So, you want to know how to open a restaurant? Good choice. A thriving restaurant can be one of the most rewarding business ventures out there. It can also be one of the most difficult businesses to get right. Especially, if you don’t know where to start. Lucky for you, we’ve helped start thousands of restaurants, and we’ve boiled down all this experience opening restaurants into 16 easy-to-follow-steps. Let’s jump in!
Do Market Research & Choose Your Niche
First things first, you need to develop a vision for your restaurant. Great businesses typically start with their customers in mind. Who are the customers you plan on serving? You may be tempted to say everybody. But, in order to stand out among the intense competition, you need to get specific with who your restaurant is geared toward and what you’re going to offer them.
An easy place to start is where you live. Look around at the restaurants in your town. Is there a need not being met? A restaurant concept that would excite the members of your community? Is your area missing an authentic Mexican restaurant, a family-friendly gastropub, or a fast casual spot for bowls and salads?
If you already know exactly what type of restaurant you want to start, then you’ll need to find a location and demographic that will support your vision. For example, a 3-star, fine dining restaurant may not fare well in a lower-income community of 500 people. Or a brewpub may not fare well in many parts of Utah.
While demographics are an important part of market research, many aspiring restaurant owners fail to consider psychographics – which is the more powerful tool in defining your target market and building your restaurant’s brand. Psychographics revolves around customer’s state of mind – their emotions, beliefs, motivations, ethics, and values. You want to consider how your customers will want to be perceived by others when they visit your restaurant. You can read more about psychographics here.
Make a Restaurant Business Plan
Now, that you’ve picked the niche for your restaurant, you’re on to what might be the most important step of all: making a restaurant business plan.
So, why is a business plan so critical? For one thing, anyone who may provide you with funding (investors, banks, etc.) will require a fully-fleshed out business plan as proof that your restaurant will be successful and provide a return. More importantly, a business plan forces you to put down, organize and summarize all your thoughts surrounding your restaurant concept into one, cohesive document. An effective and actionable business plan will help you answer several questions: who is your target market? Who are your potential competitors? Where will your restaurant be located? What is your unique value proposition? What food will you serve to your customers? How will you market to your target market? How will your restaurant make money? How long will it take your restaurant to break even and make a profit? What’s the endgame?
In the actual plan itself, these questions will be answered within the following sections:
- The Executive Summary
- Key Investment Considerations
- The Menu
- The Brand
- Design Approach
- Management & Organization Plan
- Marketing Strategy
- Capital Expenditures
- P&L Forecasts
- Risk Mitigation & Exit Plan
Create the Name and Brand of Your Restaurant
With the all-important business plan finished, many of the next steps are taken care within the plan itself or become much easier. Here’s a fun step: coming up with the name and brand of your restaurant!
In our blog Restaurant Startups: Logo, Name, and Branding, we provide some great tips for creating the perfect name and brand for your restaurant. To start the brainstorming, experiment with names that incorporate puns, your location, or the traditions your menu is inspired by. Then, you want to make sure that whatever name you come up with has not been taken by another business first. You can verify this by visiting your state’s Secretary of State website.
Once you’ve selected the perfect name, file this “doing business as” (DBA) name with your state’s agency, so you’re not at risk of losing your name to another business. You’ll also likely want to trademark your name with the US Patent and Trademark Office. It’s important to also see if you can secure the website domain and social media handles for the name of your restaurant.
Along with your name, you want to create a strong brand. Your restaurant brand communicates your mission and identity in a memorable way to potential customers. From Synergy’s founder Dean Small, “a brand is a promise that you make to your internal customers (your team) and external customers, your paying guests.”
Your unique brand identity should clearly express your ideas through your logo, color palette, font, and brand voice. It’s crucial to make your brand consistent across all your points of contact with customers, like:
- Restaurant decor, restaurant menu (and takeout menus)
- Website and social media pages
- Employee uniforms, if applicable (this depends on the type of restaurant you operate)
- Packaging (bags, napkins, cups, containers, etc.)
