Opening a restaurant is a big undertaking. But if you’re passionate about the food service industry and you’re ready to put in the work and proper planning, who’s to say your restaurant won’t be a success? In this article, we’ll explore how to open a restaurant, the benefits and costs of opening a restaurant and also give you a comprehensive list of steps that will help you turn your dreams of owning a culinary business into reality.
3 Benefits of opening a restaurant
Everyone knows that opening a restaurant can be risky. Even if you do everything right there is still a chance that your sales will be too low to keep the business afloat. But if every person who dreamed of opening a restaurant only looked at the risks, there wouldn’t be over 1 million restaurants in the US right now(1). Let’s forget about the risks for a moment and look at some of the benefits of opening a restaurant.
1. Restaurants are in huge demand
The restaurant industry has always been a staple of the US economy and the future of this industry continues to look bright. Busy consumers have less time to cook for themselves and are choosing to eat out or grab something easy to take home instead. Even during the pandemic, demand for restaurants remained relatively high.
2. Restaurants can be an affordable way to enter the business world
The initial cost of opening a restaurant varies but it is possible to open a restaurant relatively cheaply when compared to other businesses, assuming that you start small.
3. Owning a restaurant lets you be your own boss
Owning a successful small business is a staple of the American dream. A restaurant is one of the more traditional ways to take ownership over your life, by being your own boss and building financial independence.
How Much Does it Cost to Start a Restaurant?
There are so many costs to consider when opening a restaurant and that makes it very difficult to answer the question, ‘How much does it cost to open a restaurant?’ Here are some numbers based on a survey undertaken by restaurantowners.com (2) that might help you work out the start-up costs for your new business.
- Average median total restaurant startup cost: $375,000
- Average median total startup cost per sq. ft: $113
- Average median total startup cost per seat: $3,586
How Much Money Can You Make Opening a Restaurant?
The amount of money you will make as a restaurant owner varies. Payscale (3) estimates it could be anywhere between $31,000 a year to $155,000. When trying to figure out how much to pay yourself as an owner of a restaurant, a good rule of thumb is that the owner usually takes less than 50% of the profit as their salary. The rest of the profit will go back into the restaurant for expenses such as payroll, rent, and insurance costs.
What are the Types of Restaurants You Can Start?
When it comes to choosing what type of restaurant you want to open, the world is your oyster and there are lots of different restaurant styles to choose from. To get you started, here are the main restaurant types you might consider.
- Fine dining – Fine dining restaurants typically offer multicourse meals with ‘white tablecloth service’ and an upscale dining experience.
- Casual dining – Casual dining usually includes a seated dining experience at a moderate cost with a low-key atmosphere.
- Fast-casual dining – Fast-casual dining is usually a healthier alternative to fast food. It includes counter service and offers a more affordable dining experience than casual and fine dining.
- Family-style restaurant – A family-style restaurant is a similar model to a casual dining with a minor difference in that food is delivered in large dishes and shared around the table. As the name suggests this style of restaurant is a popular choice for big families particularly those with children.
- Cafe – a Cafe-style restaurant is a small eating and drinking house with a focus on coffee and small bites.
- Fast Food – Fast food restaurants are all about affordability, convenience, and speed. If you want to open a fast-food restaurant you’ll usually have the option to buy into a franchise.
- Food Truck, Cart, Or Stand – This is a more modern approach to opening a food business. This can be a great option when just starting out. Food trucks, carts, and stands cost less to start up than a brick-and-mortar restaurant and are a good way to dip your toe in the foodservice industry to get a feel for if it’s right for you.
The 10 Steps to Start a Restaurant
1. Choose a concept and brand
The first thing you’ll need to do when opening a restaurant is come up with a concept. This is the fun part where you get to let your imagination run wild. Try to make sure your concept offers something unique that will make your business appealing to customers and help you stand out from the crowd.
When deciding on a concept you’ll need to think about a few key things:
Type of restaurant: We’ve outlined some of the types of restaurants above but there are more options to choose from.
Decor and ambiance: What will your restaurant look and feel like? What kind of atmosphere will you create to keep your customers coming back for more?
Cuisine: When choosing what kind of cuisine you want to serve at your restaurant, try to be creative but don’t go overboard and make things difficult for yourself. Nobody wants to choose from a menu that has 50 different items on it.
Once you have your concept down, you’ll be able to build branding around this concept and come up with a name for your business that lets customers instantly know who you are. You want your customers to have a dining experience that is enjoyable and memorable but you don’t necessarily want them to be surprised. If your customer is led to believe they are going to a family style restaurant, but what they get is closer to fine dining with a high price point, they won’t have a good experience even if your food is the best there is. This is why a clear concept and brand is so important, it lets your customer know what to expect so they won’t be disappointed.
