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Starting your restaurant is an exciting endeavor with various crucial elements. As a food entrepreneur aiming to turn an idea into reality, mastering culinary basics, understanding business principles, and having marketing skills are vital.
Persistence and determination are necessary. Below are twelve steps to ensure the smooth opening of your restaurant, control business costs, and secure the long-term success of your new venture.
How to Start a Restaurant in 12 Steps
- Choose a Restaurant Concept
- Write a Restaurant Business Plan
- Obtain Restaurant Funding
- Create a Menu
- Find a Commercial Space
- Plan Your Restaurant’s Layout
- Choose a Business Structure and Register Your Restaurant
- Acquire Restaurant Permits and Licenses
- Acquire Restaurant Equipment
- Hire a Restaurant Staff
- Advertise Your Restaurant
- Host a Soft Opening
Step 1: Choose a Restaurant Concept
Starting a restaurant begins with brainstorming and selecting a concept that excites you. This concept is the core idea or theme behind your restaurant and influences every detail, from the decoration to the menu and the ambiance.
A well-defined concept helps shape your restaurant’s brand and identity, crafting a unique selling point and setting you apart from the competition. Everything from your restaurant’s name and logo to the menu design and any merchandise should echo your chosen concept, offering a unified image.
Your logo or website should instantly convey to customers what your restaurant offers. Ensure your concept meets the tastes and expectations of your intended audience.
When deciding on the type of restaurant you want to open, consider the following:
- Decide on the type of service you plan to provide
- Identify your target customer demographic
- Define your distinct brand identity
Popular restaurant concepts are:
- Fast-food eateries
- Informal dining spots
- Quick but quality food places
- Upscale dining establishments
- Modern dining venues
- Temporary dining setups
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Step 2: Write a Restaurant Business Plan
Restaurant business plans offer a detailed framework for launching your business. They navigate you through the initial stages and act as an important document for attracting investors. They help you detail your business strategy and validate your concept’s feasibility.
These plans are segmented into parts that each describe specific elements of your business, outlined in the sections below:
- Executive Summary: Summarize your business plan, writing this part after completing the others.
- Company Overview: A detailed company description emphasizes your strengths and strategies.
- Concept and Menu: Elaborate on your restaurant’s theme and share a sample menu.
- Management and Ownership: Detail your business’s ownership structure and management organization.
- Staffing Needs: Project your staffing requirements and costs, including specialized roles.
- Market and competitor analysis: Analyze your location, target market, and competitors.
- Advertising and Marketing: Outline your short- and long-term promotional tactics.
- Financial Projections: Present your financial status, startup costs, funding strategy, sales forecasts, and pricing strategy. Include a break-even analysis.
Step 3: Obtain Restaurant Funding
Securing enough funds is a major challenge for those looking to open a restaurant, as few have the personal funds to cover all necessary expenses. Finding external financial support is crucial for turning business plans into reality.
Calculate your total startup costs, factoring in fees for licenses and permits, equipment purchases, building upgrades, and staff wages, to figure out the amount needed. Knowing your funding options is vital before you start seeking financial help:
- Commercial Loans: These are obtained through banks offering low interest rates and more capital. You need collateral and a high credit score.
- Business Line of Credit: This type of credit works like a credit card, with a set credit limit each month. It’s good for smaller costs, and interest is charged on the amount used.
- Small Business Loans: The SBA offers loans for entrepreneurs suitable for short-term financing. They’re available even with average credit, require collateral, and may take time to approve.
- Independent Investors: They might invest in your restaurant for a share of ownership.
- Crowdfunding: Use platforms like Kickstarter and GoFundMe to collect donations for your startup expenses.
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Step 4: Map Out Your Menu
The menu is a restaurant’s centerpiece and greatly affects the customer’s dining experience. It’s vital to design a menu that aligns with your restaurant’s theme and delivers the desired experience to your guests.