- Restaurant advertising
- Music played in your location
- Business cards
Develop Your Restaurant’s Menu
Next up in the plan to open your restaurant is another fun step: developing your concept menu. Your restaurant’s menu can be thought of as an extension of your brand. As such, the menu serves as part of your marketing strategy to encourage new customers to try your restaurant.
Although, it’s enticing to make a highly innovative menu with all your favorite food, you need to approach menu development strategically. Your menu items will prescribe the type of kitchen equipment you’ll need and the experience required from your team. For example, if you plan to open a pizza parlor, you’ll need proofers, mixers, brick oven pizzas (if part of your concept), and chefs who are experienced in handling pizza dough.
To really show potential business investors you have a rock-solid food plan, you’ll make a menu that’s optimized for labor efficiency and pricing. You’ll want to consider the time required for each menu item, the food cost of each menu item, its price point, and its projected sales generation. Even more bonus points if you optimize your menu plan for upselling! Learn all about our proven strategies for menu upselling here.
Select the Legal Structure for Your Restaurant
We’ve touched on the legal requirements for selecting the name of your restaurant. Now, we’ll turn to settling upon the legal structure for your new concept – another crucial step in starting a restaurant. Do not breeze past this decision as your restaurant’s legal structure will determine how you file your taxes and your potential liability if someone were to file a claim against your business.
To get an idea of the difference between possible structures for businesses, check out this article from the U.S. Small Business Administration. The most common legal structures for small, independently owned restaurants are sole proprietorship, partnership, and limited liability company (LLC). If you plan on opening a chain of restaurants across different states, you may want to consider filing as a C Corp or S Corp. With a decision of such legal import, your best course is to consult a business attorney before you make this decision for your restaurant.
Get Funding for Your Business
Just starting out, most restaurant entrepreneurs do not have the capital required to successfully open their restaurant. Thus, they must turn to outside funding. If you’re in this crowd, there are many options available to you. Although, as mentioned earlier, you must have a sound restaurant business plan along with in-depth financial analyses and forecasts. You should focus on your break-even point, predictive cash flow, profit and pay-back estimates, and projected P&L for your restaurant’s first 5 years following its open.
Most small business owners fund their concept through a business loan. Nowadays, there are several business loan types to choose from, including:
- A term loan: a commercial loan from a bank or alternative lender. The repayment terms and interest rates of term loans depends on the needs of your restaurant, your credit score and other factors
- an SBA loan: In response to the hesitancy of commercial lenders to provide term loans to small businesses (especially new restaurant concepts), the Small Business Administration started guaranteeing as much as 80% of the loan principal for term loans through participating lenders. This has proved particularly valuable to aspiring restaurant owners. To match with a lender through an SBA loan, you’ll need a rock-solid business plan, financial projections, verified credit history, and collateral. Begin this process as early as possible because it may take several months from start to finish.
- A short-term loan: these are similar to regular term loans except they typically cover up to $250,000 with a payback time anywhere between 3-18 months. While unusual for restaurant startup funding, a short-term loan could prove useful when you need money quickly to cover expenses which you don’t have cash on hand for.
- A business line of credit: a highly flexible form of financing which operates like a personal credit card. Once set up, a line of credit can be periodically drawn upon for business needs (like inventory or payroll) as long as you repay the funds over time.
- a grant: an oft-overlooked form of financing which provides the huge benefit of you not having to repay the money! Though, grants do typically require more paperwork than business loans. If you want a short-cut to finding restaurant specific grants and strategies for winning these grants, check out our blog Restaurant Grants in 2022: lifelines for your restaurant.
Regardless of where you get the funds to open your restaurant, you’ll need to make a comprehensive budget to compare against the money you have on hand. The difference will make up the amount of outside funding you need. Be careful in budgeting though! According to Synergy founder Dean Small, “Most new restaurateurs look at construction and equipment costs for budgeting purposes; however, they don’t realize that there are numerous additional costs that need to be factored in, such as pre-opening expenses, inventory, freight and installation of equipment, deposits, china/glassware, food inventory, technology and dozens of other line-item costs.” You can read more about Dean’s thoughts on common mistakes made by new restaurant business owners here.
