If you’re passionate about the food industry and looking to start a small business, it could be time to open your own restaurant. But it’s going to take more than culinary skills and elbow grease to ensure you stand out in this competitive market.
Perhaps you’ve already done some research into how to start a restaurant, or maybe you’re starting from scratch. Wherever you’re at in the planning stages, it’s helpful to break down the process into bite-sized pieces to avoid feeling overwhelmed.
We’ve put together a 10 step guide on how to start a restaurant to prepare your business venture’s recipe for success.
Why open a restaurant?
According to the National Restaurant Association, 8 in 10 restaurant owners started their industry careers in entry-level positions. You may have begun your journey slicing and dicing as a line cook, bussing tables, or serving at a family restaurant. During that time, maybe you learned the ropes of running a restaurant from your boss, inspiring you to take the reins and launch your own business.
Regardless of your professional background, it’s important to know that opening a restaurant requires a balance of passion and business insight, with a side of determination. If you check-off every item on your to-do list before opening the doors to your restaurant, you’re more likely to turn a profit and stay open.
Opening a restaurant takes risks
Because approximately 60% of restaurants fail within the first year of operation, the risks of opening a restaurant need to be considered before you sign on the dotted line.
Watch out for some of these common mistakes and pitfalls:
- Undefined restaurant concept
- Poor employee management
- Insufficient start-up capital
- Lack of industry experience or business skills
- Not enough investment in marketing and promotion
- Failure to adapt to an evolving economy
In order to build a restaurant with longevity, ensure you understand how to bypass every one of these potential blunders.
How much does it cost to start a restaurant?
The cost of opening a restaurant depends on several factors: type of restaurant, service style, number of employees, location, menu, and more. According to a recent survey of 350 restaurateurs, total startup costs can range from $175,500–$750,500.
As a savvy restaurant entrepreneur, you’ll need to have all your financial ducks in a row to get your business off the ground. Look into financing options like business loans, investors, or a line of credit to give yourself the best chance. And try to account for recurring costs that’ll pop up along the way (purchasing inventory and equipment, hiring, renovations, marketing, etc.).
There’s no one-size-fits-all when it comes to a restaurant’s revenue, but the average profit margin falls between 3–5 percent.
Things to consider before opening a restaurant
Creating a solid roadmap before opening your restaurant will be key in whether you fail or succeed.
Here are some essential things to consider:
- Positioning – evaluate your restaurant’s product, placement, promotion, and price point to determine where it’ll sit in the competitive market
- Securing permits, licenses, and insurance according to your state’s FDA requirements
- Learning how to set up proper accounting documents or hiring a trustworthy accountant
- Investing in proper tools like a restaurant POS system and employee timesheets
- Registering your restaurant’s unique “doing business as” (DBA) name with your state’s agency
10 steps to opening a restaurant
Step 1: Choose a unique restaurant concept
Even restaurant owners dine out, so you must have noticed a gap in the market—and it’s your job to fill it. Does the idea of Greek-Japanese fusion create a spark? Or maybe you’re inspired by fresh takes on classic breakfast foods.
Whatever the concept, make sure it’s innovative and ignites your entrepreneurial drive. Also, consider the following questions:
- What type of service do you want to offer?
- Who is your target audience?
- What is your unique brand?
Step 2: Create a business plan
Building a thorough blueprint for your business is crucial—it requires organization and meticulous planning. Prove to potential investors that your restaurant will succeed by mapping out the foundations of your operations, fleshing out the details, and summarizing your goals.
Here are 5 principle business plan components:
- Executive summary
- Company description
- Competitive analysis
- Organization plan
- Financial projections
Keep reading to find an example of a business plan below.
Step 3: Secure funding
Unless you have a trust fund up your sleeve, you’ll need to acquire enough capital to cover the steep costs of opening a restaurant—and keep the business afloat until it starts turning a profit.
If you approach financial resources with a well-researched budget that includes the cost of licenses, equipment, building repairs, employee wages, and more, you’re more likely to be approved.
Determine the best funding option for your business:
- Business loans (term loans, SBA loans, equipment financing, short-term loans, or a line of credit)
- Grant funding through a non-profit or local government
- Partner with a private investor for a share of profits
- Crowdfunding through GoFundMe or Kickstarter
Step 4: Obtain licensing and permits
Aside from standard business licenses and permits, you’ll need other licenses to start a restaurant, from a liquor license to food handler’s permits, and more. Do your research on FDA regulations in your state and apply early to avoid long wait times. You may want to enlist legal counsel for this complex process.
Some required licenses include:
- Business License – varies by state
- Employee Identification Number – to officially hire employees and set up your payroll
- Foodservice License – you’ll first have to pass a food safety inspection
- Liquor License – alcohol boosts sales!
- Certificate of Occupancy – states a legal use and/or type of permitted occupancy of a building
Step 5: Find a prime location
A restaurant’s location can be make or break. Think about leasing vs. buying a physical space, which can immediately affect costs and profits.