Crafting a menu involves more than just selecting dishes; it influences the equipment required, the skills your staff needs, and the customers you aim to attract. Consider these elements when developing your menu:
Menu Layout
Make your menu easy to navigate by grouping similar items, using clear titles, and choosing readable fonts.
Menu Pricing
Determine prices by analyzing ingredient costs, labor, and overhead to create a fair pricing strategy.
Cost Factors
- Cost of goods sold
- Food cost
- Desired profit margins
- Sales estimates
- Inventory needs
Profit Margins
Monitor costs versus pricing to ensure each dish brings in enough profit to support business growth. Calculate food cost percentages and compare them with industry standards.
Food Storage
Plan for the proper storage of each menu item, considering space needs and specific requirements like temperature control or separation to avoid cross-contamination.
Sales Projections
Estimate the popularity of dishes and manage inventory efficiently. Use past sales data, market research, seasonal influences, local trends, and customer input to inform your menu decisions.
Step 5: Find a Commercial Space
Choosing whether to construct a new building or rent an existing space is crucial for your success. A detailed analysis of potential locations will guide you to places that match your restaurant’s requirements. Pay attention to these factors when selecting a commercial space:
- Restaurant Visibility and Accessibility: Make sure your restaurant stands out and is reachable by pedestrians and vehicles, with ample parking.
- Customer Demographics: Research local age groups, incomes, and preferences to see if they match your restaurant’s offerings.
- Restaurant Labor Costs: Remember that wage rates and labor laws vary by location, impacting your staffing expenses.
- Competitors: Study nearby restaurants to understand their offerings and success. Identify any market gaps or if there needs to be more competition for your concept.
- Local Regulations: Learn the specific business laws in your chosen location to ensure your restaurant operates legally and avoids potential legal troubles.
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Step 6: Plan Your Restaurant’s Layout
The layout of your establishment significantly affects a customer’s dining experience from their entrance to their departure. An effective design improves service flow, fosters a welcoming environment, and can shape how customers view the quality of your food.
In designing a restaurant’s layout, concentrate on two main sections: the front-of-house and the back-of-house.
Front-Of-House Layout
The front-of-house encompasses the parts of the restaurant customers see and use, like the dining space, bar, lobby, and bathrooms. A good front-of-house layout ensures a welcoming, efficient setting with easy movement, optimal seating, and a pleasant atmosphere for guests. Consider these factors when planning the layout:
- Seating Capacity: Consider your dining space and service style to ensure your restaurant can accommodate the expected number of guests. While some places pack in seats to boost revenue, others choose a roomier setup for a relaxed feel.
- Furniture: Pick guest-friendly furniture that matches your restaurant’s theme. Look for styles that blend well, are made from durable materials, and can endure regular commercial use.
- Ambiance and Decor: The atmosphere is key to a welcoming dining space. Use unique lighting, colors, art, and music to elevate the experience. Small details like table settings, wall decor, and plants can significantly enhance the vibe.
- Cleanability: Anticipate spills and choose surfaces that are easy to clean. Durable, stain-resistant materials for furniture and flooring, like laminate or vinyl, are ideal.
- Maneuverability: Ensure staff can move smoothly through the dining area to serve and assist guests. Plan clear paths and wisely place service stations to avoid bottlenecks.
Back-Of-House Layout
The back-of-house includes the kitchen, storage, and areas for staff, all hidden from customer view. The layout is crucial for efficient operations. When planning your layout, consider the variety of tasks in these areas.
- Warewashing: Ensure enough room for ware washing with a machine, a manual wash sink, dish racks, and shelving for clean dishes. Plan the flow to avoid cross-contamination of dirty and clean dishes.
- Dry and Cold Storage: Keep dry storage tidy and accessible for easy inventory and rotation. Place cold storage, such as walk-in coolers and freezers, close to prep areas to reduce food transit time.
- Food Preparation: Create a food prep area that allows easy movement of ingredients and staff, with ample counter space, sinks, and utensil storage. Near refrigeration and dry storage locations enhance efficiency.