Find the Best Location for Your Restaurant
Earlier we alluded to opening your restaurant based on your target market and brand. Which geographical location has the right demographic and psychographic profile to sustain your restaurant. You’ll also want to factor in whether the area’s population is growing or stagnant.
Savvy entrepreneurs will also survey the local restaurant competition. In selecting the right neighborhood for your restaurant, you should look for the sweet spot – an area where restaurants are profitable but where there isn’t an over saturation of food and drink establishments.
In our blog about restaurant location, we discussed how tourism is major driver of new restaurant growth. In small towns, restaurants near crossroads and highways draw customers on road trips, which plays into the two most critical success factors for a restaurant’s location: visibility and accessibility.
You want your restaurant to be easy for your customers to get to. Plus, you want it to get a lot of foot and car traffic – enhancing the odds that a passerby will become a customer. And you want to consider the amount of parking spaces available when selecting a location.
Should you own or lease your space? In most cases, new restaurant owners lease simply because the majority of available commercial spaces operate that way. While a short-term lease is more desirable for new startups, restaurant owners may want to consider a 3-5 year lease to get more favorable terms. For more information on negotiation tips and the right questions to ask while searching for a lease, check out this article.
Finally, you want to choose a space that offers the right square footage and features for the design of your restaurant – which brings us to…
Design Your Space
The importance of this step cannot be overstated. A poorly designed restaurant is destined for disaster. Given the make-or-break impact of design, you’ll want to consider working with an restaurant design expert – whether that’s one of our world-class design professionals or another restaurant architect.
To get an in-depth walk-through of an efficient restaurant design process, check out our interview with Bob Kuchinski of Coastline Design, Inc. In his process, Bob converts the space into a “bubble diagram” which should flow back and forth between:
- Deliveries come in; they need to be stored somewhere
- Storage goes into prep
- Prep to cooking
- Cooking to serving/expo’s
- Then out to the customer
The most basic division of a restaurant is the front of house (FOH) and back of house (BOH). Factors to plan for in FOH design include:
- Seating Capacity
- Ambiance and Decor
- Cleanliness Capacity
Turning to the BOH and kitchen, Bob advises considering a number of questions in your design plan, including:
- Does it flow properly?
- Is it easy to work in?
- Is it easy to clean and maintain?
- Is it a comfortable environment for the employees to work in?
- Is there a lot of wasted square footage? Or is it lean and mean? Sometimes the tighter a facility is, the less expensive it is to operate. Costs to operate a restaurant are so high now when examining cost per square foot. The bigger the space, the harder it is to clean, and the more expensive running air conditioning or heating.
Speaking of cost per square foot, about how much money does BOH construction cost? According to Bob, BOH construction is currently around $250-300 per square foot. Build-outs – like plumbing, electrical, HVAC, etc. – are about $200-300 per square foot. Thus, it’s crucial to know the existing utilities and equipment of the space you plan on leasing. If you’re starting completely from scratch, the cost of starting your restaurant could skyrocket.
Register Your Restaurant for Federal, State, and Local Taxes
On to everyone’s least favorite step, taxes. To start, you need to register your restaurant with the IRS to receive your Employer Identification Number (EIN). The EIN is required for your business to pay federal taxes. You can apply for one here.
Additionally, most states require your business to pay income and employment taxes. Many states also require you to carry Workers’ Compensation and unemployment insurance. Here’s a tool from Nerdwallet that will help you determine if your restaurant will need Workers’ Comp and how to get it.
The state requirements regarding tax registration and filing vary quite a bit, so we suggest you consult with an accountant to make sure your restaurant is on the up and up.
Acquire Restaurant Permits & Licenses
Did you think you were done with the paperwork. Not quite yet!
As a new business, you’ll need obtain the standard business licenses and permits to open your restaurant. As a restaurant, you’ll likely need several more licenses and permits depending on your food, drink and entertainment offerings. These all fall into the buckets of logistics licenses, health and safety permits, and entertainment licenses.
