How to Start a Restaurant. The Ultimate Guide to Opening a Restaurant
February 11, 2020 • 22 minutes
Becoming a restaurateur and running a central meeting place within a community is a dream that many people share. Indeed, restaurant ownership is a wild and rewarding experience. However, opening a restaurant business requires sufficient investment of time, money, and energy. You will need a smart approach to securing funding, building a high-performance team, and setting up efficient restaurant operations to get your doors open.
The restaurant industry is thriving with American’s eating out 5.9 times per week. For the industry that’s great news, but even with the extreme growth in diners, FSR reports that about 80% of new restaurants close within five years.
This article on how to open a successful restaurant will lead you through everything from concept planning to hiring staff. Additionally, you can download our Opening a Restaurant Check__list for you not to lose sight of the small but important details.
1. Choose a restaurant concept
From fast food to fine dining, the restaurant industry has seen over nine years of consecutive sales growth surpassing $825 billion in sales annually (according to FSR Magazine). That spans across countless concepts including mom and pop diners, as well as haute cuisine establishments. One of the best tips for opening a restaurant is to find a concept that will stand out in this highly competitive industry. The concept for your restaurant will include:
Service style (quick service or full service)
A range of services (reservations, delivery, takeaway, etc.)
Menu & pricing policy
Interior design & atmosphere
Branding and naming.
To turn your primary idea into a sound business concept, you should think about every aspect of your future restaurant in detail. Then you should formulate it clearly and concisely to encompass its key elements, define the market niche and target audience, and clarify your unique selling proposition.
Recent trends in restaurant concepts include focusing on a single ingredient. The Burlap Sack in New York has gained a fair amount of attention for its completely potato-centric menu.
What you need to open a restaurant is a restaurant concept that fits your personality, your vision, and your target customers’ preferences. It can be as crazy as the Devil Island Prison Restaurant in China, where diners are photographed, assigned inmate numbers, and dine as inmates. Or, it can be as tame Dominos where the concept focuses on pizza.
When diving into how to open a new restaurant, you'll want to ensure that your branding is consistent. Branding will play a vital role in communicating what your customers should expect. For example, a Mediterranean-inspired fast-casual spot might use a variety of olive designs, along with vibrant colors and playful font.
Finally, when choosing a concept, you need a business name. The restaurant name can be quirky, or classy or anything in between. Just ensure that it clearly ties in with your concept. You probably wouldn’t name a Spanish inspired restaurant, «Vendredi Soir,» which is French for Friday night. You need a well-developed idea before you can get started on your business plan.
2. Write your restaurant’s mission statement
Mission statements are where it all starts. In a short statement, you need to describe your core business principles and unchanging goals for your operations. It will stand as an ongoing guide for your business.
Panda Express has reached $3.5 billion in revenue with their mission statement, «Deliver exceptional Asian dining experiences by building an organization where people are inspired to better their lives.» They put their focus on their food and their impact on people, whether that be their staff or customers.
When looking at what is required to open a restaurant, it can be easy to see how decision making can take over the process. It is important to keep your decisions consistent with your values and vision. The mission statement and ultimately your business plan will help you make meaningful decisions that keep your long-term goals in mind.
3. Create your restaurant business plan
When people start learning how to start a restaurant business, they usually want to jump right in, but you need to take a minute. Thorough planning is critical for any business, but especially for restaurants. Restaurant owners manage so many different elements for their store that they need to have a clear path with goals, values, and resources for the basic requirements for opening a restaurant. Your business plan will be your map for decision making, and it should include:
Executive summary listing takeaways from each section in your plan and is something that an investor or bank representative could evaluate in less than a minute.
Company description covering the name, mission statement, concept, goals, and target customer base.
Market analysis of your target market and community showing how your restaurant fits into the local market and laying out your competitive strategy.
Organization plan explaining how you intend to run your business, who will be in charge of what responsibilities, and the legal structure of your business.
Product overview that explains your menu, ingredients, pricing and USP.
Marketing plan covering all your activities on attracting customers: digital marketing, PR, social media, promotions, customer loyalty programs, etc.
Sales plan including your menu pricing strategy and how you plan to perpetuate good sales figures.