- Cooking: The cooking section should fit all necessary appliances, such as stoves, ovens, and fryers, with attention to ventilation and fire safety to handle heat and odors.
- Service: Design a service area for fast, organized plating with counters, warmers, and storage for serving essentials.
Step 7: Choose a Business Structure and Register Your Restaurant
If you’ve chosen a unique name for your restaurant, file a “Doing Business As” (DBA) name with your state to protect it from being used by others.
After securing your DBA, decide on a business entity type. This decision affects your tax filings, team member roles, and liability in legal matters. Given the significant implications of your business structure, consulting a business attorney is advisable. Common business entities for restaurants include:
Sole Proprietorship
This is the simplest type of business structure, where you’re the sole owner and are liable for any debts or obligations.
If you’re starting a small-scale operation like a food truck or a pop-up without planning to acquire fixed assets or employ others, a Sole Proprietorship could be ideal for you. The best part is that no formal action is required to establish a Sole Proprietorship.
If you operate under your own name, you can start your business immediately. If you choose to use a different business name, a “Doing Business As” filing is all that’s necessary.
Partnership
This business structure involves a single entity owned by two or more people. You can opt for different types of Partnerships, such as a General Partnership, a Limited Partnership, or a joint venture.
Many seasoned entrepreneurs advise against choosing a Partnership structure due to its limited liability protection.
If you decide on a Partnership, it’s important to select a business partner with whom you can collaborate effectively over time. Document the roles and responsibilities of each partner clearly and definitively right from the start.
C-Corporation
A C-corporation is a complex business structure typically suited for larger companies or those in high-liability sectors that need additional protection. Lawyers often recommend a C-corporation structure for restaurants, which they categorize as high-liability.
However, forming a C-Corporation involves setting up a board of directors and appointing officers, along with more complex tax filing obligations. It’s wise to seek legal advice, but be ready for a complicated process.
S-Corporation
An S-Corporation is structured much like a C-Corporation, but it’s distinct because it’s taxed at the individual business owner level instead of at the corporate level.
If you prefer the organization of a Corporation but wish to avoid complex dividend filings, an S-Corp could be a good compromise.
Limited Liability Company (LLC)
A Limited Liability Company (LLC) provides the liability protections of a Corporation and the tax simplicity and flexibility of a Sole Proprietorship or Partnership. This versatile business structure has become increasingly popular.
Entrepreneurs who choose an LLC can opt for a single-officer LLC, a Partnership LLC, or a Limited Liability Company.
An LLC functions as an independent entity, which means its owners enjoy limited liability. This critical advantage ensures that the personal assets of LLC members are protected from the company’s debts and obligations.
Members’ financial risk is confined to their investment in the company. To establish your business as an LLC, reputable companies offer LLC registration services to assist with the process. Some of these companies are provided below.
Tailor Brands provides an online business registration service that helps entrepreneurs register their businesses quickly and easily. This service features a straightforward, step-by-step process that guides users through the legal requirements and necessary paperwork to set up their business as a separate legal entity.
Read our complete Tailor Brands review.
ZenBusiness stands out as one of the top business registration services due to its rapid filing options and affordable incorporation costs. Its customer service team is readily available to assist with any questions throughout the process, though they don’t provide legal advice.
Starting a business may seem simpler than maintaining one, so ZenBusiness offers tools to simplify management. The company can assist with tax documents or act as a registered agent, reducing your workload.
Northwest Registered Agent is a company registration service that values transparency and treats customers with personal care. It openly displays its pricing and depends on exceptional, easily accessible customer service to ensure accuracy.
Read our complete Northwest Registered Agent review here.