To learn more about each type of permit and license, check out our blog on the subject. In a nutshell, you may need:
- Certificate of Occupancy – verifies that your space is up to code
- Sign Permit – gives you the right to post signage to advertise your restaurant
- Resale Permit – allows you to by non-taxed wholesale food products
- Seller’s Permit – allows you to collect sales tax from your customers
- Food Service License, that confirms that your business follows all food safety regulations
- Building Health Permit, which ensures that your location is sanitary
- Food handling permits for all your employees, which confirms that your staff has proper training on food storage, handling, and more
- Dumpster Placement Permit, which allows you to place a dumpster outside your building for safe disposal of food waste
- Liquor License, so you can serve alcohol
- Music License, so you can play copyrighted music without issue
- Valet Parking Permit, so you can offer valet services
- Pool Table License, which confirms that your space can safely house a pool table
- Live Entertainment License
Bear in mind, this is not an exhaustive list. Depending upon your state and restaurant, different licenses or permits may be required. We encourage you to visit the FDA’s Retail and Good Service Regulations by State site to learn more.
In a similar vein, you may want to look into certain types of insurance for your restaurant – such as:
- Property insurance
- General insurance
- Liquor liability
- Auto liability
- Life insurance
- Fire insurance
- Loss of business
- Food contamination
Purchase the Right Equipment for Your Restaurant
We’ve seen that the equipment your restaurant will need is primarily dictated by your food and drink menu. There are some common equipment denominators for all restaurants like cooking equipment (oven, grill, range, etc.) and refrigeration units. Other equipment will be specific to the type of food you plan on serving at your restaurant. For instance, if you run an upscale Italian restaurant, you’ll need pasta cookers and pizza deck ovens. Or if you have an in-house brewery, you’ll need a malt mill, filtration system, beer ferment and several other pieces of equipment
Your space will also affect the amount and type of equipment you buy. If you’re short on space in the kitchen, you may look for double stack units. Also, the decor of your dining room will set parameters for the type of furniture and fixtures you buy.
When buying equipment, you may want to look for gently used equipment (especially kitchen equipment) as that can save you a lot of money. Where can you find restaurant equipment? Luckily, the options for buying and selling equipment have rapidly increased with the internet. You can go the traditional route with a local/regional equipment dealer, resale store, or auction. Or you can shop online for new and used restaurant equipment in many places – online resale marketplaces, Facebook Marketplace, Craigslist, eBay, etc.
Connect with Suppliers
Here again, your menu will directly decide the food supplies you need and indirectly determine your restaurant’s vendors. Most restaurants buy their food from suppliers – both large operators (like Sysco and US Food Service) and local purveyors. Restaurants typically get fresh produce from smaller, local suppliers and everything else from large operators. To find a local supplier, you can ask restaurants in their area who they work with or search through the USDA’s Local Food Directories.
In order to purchase from suppliers, you must open an account with them. If you’re just starting out in the restaurant business and have a limited credit history, your vendors may require to pay immediately upon delivery. Once you gain more experience and build up a relationship with your vendors, you’ll be able to extend your term of payment up to 30 days.
In selecting the right suppliers for your restaurant, you should create a list of prospective vendors and then arrange to meet with their sales representatives. In these meetings, you should ask about their catalog of food items, delivery schedule, their credit terms, and references from other restaurants. After those meetings, you can compare the different vendors based on these criteria and select the ones that are the best fit for your restaurant. If you’d like top-of-the-line tools for purchasing and receiving product, check out our exclusive tools below.
In special cases, your restaurant may not have to deal with suppliers at all. You do have the option of going straight to the farms to procure your food. This is especially true if you open a farm-to-table restaurant or a restaurant whose brand revolves around fresh, local ingredients. If this is your vision for your restaurant, you’ll be happy to know that consumers have shown a willingness to pay more for local products.