A business plan serves to help bring in restaurant investors, secure funding, set organizational goals, and drive your restaurant forward. Business owners should use their plan as a living document where flexibility and consistent referencing will allow you to rely on this plan for years. Ongoing use of the document that got you started will help keep your restaurant on track for controlled growth, healthy finances, and authenticity to your original concept.
4. Find the right location for your restaurant
Ask anyone for tips on starting a restaurant, and they'll probably tell you that it's all about location. They're not wrong because you can have the best food in your area, and if people can't find you, find parking, or get into your building, then you'll have an empty dining room. Deciding how to choose a restaurant location can be easier when you ask these questions:
Does the area match your target market and concept?
Is the restaurant easily visible from the street and easy to identify from nearby businesses?
Is it too close to direct competitors?
Is parking easy to access, and is there enough parking nearby?
To determine if an area fits your target market, you’ll need to look at the people who live, work, and visit the area. An ideal space would be close to a residential area, have a wide variety of working professionals nearby, and some tourism or visitors. Unfortunately, a space like that might already have a few restaurants. Use the level of competition to rank your options to choose the best possible location.
As you checkout locations, you should be watching the foot traffic. You can manually count people in short bursts, or you can use modern AI tools to monitor foot traffic over longer stretches of time. Either way, you need reliable data to understand foot traffic patterns before you take the location.
5. Evaluate and prep your building
Evaluating your building is the process of assessing what strengths your location has built-in. You could have a freestanding structure, a slot within a business center, or operate out of a living house. An empty lot will require a substantial investment to build a structure from scratch and will take more time to open. All the while, an existing building may need some renovation. If it was previously a restaurant, you may need to refit the structure for better workflow and to break away from what people would recognize from the former restaurant.
The cost to build or refit a restaurant space will typically range between $420,0000 to $1.2 million. Depending on the extent of the renovation, or construction, it could take weeks or months to complete your building.
Here is a list of what is needed to open a restaurant in a premise:
A lease agreement that fits into your budget
Kitchen or ability to build a kitchen within the building allowing for gas, water, and electric utilities.
Proper zoning for food and alcohol service, music permits, etc.
Understanding changes to your building, and street. Will there be new construction or road closures?
To begin construction or renovation, you’ll need a contractor. Contractors should create a construction plan, help you with necessary permits, and explain zoning limitations. A contractor will need to work within your budget and any lease terms that you’ve agreed to.
Construction brings the concern of insurance to light as well. Your contractor should also have their own insurance, but don’t leave these things to chance, make sure that you’re protected too with the proper restaurant insurance options.
When looking at any lease, consider having your lawyer review it before you sign. As you learn how to open a restaurant, it quickly becomes apparent that there are many legal pitfalls. Even if you've found an absolute gem of a location, you shouldn't get locked into a terrible lease.
6. Design your restaurant inside and out
Did you start planning how to open and run a successful restaurant with a vision in your mind? Neutral tones accented with subtle hints of color? Maybe you have a particular building in mind? The design of your restaurant should entirely represent your concept while also giving an inviting and welcoming atmosphere. Starting with the exterior design, you'll need to plan for:
Showcasing your restaurant’s name
Building elements: windows, doorways, walkways, outdoor dining areas, and more.
Exterior designs can include unique architectural elements such as curved walls, covered outdoor dining, or expandable walls. The Onda Restaurant of Los Angeles features a massive weathered wood exterior wall with a flat roof, making it unlike any other building nearby.
Your exterior design is the chance to make your building stand out and gain visibility. Be careful with planning signage as you may have restrictions within your city on how and where you can place signs. Additionally, you need to ensure that exterior elements don't have a negative impact, such as harsh sunlight in your dining room during your afternoon rush. Interior design is where you can have fun, be sure to include:
Furniture choices for booths, tables, chairs, bars
Color schemes that match your concept and brand
Floor layout for premium table turns and comfortable walking space
Bathroom design and accessibility.
Preparing to open a new restaurant comes with many decisions, and planning the design elements is a marathon of decision making. Many people will bring in a consultant just for design, so they don’t miss anything.
7. Apply for the correct licenses and permits
Many of the requirements to open a restaurant will depend on your government. All countries require registering a formal business entity so that you can pay taxes and contribute your part toward social systems for workers such as unemployment or disability. There are many things you need to open a restaurant, and licenses and permits aren't negotiable. You may need to apply for food service licenses, permits to serve food or alcohol, health department inspections, fire department assessments, and more.