Step 8: Acquire Restaurant Permits and Licenses
Restaurant licenses and permits are necessary at the federal, state, and local levels. It’s important to check with local authorities and legal counsel to ensure you have all the required permits. While the specific permits and licenses needed may differ based on your location, some of the most common ones are listed below:
- Business License: This license is issued by the local government and confirms your legal business right. To apply, you need to provide basic details about your business, including its name, location, and ownership.
- Employer Identification Number (EIN): Required for hiring employees, an EIN is used for tax purposes and can be applied for on the IRS website.
- Foodservice License: This license confirms that your restaurant complies with local health and safety regulations. The application typically requires submitting a menu, floor plan, and proof of food handlers’ certifications.
- Liquor License: A liquor license is necessary if you intend to serve alcohol at your restaurant. The application for a liquor license varies by state and requires details about the types of alcohol you’ll serve, your location, and any necessary background checks.
- Health Permit: This permit is issued after a health inspection and shows that your restaurant meets local health departments’ health and safety standards. The inspection covers food handling, cleanliness, and equipment maintenance.
Step 9: Acquire Restaurant Equipment
Investing in proper equipment is crucial for efficient and effective kitchen operations. While specialized equipment may be necessary, every restaurant typically requires essential items like refrigerators, ranges, ovens, fryers, grills, and worktables. There are three options for new restaurant owners when it comes to equipping a kitchen:
- Purchase New Equipment: Buying new equipment means you start with fresh, reliable tools that usually come with warranties to cover any unexpected issues. However, this option can be expensive, particularly for startups on a strict budget.
- Purchase Used Equipment: Opting for used equipment can be cost-effective, providing the necessary functionality without the high price tag. This is a popular option for entrepreneurs who want to cut initial costs.
- Lease Equipment: Leasing allows you to avoid the large initial expense of buying new equipment. You’ll pay a monthly fee during the lease term, and you can extend the agreement or upgrade equipment as technology improves or business needs evolve.
Step 10: Hire The Right Restaurant Staff
Running a restaurant necessitates a committed team of well-trained and experienced kitchen staff. When hiring, it’s essential to evaluate candidates for both front-of-house and back-of-house roles, following the brigade de cuisine system.
To minimize staff turnover, maintain a detailed interview process, verify references, and confirm whether chef and management applicants have graduated from an accredited culinary program.
Common restaurant positions:
- Food Runner
- Host
- Cashier
- Bartender
- Server
- Busser
- Executive Chef
- Sous Chef
- General Manager
- Prep Cook
- Line Cook
- Dishwasher
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Step 11: Advertise Your Restaurant
Effective advertising is crucial in opening a successful restaurant, spreading the word and generating excitement about your brand, and encouraging customers to visit. Below, we have listed common methods that new restaurants use to promote their brand:
- Build a Website: Create a restaurant website that’s simple to use and reflects your brand. It should include essential information such as your address, phone number, operating hours, and menu. While you can hire a professional to develop your website, platforms like Wix, Squarespace, or WordPress allow you to build one yourself.
- List Your Restaurant Online: Registering with Yelp, Tripadvisor, and Google My Business makes it easier for potential guests to discover your restaurant. Customers can leave reviews, enhancing your credibility and attractiveness.
- Embrace Social Media: Modern restaurants must have a social media presence. Set up accounts on Facebook, Twitter, Instagram, and TikTok to post updates, photos, and engaging content about your restaurant.
- Offer Promotions to New Guests: Attract new customers by offering a promotion, such as a free drink, dessert, or a discount on their first visit.
- Host a Grand Opening: Hold a grand opening event to generate excitement about your new restaurant. Add special activities like wine tastings, live music, or cooking demonstrations to draw more attention.
Step 12: Host a Soft Opening
A soft opening serves as a rehearsal for your restaurant’s grand opening. Invite a select group like friends, family, or your staff’s acquaintances. Here are various strategies for planning a soft opening:
- Trial Menu: Present a simplified menu to ease the load on your new staff and make customers eager to return for the full selection.
- Limited Schedule: Consider opening with reduced hours for the initial few days.
