How to Open a Restaurant: A Recipe for Success
We’ve all seen the shows on T.V. that make owning a restaurant look glamorous. When you actually start looking into how much work is required though, you may start to see how difficult of an undertaking it can be. The good news is that the percentage of restaurants that close in the first year is lower than what you might expect. Forbes found that only 17% of restaurants close after their first year in business. This is actually lower than most service-based companies.
Still, building a restaurant from scratch isn’t easy. It’ll take plenty of hard work and dedication to get it off the ground and get set up for long-term success. If you’re still interested in taking the risk, we’ll walk you through the steps on how to open a restaurant.
If you’re new to researching how to open a restaurant, startup costs are likely top of mind. According to a survey by RestaurantOwner, the median cost to open a restaurant is $275,000. If you also own the building, the median cost jumps up to $425,000 – but, you’ll be protected from changes in rent.
From restaurant equipment loans to capital loans that cover all of your business expenses, there are plenty of funding options available for opening a restaurant. However, before a financial institution provides funding, they’ll want to know that can trust you make your payments on time.
There are three items that lenders will likely expect/evaluate including credit report, debt-to income ratio, and down payment.
Typically you’ll need a credit score of 650 or higher to obtain a loan. Lenders will also look at big events on your credit report, such as bankruptcies, to ensure you aren’t a risky loan applicant.
A debt-to-income ratio will look at your salary compared to all your expense (rent, car payment, etc.). This will determine whether you have the funds to take on monthly payments.
A down payment is a percentage of the purchase price of your loan. You may be required to put down 3-30% of the total loan price.
When you’re ready to apply for a loan, be ready to answer the following questions:
- When do you need the money?
- Why do you need the money?
- How do you look on paper?
- Are you ready to apply?
- Do you manage your own money well?
- What are you like as a borrower?
Not every food-service operation will require a retail location (i.e., food trucks). If your restaurant requires a retail location, you’ll want to consider the following:
- Accessibility for customers and target demographic
- Level of visibility store will have from the street
- Cost of rent
- Restrictive ordinances
- Customer parking
- Proximity to other businesses
- Terms of the lease
- Future development and growth of surrounding area
Restaurant Business Plan
If you decide to work with investors, they will want to see a clear and concise restaurant business plan. Even if you don’t use investors, a business plan will be needed as a roadmap for opening a restaurant.
Here are some of the most important items to include in your restaurant’s business plan.
This section is going to list your mission statement, execution, an overview of costs, anticipated ROI, etc. It will be a high-level overview of your whole business plan.
Give an overview of what you can expect at your restaurant. Give detailed insights on what inspired you to open and include a detailed description of the type of restaurant you’ll open (quick serve, fast casual, fine dining, etc.) and the service you’ll provide.
List out who your major competitors will be – both locally and regionally. Give an overview of their menu, design, prices, hours, market share, etc. Include how you will make your restaurant stand out amongst the competition, in addition to unique value propositions.
Have you chosen a supplier for your food? This could be included in your restaurant marketing plan as well. You could also include some background information about how you chose this supplier and information about the quality of their products.
What do you plan on serving at your restaurant? Think about your target audience when engineering and designing your menu. Include a sample menu along with proposed pricing for each item.
Management Team Information
Do you have a team lined up? If so, list who they are and their backgrounds. If you don’t have any potential hires yet, mention the positions you’d like to fill.
What’s the overall look and feel of your restaurant? Create a board to show your logo, color schemes, and the interior design of your restaurant.
Who is your audience? Give a detailed overview of who you intend on loving your restaurant. Some of the key items you’ll want to define about your audience include:
Where you decide to open your restaurant should line up with your target market. Make sure it’s an area you know they’ll frequently visit. Even if you don’t have your site at this point, make sure to do your research and have some reliable options to mention.
What’re the current economic conditions in your area? How are other restaurants performing? What will you do differently to ensure you succeed? Cover all these questions in this section.
Marketing Plan Overview
How will word spread about your restaurant? Create a section in your restaurant’s business plan that highlights how you’ll gain traction. How will you get people excited about your grand opening? How will you keep them coming back after you’re open? Items you could include would be building a website, social media strategy, responding to online reviews, inviting food reviews, etc.
Specialists & Consultants
Who will you need to get your restaurant up and running? Do you need a professional’s help to design the layout and choose the decor in your restaurant? Will you enlist a marketing company to handle your marketing and PR strategy? List everyone you plan to hire in your restaurant business plan. Some of these professionals might include:
- PR & Marketing Company
- Interior Designer
How much do you expect to make? Include your projected check amount, number of covers a day, etc.
Restaurant Licenses & Permits
Opening a restaurant requires several business licenses and permits. Every state has different regulations and requirements, so be sure to research licenses and permits specific to where your restaurant will be located.