In the U.S., getting the proper licenses involves four different levels of government and could take weeks to secure. While in Spain, you’ll deal mostly with local and regional governments, but the licenses could take months with necessary on-site inspections.
The process within the United States is often controlled on a city, county, and state level. While in the United Kingdom, the requirements are set under the Food Standards Agency and their local governments. To find local requirements and get help mapping out a time frame, you should contact your local government office directly. It may be helpful to ask advice from a local business lawyer and speak to experienced restaurateurs who can help you get started in the right direction.
8. Secure proper funding for your restaurant business
You’ve probably said something similar to, «what I need to open a restaurant is an investor.» Many entrepreneurs don't have the financial means to get started without any help. You may need investors or a partner to get your doors open. Take some time to go through the full range of options before you decide on how to get your funding.
When choosing who to work with, look for the personality match. The investor who shares your vision would offer you more than just money. They can help a company build a reputation and negotiate desirable terms on contracts with suppliers. They would work with you to guide you toward success.
The downside of taking on an investor is that you lose part of your money and control. While you’re not getting a loan and opening a business with a substantial amount of debt, you will be giving your investor a fair share of the profits. They want you to be successful mainly because your success is their success. However, if they see that your concept is not performing well or that your management skills are substandard, they can step in and demand changes.
According to Restaurant Engine, the median cost of opening a restaurant is $275,000 or about $3,000 per seat; although startup costs can range from a few thousand dollars to hundreds of thousands. Few entrepreneurs can cover all of the startup costs, and that is why they turn to investors.
Investors have a right to review financial statements, and often they're looking for vital signs of success. Improving low margins, building a sustainable net profit, and resolving debt are among the biggest concerns with them. It requires you to be transparent with your finances. If you're looking for someone with connections, negotiation skills, and experience that can contribute to the success of your new restaurant, then an investor is right for you. That doesn’t excuse you from making a financial contribution. Without some monetary personal investment, you'll have a hard time finding an interested business person.
Often people list a business loan among the requirements for opening a restaurant. That's not always the case, but usually, small businesses will take out many loans over the course of their life. Starting a business on a loan isn’t ideal, but it is common. A bank will also want to see you make a monetary commitment before they decide to lend you anything. Additionally, you’ll need to showcase that you have the skills, and a plan to open a profitable business and pay back the loan on time.
Small business loans vary widely in availability, amount, and interest based on your credit history, monetary contribution, and factors of your restaurant, such as location. Long-term loans can reach up to $500,000 and smaller loans can go down to just a few thousand.
Alternative funding sources are springing up as technology and the business environment change. New age funding resources can include crowdfunding through platforms such as Kickstarter and Patreon. This funding comes from people donating or investing online, usually in small amounts. Don't get caught using crowdfunding-resourced funds for anything other than what the post reflected, such as buying personal items when you promised that all funds were for opening your restaurant.
Add «research funding options» to your starting a restaurant checklist. It could take a while before you decide what’s right for you. To find the best option, consider talking to investors and researching your business loan choices while you’re still exploring how to start up a restaurant.
9. Select your restaurant equipment
What is needed to start a restaurant in terms of equipment? Everything from your stove to napkin holders so you'll need an extensive checklist. Of the many things needed to open a restaurant kitchen equipment is absolutely vital:
Flat grill or grill
Holding stations or salamanders
Small wares — ladles, tasting spoons, mixing spoons, whisks, spatulas, and more.
Pots and pans
Walk-in refrigerator and freezer
Proofer (for baked goods)
Knife sets and sharpening tools (or a sharpening service)
Fire protection — extinguisher and large systems such as an Ansul System
For dining room and service list of items needed to open a restaurant you’ll need:
Dining room furniture
Serving wares — plates, bowls, salad plates, dessert plates
Utensils — forks, spoons, and knives for customer use
Linens or tablecloths
Condiment holders or dispensers — salt and pepper shakers, containers for sauces, etc.
Technology-based equipment is now just as necessary as your kitchen tools, look for these systems:
Restaurant POS system and inventory management system
Online reservations and online ordering platforms
Employee management tool
You can usually find one POS system that can handle a customer base, inventory, sales tracking, and serve as a time clock for employees. 95% of restaurant owners report that technology improves efficiency.