Establish Systems & SOPS
Here, we’re referring to both technological and organizational systems. In terms of technological, you’ll certainly want to invest in a POS system. A restaurant POS system combines hardware (tablets, credit card readers, printers, cash drawers, bar code scanners, handheld ordering devices, etc.) and software to take care of a variety of functions including:
- payment processing
- FOH management
- order processing
- sales reporting
- tip reconciliation
- loyalty programs
- self-service ordering
Some of the more popular POS systems out there include: Square, Clover, Lightspeed, Toast, and TouchBistro.
Moving on to organizational systems – this is where many new restaurant owners miss out on a golden opportunity. Restaurants that fail to implement systems make up the vast majority of those that fail within the first 5 years. Great systems are the engine of every great business. Restaurants are no different. The reason why the McDonald’s and Dunkin’ Donuts of the world are so profitable and widespread is the systems they implement in each and every restaurant.
If your mission and values are the what of your restaurant, your systems are the how. Systems manage your day-to-day operations and communicate to your team what’s expected of them in every activity they undertake. A major component of systems is standard operating procedures (SOPs).
For a detailed overview of SOPs, check out our blog on the topic. In essence, SOPs answer to the question, “How do we do things at this restaurant?” They communicate your BOH and customer service standards. SOPs save managers and team members by saving staff from making small mistakes, which typically eat up the time of managers and operators in restaurants lacking SOPs. They also help prevent poor reviews and lawsuits stemming from food poisoning and poor customer service. You’ll want to codify your SOPs in an employee handbook and staff training program.
If you’d like a plug-and-play solution for your restaurant’s systems, SOPs, and management training – you won’t find a better value in the industry than Synergy U.
Hire the Right People
While we’re on the theme of teams, some of the most important early decisions you’ll make as you open your restaurant will be who you hire. Especially, your managers. In building your team, you have the opportunity to start a great culture from the ground up.
To get a strong sense of the restaurant hiring process, check out our blog 6 Restaurant Hiring Tips. In short, these 6 tips are:
- Figure Out What You Need
- Write a Good Job Description
- What Benefits Make You Stand Apart?
- Consider Your Website
- Opportunities to Advance and Referral Programs
- Treat Your Staff Like Family
The positions you’ll hire for depend on the requirements of your restaurant, but broadly speaking you’ll need a management team, BOH staff, FOH staff, and Bar staff. The management team may consist of a general manager, kitchen manager and FOH manager. BOH staff could include head chef, sous chefs, prep and line cooks, and dishwashers. FOH staff could include servers, hosts, bussers, and food runners. The bar staff may include bartenders, barbacks and cocktail servers.
While you should search for people who have the right attitude and values that harmonize with your brand, you also need to take the job candidates point-of-view and ask yourself “Why would I want to work here?” In addition to your culture, what makes your restaurant stand out? In this vein, you may want to consider offering:
- Competitive wages
- Health insurance
- Retirement plans
- Pet insurance
- Paid vacation/Paid time off
- Entertainment perks (concerts, travel, etc.)
- Opportunities to learn and advance careers
As turnover is such a massive problem in the restaurant industry, you’ll want to make your hiring process as streamlined and regenerative as possible. That means maintaining your website, regularly updating your career board, and having a referral program for current team members. Culture, regular advancement, and great training go a long way in reducing turnover. When it comes down to it, you want to hire people that you enjoy being around – curious, thoughtful, enthusiastic, hardworking, and a passion for hospitality. You can always train them in the skills they’ll need on the job.
Here are some sites where you can search for prospective members of your restaurant’s team:
On a final side note, you may want to consider hiring an accountant, marketing strategist, and PR specialist depending on the size of your operation.
Market Your Restaurant
All the pieces are in place! Now it’s time to tell the world about your fabulous new restaurant!
First off, you’ll certainly want to establish your brand on social media and other digital media. For social media, experiment with the different platforms – Facebook, Instagram, TikTok, Twitter, YouTube. As your restaurant gets its legs underneath it, you may find that your tribe is super engaged on a few of the platforms and not the others. That’s A-OK and usually the case, in fact. You’ll want to spend your time on those platforms where your potential customers are most engaged. Here are a few other social media marketing tips from our blog on the subject:
- Use vibrant visual content – consider hiring a professional photographer to take photos and videos of your dishes and signature beverages. Also, snap pictures of team members behind-the-scenes.