- Sneak Peek Event: Organize a preview happy hour featuring menu items and special drinks.
- Friends and Family Night: Host a relaxed evening for friends and family to help fine-tune preparations for your grand opening.
- Neighboring Homes and Businesses Night: Invite nearby residents and businesses to create local support and foster community spirit.
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Low-Cost Restaurant Start-Up Ideas
Although there are options for financing your restaurant, explore the following restaurant models if you’re starting with limited funds.
Launch a Food Truck
Starting a food truck requires considerable money and time, with total costs ranging from $40,000 to $250,000. This includes purchasing the truck, equipping it with the necessary tools, and obtaining all required permits.
By opting for a used truck and/or used equipment, you could significantly cut down your initial expenses. A tablet-based point of sale (POS) system may also reduce operating costs, which can help save on utilities and staffing expenses.
Start a Ghost Kitchen or Ghost Restaurant
A ghost kitchen, also known as a ghost restaurant, functions from a rented commercial kitchen and delivers food exclusively through third-party apps like Uber Eats or GrubHub. This model is among the most cost-effective ways to start a restaurant.
You will lease the kitchen space without the expense of maintaining a dining area or bar. Some rental spaces may also include essential kitchen equipment like ovens and refrigerators.
The estimated startup costs for a ghost kitchen typically range from $10,000 to $50,000. In some cities, local providers may offer options for under $10,000.
Start a Home-Based Catering Business
In home-based catering, you might manage the business from your home and use a commercial kitchen for cooking. This setup is another cost-effective approach, with startup costs typically ranging from $10,000 to $50,000.
Before starting a restaurant, you must familiarize yourself with the restaurant industry. Safety and food handling are critical priorities, requiring a thorough understanding before launching your business.
The restaurant industry is stringently regulated at the city, state, and federal levels to ensure guest safety and prevent food-borne illnesses. Key federal agencies oversee various aspects of the industry.
- The Food and Drug Administration (FDA)
- The Centers for Disease Control and Prevention (CDC)
- Food Safety and Inspection Services (FSIS)
Local health department rules differ depending on where you open a restaurant. If you’re considering multiple locations, each may have its compliance requirements. Review your state’s guidelines and keep updated with federal agency recommendations and new educational materials they publish.
Restaurants undergo several inspections to ensure safety and compliance. An initial inspection assesses food safety protocols, grading the restaurant’s food handling, storage, employee hygiene, and overall operations. Regular inspections throughout the year are standard, so developing best practices for food safety and cleanliness is crucial.
Restaurant owners can maintain a good reputation and protect their customers by learning about regulations, obtaining industry-related licenses, and following basic food safety procedures.
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The Cost of Starting a Restaurant
Many people interested in opening a restaurant often ask about the costs involved. While it may seem straightforward, there are various answers for the cost of starting a restaurant. The startup expenses vary based on several factors, including:
- The size of the restaurant
- The type of restaurant
- The number of employees
- The cost of real estate for the restaurant
Starting a restaurant typically requires a substantial investment. Opening costs range from $95,000 to more than $2 million on average. Misjudgments in budgeting and forecasting are common reasons why restaurants fail. To avoid such pitfalls, it’s important to understand potential operating costs and discover ways to minimize expenses to establish a viable business model.
After extensive calculations and price evaluations, you might need more upfront capital. Fortunately, numerous financing options are available to help restaurant owners get started.
Even if initial funding is optional, you might still need loans for future expenses such as purchasing inventory or new equipment, renovating, or expanding your staff.
How to Start a Restaurant Business – FAQs
The Bottom Line – How to Start a Restaurant Business
Owning a restaurant isn’t for the faint of heart, as it’s a continuous, all-day endeavor. The challenges and questions each restaurant owner faces are as varied as the types of restaurants and the states where they operate.
However, if you’re passionate about food and dream of running your own restaurant, the previously mentioned steps can provide a solid foundation for making your dream come true.