Some of the most common restaurant licenses and permits include:
- Business License – This is a requirement to operate a business in the United States.
Cost: Registration fee is usually $50 and a filing fee can range from $25-$500
- Employee Identification Number – This is your tax ID number.
- Certificate of Occupancy – This certifies that your place of business is constructed and maintained properly.
Cost: Usually $100
- Food Service License – This means you’re in accordance with restaurant food safety regulations.
- Sign Permit – Before you can hang a sign, you’ll need a permit to do so.
- Music License – Want to avoid copyright infringement? If you play music in your restaurant, you’ll need a license.
- Resale Permit – This is needed to buy nontaxable purchases.
Cost: Up to $50
- Building Health Permit – Similar to the food service license but for your building.
- Employee Health Permit – Each employee will need a health permit.
- Seller’s Permit – This allows you to identify your business as a collector of sales taxes.
Cost: No cost to apply but you might have to leave a security deposit in case there are unpaid taxes.
- Liquor License – If you’ll be serving alcohol at your restaurant, you’ll need a license.
Cost: $3,000-$400,000 depending on the type of alcohol you’re serving
- Valet Parking Permit – If you own a fine dining restaurant, this might be a permit you need.
- Dumpster Placement Permit – This allows you to put a dumpster outside your kitchen.
Cost: This will depend on dumpster placement, restaurant location, and the size of the dumpster.
- Live Entertainment License – If you’ll be hosting live events, you’ll need this.
- Pool Table License – If you have a pool table, you’ll need a license.
Cost: $10-$15 annually.
When opening a restaurant, operators must know that its performance is largely based on the team you hire. Think through what you’ll do to hire great restaurant staff and retain them. Before starting the hiring process, you’ll need to determine your company values and make sure the interviewee lines up with them.
Like most restaurant owners, your core values will probably include providing great customer service and for employees to support one another and work as a team. Some questions you could ask in the interview to screen to make sure values align include:
- Why do you want to work in the restaurant industry?
- How do you deal with conflict with co-workers or customers?
- What is your favorite experience in the restaurant industry?
- What’s your least favorite experience in the restaurant industry, and how did you deal with it?
- What’s your greatest strength?
- What’s your greatest weakness?
Restaurant Equipment & Supplies
The type of restaurant equipment and supplies you’ll need is determined by your concept. Not only will you need kitchen equipment but also tables, chairs, silverware, napkins, glasses, etc. Shopkeep found that a restaurant pays on average $115,655 for kitchen and bar equipment. Furniture and tables usually run around $40,000.
Consider the following items when you start shopping for equipment:
- Utility specs – How will you hook up the equipment to your own system? Does it run on gas?
- Warranty – How long is the warranty in effect? What benefits are available to you?
- Inspection – Check out the equipment before purchasing.
Restaurant guests are expect restaurants to provide convenience through technology. In fact, almost 80% of consumers surveyed that technology improves their restaurant experience.
Technology helps improve the performance of your restaurant and enhances the guest experience. Some technology companies even offer SaaS pricing to make restaurant software more affordable.
The competition between restaurants is fierce. From the very beginning, you’ll need to start thinking about how to get the word out about your restaurant and differentiate from competitors. Below are a few marketing tidbits to consider when opening a restaurant.
Branding is the number one item to consider to build your restaurant’s identity and differentiate from the competition. Your branding should be consistent through your menu, interior, logo, signage, uniform, website, etc. Any item that represents your company should have branding that’s consistent.
Social media business pages are free to set up and fairly easy to manage. Share specials, communicate with your guests and show off what you offer on your social media accounts. Potential diners will visit these accounts so make sure to keep them up-to-date.
Online reviews are crucial to a restaurant. A Harvard Business School study found that increasing your Yelp rating by one star could lead to increases in revenue between five and nine percent. Once your restaurant opens, you should be monitoring reviews on a regular basis. Additionally, set up a Google Alert for your restaurant so you are notified whenever your restaurant is mentioned on the Internet.
Getting positive press coverage can help diners learn about your restaurant. Start building relationships with media outlets and continuously send them information about your restaurant. As an operator, it’s important that you clearly discuss your brand’s story so that your pitch gets attention.
Time to Get Started
You know what’s required to open a restaurant – are you ready to get started? Just remember, it’ll take time, attention to detail and a lot of patience, but you have the opportunity to create an extraordinary experience.
An important ingredient to running a great restaurant is keeping your staff happy. Check out our guide to building a restaurant company culture to learn more.
About the Author
Emily Elder was a Content & Social Media Specialist at QSR Automations. Emily was born and raised in Louisville, but considers herself a die-hard University of Kentucky fan. For college, Emily attended Indiana University Southeast and obtained a degree in Communications with a track in Advertising. In her free time, Emily enjoys just about every water related activity, but she is partial to kayaking and whitewater rafting.