How to open a restaurant business usually focuses on developing a concept and scheduling your grand opening. But the tools that you give your team will set the tone for their ability to produce consistent and high-quality results. You don't need the best equipment in the business when you're just starting, but keep in mind that if big-ticket items deteriorate in the first year or two of use, then you'll be perpetually trying to replace failing equipment.
10. Learn how to budget and forecast
By the time you start thinking about how to start a successful restaurant you might have some basic experience working in the food and beverage industry. However, it doesn’t mean you know the business side well.
For many people, owning a restaurant seems doable, until they realize the huge financial demands and costs. Learning to budget and forecast is critical and can make a dream a success story.
Opening a restaurant is an investment, but keeping a restaurant open is just expensive. There are three primary costs that owners need to plan for, including food cost, labor cost, and overhead.
Food cost is what many restaurant owners find themselves struggling to control. Your food cost will include everything you order for your inventory. However, to control food costs, you'll need to have a reliable inventory turnover rate, regularly assess and reduce waste, and eliminate mistakes in the kitchen.
In a HubSpot study, 41% of restaurant owners reported that they struggle with high restaurant operating costs because food cost, rent, other expenses eat into their profit margins more than they expected.
When it comes to labor costs, control is difficult to balance. Make sure that you don't cut labor costs so much that your guests suffer. Remember that they're always the top priority.
Overhead is a little different because there are many elements that you can’t change or control once you enter into specific agreements, such as your restaurant rent. Ultimately the purpose of budgeting and forecasting is to maximize your profits. Unfortunately, many become a restauranteur because it seems like it comes with a hefty paycheck.
Average profit margins for a restaurant fall between 3 and 5%, but across the entire industry, they can range from 0 to 15%. Fine dining, fast food, and food trucks typically have the highest profit margins.
Increasing restaurant profit margins revolves around controlling your expenses and boosting your income. You'll need to manage your food and labor costs but use promotions and other methods of marketing to ensure that you’re always as busy as possible.
11. Hire a restaurant team
One of the final steps for opening a restaurant is hiring your staff. You can’t get through understanding how to open and operate a restaurant entirely on your own, so when you get the chance to involve others, it can expose knowledge gaps and help you build a strong team that will help develop your restaurant.
Front of house staff often includes waiters or servers, hostess, busboys, and can consist of bar staff or baristas. These people don't all have to be bubbly and outgoing, although they should enjoy serving the public and engaging customers in meaningful ways. Hiring a broad range of personalities can build a stronger team. Back of house staff includes cooks, head chefs, possibly executive and sous chefs, as well as butchers, prep teams, dishwashers, and bakers. Your back of house staff may be much larger than your front of the house, but what you're looking for here is skill set and the desire to continue learning.
The National Restaurant Association reports that 90% of restaurants run with less than 50 employees. Although teams are generally small, staffing still remains a top issue for restaurant owners. 31% of owners report that retaining staff is a constant issue, and 35% report that training staff is another challenge.
There is another facet of your restaurant team, and it’s your managers and experts. During the planning and opening phase, you will need experienced managers to help you make hiring decisions, plan menus, and map out floor plans. Ideally, your managers will deliver valuable insight. However, there are still times when a new restaurant owner needs a little extra help. Consider hiring a restaurant consultant that has extensive experience in opening restaurants for tips on opening a restaurant and guidance on getting through the process as quickly and smoothly as possible.
Starting a new restaurant depends on having the right team to support you through the opening. As you hire, lookout for people and personalities that can grow with your brand and develop into long-term positions. Ultimately you’ll have to set up marketing and schedule your soft and grand opening to complete this process. With a winning concept, solid business plan, proper funding, and all your licenses and permits in order, you can get started. Then with the appropriate equipment, design, and a supportive team, you should be able to get through your first year. However, you'll need to rely on your budgeting and forecasts to continue your success.
Learning how to open up a restaurant is something that you’ll spend months working on, and putting together a checklist before opening a restaurant can help you keep track of the many moving parts. But keep in mind that you’ll spend years keeping up on industry trends, changes, and facing day to day challenges. Opening a restaurant is just the beginning of a rewarding career.