- Update and complete all profiles – make sure your business hours, website, email, phone number are provided along with an engaging bio on all social profiles
- Maximize user-generated content – encourage your guests to tag your restaurant and use a specific hashtag in any posts they make regarding your restaurant. You should also share and repost any posts or stories (Instagram) that customers make highlighting your restaurant, and you’ll want to tag them in your reposts as well.
- Develop custom targeted audiences – this is specific to Facebook. to choose the audience you want to reach based on demographics, location, interest, and behavior. You can use Facebook Ads Manager to choose the audience you want to reach based on demographics, location, interest, and behavior.
- Engage Followers – Along with sharing user-generated content, design your posts for engagement. Ask questions of your follow. Share surveys. Set up contests.
In addition to social media, you want to make sure your digital presence is optimized on your website, Google, Yelp, and Trip Advisor. Having a easy-to-navigate and beautiful website is a must. Make sure it features your brand aesthetic and has professional photos of your food and beverages. Also, display your menu on your website. You may want to register you restaurant on OpenTable or Resy to make it easy for customers to reserve tables online.
To round out your digital marketing efforts, focus on building a list for email. While it may require time and money upfront, email marketing is well worth the effort. On average, businesses get a $38 return for every $1 they spend on email marketing. A working tandem of email, loyalty program and apps can work wonders for generating revenue.
With all this focus on digital marketing, don’t skirt on good old-fashioned community building. Take to the streets and connect with local businesses and organizations. Spread the word by introducing yourself to your neighbors and inviting them to your restaurant’s grand opening.
Try a Soft Open
When you first open a restaurant, you have the unique opportunity to experiment with a soft open. A soft open is a trial run of your restaurant operations, which takes place in the weeks before your grand opening. The primary benefit of a soft open is that it generates buzz and word-of-mouth for your restaurant in the local community and online. It also gives you the opportunity to test out which aspects of your operations are working and which ones need refinement. There are a variety of different soft opens, including:
- A trial or sample menu – offering a just a taste of your full menu to your guests
- A sneak peek – opening the restaurant for a happy hour event with a limited selection of signature dishes and drinks
- friends & family and/or neighbor night
Now that you’ve marketed the grand opening of your restaurant, it’s finally time to launch your concept into the wild! First impressions are everything so you want your restaurant to come out with a bang. Some good grand opening ideas are:
- Hosting it on a weekend and throwing a big party – you can have live music, a photo booth, decorations galore – let your imagination run wild
- Partnering with a charity – garner goodwill among your community and support a cause close to your heart
- Invite Influencers – let’s face it: we’re in the age of Influencers. Offering influencers complimentary meals can be a major boost to your marketing considering the size and influence of their followings.
Congratulations! Now that you’re officially open, the real fun begins. Aim for constant improvement in every facet of your restaurant. Build it into your identity and systems. And you’ll be sure to succeed. If you need any help along the way, hop on a complimentary call with us and we’ll help set you up for success.
How much money does it cost to open a restaurant?
According to a survey conducted by Restaurantowner.com, a small restaurant can cost around $175,500 in total startup costs. A medium sized restaurant costs up to $375,500. A large restaurant costs up to $750,500. Although, the true costs can vary widely depending on the current cost of building materials and equipment, as well as the size and level of customization of the restaurant.
How much money can I make starting a restaurant?
Again, this depends on a variety of factors and can range widely. Based on Toast’s synthesis of a few data sources, a restaurant owner’s salary can range from $24,000-$155,000 a year. Keep in mind, if you expand your concept to multiple locations or franchises, you can earn significantly more than that.
How much time will it take to open my restaurant?
Unfortunately, there is no straightforward answer to this. Depending upon your experience and decisiveness and a whole host of other variables, a restaurant can take anywhere from a few months to a few years to open. In our Countdown to Opening Checklist, the first actions items (identifying point personnel team and selecting a site) are set for 250 days prior to the grand opening. You can download this checklist below.