Restaurants in NYC can save money in the face of rising labor costs by using Securiti by TheGuarantors to cover their commercial security deposits
Conventional wisdom states that restaurants should spend 10% of sales on rent/utilities, 30% on labor, and 30% on food/drinks, resulting in margins of ~10% after factoring in miscellaneous small expenses.
And restaurant labor costs in NYC are rising - the minimum wage is now $15/hour for non-tipped employees and $10/hour for tipped employees (up 30% to 40% from 2016). Putting it all together, labor costs now account for an additional 10% of sales.
Typical Restaurant Expenses (% of Sales)
If you want to preserve your margins in the face of rising labor costs, your current options are limited to 1) raising menu prices, 2) cutting staff, or 3) reducing operating hours. None of these options are ideal as they degrade the diner experience and threaten the long term viability of the restaurant. Now there’s another option for preserving your margins: getting rid of your security deposit.
Your existing options for covering a security deposit are to either 1) give your landlord a cash deposit or 2) get a bank letter of credit, the equivalent of giving that same cash deposit to your bank instead of your landlord and then paying a 2% fee on top of that. Now there’s a third option - Securiti by TheGuarantors - the “insurance version” of the security deposit.
Here’s how it works: you pay an annual premium (typically 4 to 6% of the security deposit amount) and we provide a surety bond (insurance) for your landlord that covers items like missed rent and property damage, just like a typical deposit. That’s it - you never have to tie up the full amount of the deposit.
Cost Savings with Securiti ($100K Deposit, 5% Securiti Premium)
In Manhattan and pricier parts of Brooklyn, restaurants pay on average $120/square foot per year in rent. For a typical 3K square foot restaurant, rent is about $400K per year. Security deposits are typically 3 to 6 months of rent, so $100K to $200K (3% to 5% of yearly sales assuming rent amounts to 10% of sales), meaning removing your security deposit could increase margins by 3% to 5%, softening the blow of increased labor costs.
Securiti can be used to cover security deposits for new restaurant leases or replace existing deposits. There’s a quick and straightforward underwriting process that typically only requires the same financial documentation that landlords need to review lease applications. And underwriting for chain restaurants is easy too - once you’re approved for Securiti, you can use the bonds across the chain, both for existing and future restaurants.