2. Write a business plan
Writing a business plan for your restaurant will create a framework for you to follow when it comes to bringing your business to life. You can think of a business plan as a manual, helping to guide you through every decision you make for your restaurant from buying equipment to hiring staff. If you’re not sure where to start we’ve put together a comprehensive guide to writing a business plan for new business owners.
3. Get funding
You might be lucky enough to already have the finances available to start a restaurant but the reality is most new business owners will have to seek out financing options to get their business off the ground. As part of your business plan, you would have already estimated how much you’ll need to start your restaurant. The next step is to explore financing options for outside sources. Here are some options that might be available to you:
- Traditional Commercial Loan – these are common and can be obtained from the bank. You’ll need a solid business plan to put before the bank if they’re going to approve you for a commercial loan. You’ll also need a good credit history and collateral.
- Business Line of Credit – This works like a credit card in that it gives you a pool of money to use on business expenses but only accumulates interest as you use it.
- Small Business Loan – You have the option to take a small business loan out with the bank but many business owners prefer to get their loan through the SBA (Small Business Association). SBA guidelines are set up to protect both the lender and small business owners.
- Investors – If you have a really strong idea for a restaurant you may be able to get investors on board. Investors will help you with the initial costs of the business in return for part ownership. Investors can be anyone willing to take a risk on your business including friends and family members.
4. Choose a location
The location of a restaurant is a huge factor in its success. The key thing you should consider is foot traffic and visibility. Ideally, you want a place in a location that people walk by regularly and that is also easy to see from the street. Social media and food delivery apps like UberEats have helped to put less physically visible restaurants on the map (literally), but, having a location in a place people can easily see and access will always be a benefit. Some other things to consider when choosing a location for your restaurant includes cost, existing infrastructure, and target demographic.
5. Get licenses and permits
The licenses and permits required to open a restaurant will vary depending on where you’re setting up shop. The SBA is a good resource for researching which permits and licenses you need to operate a restaurant in any state or city and how you can obtain them.
Here are six licenses you’ll need to start a restaurant:
- Business license
- Food service license
- Food handler’s permit
- Liquor license
- Employee Identification Number (EIN)
- Sign Permit
6. Open a business bank account
It’s important to separate your business and personal finances. This is something not all new owners realize but it has the potential to make or break your business. If you want to easily manage your finances while on the go at your busy restaurant, a digital banking app is the perfect solution.NorthOne was designed to help small business owners easily manage their money by connecting their back office to their bank account. Restaurant owners choose NorthOne over other digital banking apps because we understand that cash is still a big part of the food service industry. With NorthOne you can load cash directly into your NorthOne Account at one of +80,000 Green Dot locations across the US.
7. Assemble your dream team
A restaurant is only as good as it’s staff. It’s important you find a team that understands your vision for your restaurant and wants to see it succeed. Your team will start small so don’t rush the recruitment process. Take your time to find employees that are not only willing to work hard, but that are likely to stick around long term. High staff turnover will create problems for your business.
8. Write a menu
Your menu is the centerpiece of your restaurant. It should clearly reflect your concept and also act as a marketing tool to bring customers to your door. When you’re starting a new restaurant, it’s usually advisable to start small with the menu. Do some market research and consider your demographic when building your menu. These days at least one vegetarian option and gluten free option is preferable, but this will depend on where you are located and the expectations of the demographic in that area.
9. Buy or lease equipment
Equipment for your restaurant will include everything from kitchen utensils to tables and chairs for your customers. This can be a big investment and might be a little overwhelming to start with. Remember that all this equipment doesn’t need to be brand new. Big pieces for your restaurant like ovens, refrigerators and furniture can often be found second-hand for a good deal and will likely work just as well as buying it brand new. For some restaurant equipment, you may be able to lease rather than buy. Coffee machines for example can go for thousands of dollars, and it’s often better to lease them out and make monthly payments then to buy it outright.
10. Spread the word
Before you’re even ready to open your doors, you’ll want to start creating some buzz around your restaurant. That way, when you are ready to open, you’ll immediately have customers to serve and you can start making money. You don’t need to spend thousands of dollars on advertising to get the word out about your business. There are ways you can market your business even on a shoestring budget. A good place to start is by setting up social media accounts for your restaurant. It’s standard these days to have a Facebook page that shares basic information about your restaurant. Instagram is also a great place to share mouthwatering images of your cuisine and appealing images of your interior to really sell your concept. Before you officially open your restaurant, you might want to have a soft opening. This is where friends and family are invited to the restaurant to try your food and experience the space. Show your friends and family a good time and they’ll come back for more, bringing with them new customers. Don’t forget to take lots of photos at the soft opening to post on your social media channels and drive people to your business.
If the restaurant industry sounds like it isn’t for you, don’t worry, there are many industries to chose from. Check out how to start a trucking company or how to start a cleaning business for more options.