Every restaurant owner should consider the following when choosing a location:
- Visibility and accessibility – plenty of vehicle and foot traffic, and parking availability
- Demographics – attract your target market
- Labor costs – varies depending on location (e.g. high cost of living means higher wages)
- Local competition – try to avoid an over-saturated area
Step 6: Design your space
Now for the fun part (depending on who you ask)! When drafting a design plan, you’ll need to do a layout for both the font-of-house and back-of-house. If this process is beyond your abilities, hire a professional if it’s in your budget.
Keep these factors in mind when designing:
- Seating capacity
- Ambiance, decor, and dining furniture that aligns with your concept
- Cleanability – best to avoid carpeting!
- Dry and cold storage options
- Functional food prep and cooking space
Step 7: Find suppliers
Restaurants need to be fully stocked and outfitted before the first meal service. This means your kitchen will require proper equipment like ovens, refrigerators, fryers, commercial dishwashers, and beyond—all of which can be pricey. Some spaces may come already equipped, but you may need to buy or lease pieces.
Next, your dining area will need furniture: tables, chairs, barstools, etc., as well as cutlery, glassware, plates, linens…you get the picture. On top of that, restaurant owners should strike up a relationship with a reputable food supplier to ensure guests don’t go hungry. The last thing you want is to run out of food because of an unreliable supplier.
Step 8: Build a menu
Your restaurant’s unique concept, target audience, and location should shape the menu. Consider it an opportunity to flex creativity, skill, and flavor—just make sure your food offerings stick to your budget and boost your profit margins. Easy, right?
Creating an effective, appealing, and cost-efficient menu is a tricky balance. Enlisting the help of your team of chefs will fine-tune this process, taking some stress off your plate.
Consider these factors when developing menu pricing:
- Cost of goods and food sold
- Profit margins
- Sales forecasting
Step 9: Hire skilled employees
As a restaurant owner, you’re the leader of your team. This means it’s up to you to properly vet every role from bartenders and servers to dishwashers and sous chefs. Investing in qualified, trained people will help reduce turnover and boost morale.
As the minimum wage increases, so does the cost of labor. If you keep on top of common mistakes that drive up labor costs like poor scheduling, time theft, and unnecessary overtime, your profit margins won’t suffer as much.
Tips to reduce labor costs:
Step 10: Develop a marketing plan
Now that you’ve brought your restaurant vision to life, it’s time to spread the word. Create a website and social media channels, pulling details about your brand, vision, and positioning from your business plan. And always make sure you’re speaking directly to your target audience.
Here are some strategy ideas to take your marketing plan to the next level:
- Content marketing (videos, blogs, reels, newsletters, etc.)
- Email marketing (newsletter and or promotional campaign directed to targeted database)
- Boosted social posts (Facebook, Instagram, LinkedIn)
- Review sites (Google, Yelp, OpenTable, FourSquare)
- Food delivery/order apps (Uber Eats, DoorDash, Postmates, etc.)
- Collaborations (food festivals, pop-ups, special events, etc.)
A business plan for starting a restaurant
If you’re stuck on what to include in your restaurant’s business plan, we’ve put together an easy example to get you started.
- Executive Summary: A brief overview that includes your restaurant’s concept, mission statement, target location and demographic, a market analysis, and financial projections.
- Company Description: A more detailed overview of the executive summary that explains exactly how and why you’re opening this specific restaurant.
- Concept and Menu: Describe all the details of your menu, service type, and design.
- Management and Ownership Structure: Identify which type you’re using, like sole proprietorship, partnership, or LLC.
- Employee Needs: Detail how many employees you need to hire to operate your business.
- Marketing and Competitor Analysis: Provide an analysis of the demographics and competition for your restaurant’s location.
- Advertising and Marketing Strategies: Use the marketing analysis to pinpoint the most effective marketing strategies.
- Financial Projection: Provide a sales forecast and break-even analysis.
Your restaurant checklist
Now that you’ve learned how to start a restaurant, use this checklist to ensure you’re ready to get cooking!
- Choose a restaurant concept
- Create a business plan
- Secure funding
- Obtain licensing and permits
- Find a location
- Design your space
- Find suppliers
- Build a menu
- Hire skilled employees
- Develop a marketing strategy
How to start a restaurant FAQs
What is the startup cost for a restaurant?
The startup cost for a restaurant depends on multiple factors, like location, restaurant size, service type, menu, and more. On average, total costs can range from $175,500–$750,500, so it’s crucial to plan your finances accordingly.
Is starting a restaurant a good business idea?
Starting a restaurant can be a good business idea—if you do it right. That means lengthy preparation and organization, from drafting a thorough business plan to hiring quality employees.
Streamline your restaurant operations with Homebase, an all-in-one employee app. With employee scheduling, time tracking, and communication, this tool can help you manage your restaurant efficiently.
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What is the biggest threat to a restaurant business?
The biggest threat to a restaurant business is lack of research and poor management. But if you understand the risks and common mistakes, you’ll be better prepared to start a restaurant.