably heard the phrase “too many cooks in the kitchen.” That was exactly the case when it came to deciding on the future direction of one Tampa Bay restaurant chain. The owner of this popular restaurant group was in the perfect position to put money back into his restaurants and grow his company, but it meant decreasing cash flow now in order to increase profit later – a decision that wouldn’t be popular with the restaurant group’s shareholders.
Shareholders are vital to entrepreneurship and small business, but they typically have a short-sighted view when it comes to a company’s growth. Investors and shareholders focus on quarterly earnings because that is what directly affects their bottom line – getting a return on their investment through dividend payouts. However, managing to quarterly earnings can be to the detriment of a company’s long-term goals and may result in missed opportunity for major growth.
Buying Out Shareholders
This was exactly the case for our client. He needed to refinance in order to fund renovations and expand menu offerings in his restaurants. With a maturing loan coming up, this restaurant owner reached out to Links Financial for help finding a creative solution that would not only fund his upgrades but also his partners’ buy out.
Our team was able to match our client with the right bank so that he could buy out his investors using debt. Debt is always a less expensive form of capital than equity, and when our client swapped equity for debt his capital costs dropped to 6%. His shareholders, who had already made back their original investment through dividends, saw a 45% return on investment in this deal! This was accomplished with a new $2 million loan from the lender Links Financial arranged for our client.
Reaching Business Goals with Links Financial
This win-win solution resulted in a new direction for the restaurant group and happy shareholders. By using creativity and industry expertise to structure this deal and by acting as a liaison for our client, Links Financial was able to help this restaurant owner gain more flexibility in managing his company and more control over its future. He now plans on updating the décor, tableware and outdoor space in his current locations. What’s more is that this business owner now has a great track record with his investors, which could afford him even more opportunity in the long-run.