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- How to Open a Restaurant
- How To Start a Restaurant FAQs
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- Additional Resources in the Restaurant Industry
How to Open a Restaurant
If you’re looking to start a restaurant business, you’ve come to the right place. Since we’re going to show you exactly how to do it.
We’ll start with key restaurant industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.
Then we’ll discuss the keys to not only starting a restaurant business but succeeding in it!
Before we continue, here’s where you can access your restaurant business plan template since having a plan will be key to your success.
15 Steps To Starting Your Own Restaurant:
- Choose the Name for Your Restaurant
- Develop Your Restaurant Business Plan
- Choose the Legal Structure for Your Restaurant
- Secure Startup Funding for Your Restaurant (If Needed)
- Secure a Location for Your Business
- Register Your Restaurant with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Restaurant
- Buy or Lease the Right Restaurant Equipment
- Develop Your Restaurant Marketing Materials
- Purchase and Setup the Software Needed to Run Your Restaurant
- Hire and Train the Restaurant Wait Staff & Managers
- Open for Business
1. Choose the Name for Your Restaurant
The first step to starting a restaurant is to choose your restaurant’s name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally, you choose a name that is meaningful and memorable.
Here are some tips for choosing a name for your restaurant:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your restaurant.
2. Develop Your Own Restaurant Business Plan
One of the most important steps in starting a restaurant is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – This section should summarize your entire business plan so readers can quickly understand the key details of your restaurant.
- Company Overview – This section tells the reader about the history of your restaurant and what type of restaurant you operate. For example, are you a traditional restaurant, fine-dining restaurant, fast-casual, or food truck?
- Industry Analysis – Here you will document key information about the restaurant industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – In this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
- Competitive Analysis – Here you will document the key direct and indirect competitors you will face and how you will build a competitive advantage.
- Marketing Plan – Your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will your restaurant’s location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your restaurant? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization, and/or social media marketing.
- What startup costs will you incur?
- How will your restaurant make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Restaurant
Next, you need to choose a legal structure for your restaurant and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the restaurant and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a restaurant together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its small business owners. This means that the restaurant owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a restaurant include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a restaurant is that it offers limited liability to its owners. This means that the restaurant owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your restaurant, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Restaurant (If Needed)
In developing your restaurant business plan, you might have determined that you need to raise startup capital to launch your new restaurant.
If so, the main sources of funding for a restaurant to consider are personal savings, loans from friends and family, small business loans, and equity investors.
- Personal Savings: The personal savings of the owners are often the largest source of startup funding for a new restaurant. If you have saved enough money to cover all of your startup costs, then you may not need to seek outside funding.
- Loans from Friends and Family: Another common source of funding for a new restaurant is loans from friends and family. If you have people in your life who are willing to invest in your business, this can be a great option. However, it is important to remember that these loans should be treated like any other loan, with interest rates and repayment terms that are agreed upon in advance.
- Small Business Loans: Small business loans are another option to consider when seeking funding for your new restaurant. There are a variety of small business loans available, and you should shop around to find the one that best suits your needs. Be sure to read the terms and conditions carefully before signing any loan agreement.
- Equity Investors: Another option for funding your new restaurant is to seek equity investors. Equity investors are individuals or companies that invest money in your business in exchange for a stake in the company. This means that they will own a portion of your business and will be entitled to a portion of the profits.
If you decide to seek equity investors, it is important to have a well-crafted business plan and pitch deck. You will need to convince potential investors that your restaurant is a good investment.
5. Secure a Location for Your Restaurant
The next step in starting a restaurant is to find a location. The ideal location for your restaurant will depend on several factors such as the type of food you’re serving, your target market, and your budget.
Some things to keep in mind when looking for a location include:
- Foot traffic: Is the location in a high-traffic area?
- Parking: Is there enough parking for your customers?
- Zoning: Make sure the location is zoned for a restaurant.
- Visibility: Is the location visible from the street?
- Competition: Is there much competition in the area?
Once you’ve found a few potential locations, you will need to negotiate the lease with the landlord. We recommend that you consult an attorney or leasing agent to help you with this process.
6. Register Your Restaurant with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your restaurant’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your restaurant to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
Next, you need to obtain the required business licenses and permits for your restaurant. The specific licenses and permits you need will vary depending on your location, the type of food you’re serving, and the size of your restaurant.
Some of the most common licenses and permits for restaurants include:
- Business license: A business license is generally required in order to operate a business.
- Health permit: A health permit is required in order to serve food.
- Food handler’s license: A food handler’s license is required in order to prepare and serve food.
- Liquor license: A liquor license is required in order to serve alcohol. You can usually obtain the required licenses and permits from your local city or county government offices.
10. Get Business Insurance for Your Restaurant
It is also important to get business insurance for your restaurant. This will protect you in the event that something goes wrong and someone is injured or there is damage to your property.
There are many different types of business insurance, but some of the most common types of insurance for restaurants include:
- Property insurance: This type of insurance covers damage to your property, such as your restaurant building or equipment.
- Liability insurance: This type of insurance covers injuries or damage that you or your employees may cause to others.
- Product liability insurance: This type of insurance covers injuries or damage that may be caused by the food you serve.
- Business interruption insurance: This type of insurance covers lost income if your restaurant is forced to close due to a covered event, such as a fire.
You can usually obtain business insurance through an insurance agent or broker. Make sure to shop around and compare rates before choosing an insurer.
11. Buy or Lease the Right Restaurant Equipment
In order to open a restaurant, you’ll need to have the right equipment. This includes things like commercial kitchen appliances, dining room furniture, and smallwares.
You can either buy or lease the equipment you need. Buying equipment is usually more expensive upfront, but it may be cheaper in the long run. Leasing equipment is usually less expensive upfront, but it may be more expensive in the long run.
12. Develop Your Restaurant Marketing Materials
Marketing materials will be required to attract and retain customers to your restaurant.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your restaurant. Your logo will be printed on company stationery, business cards, marketing materials, and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: A website is a must in today’s business world. Not only will it help you attract customers, but it will also allow you to take online orders and reservations.
- Restaurant Menu: Design a menu that accurately reflects the food you’ll be serving at your restaurant. Be sure to include pricing information and any special offers or promotions.
- Business Cards: Business cards are an essential marketing tool. Be sure to include your restaurant’s name, logo, website, and contact information on your business cards.
- Social Media Accounts: establish social media accounts in your restaurant’s name. Accounts on Facebook, Twitter, LinkedIn, and/or other social media networks will help customers and others find and interact with your restaurant.
13. Purchase and Setup the Software Needed to Run Your Restaurant
To run a restaurant business, you’ll need to purchase and set up software for various tasks, such as accounting, point of sale (POS), and customer management.
Some of the most popular software programs used by restaurants include:
- QuickBooks: QuickBooks is a popular accounting software program that can help you track your restaurant’s finances.
- Microsoft Office: Microsoft Office includes programs like Word, Excel, and PowerPoint that can be used for various tasks, such as creating marketing materials and tracking sales data.
- Square Register: Square Register is a POS system that can be used to accept credit and debit card payments.
- OpenTable: OpenTable is a software program that can be used to take online reservations.
14. Hire and Train the Restaurant Wait Staff & Managers
After you have all the necessary supplies and equipment, it’s time to hire and train your restaurant wait staff and managers.
When hiring restaurant employees, look for individuals who are friendly, outgoing, and have experience in customer service. Be sure to conduct background checks on all potential employees.
Once you have hired your restaurant staff, provide training on topics such as food safety, customer service, and operating the POS system.
15. Open Your Restaurant for Business
You are now ready to open your restaurant. If you have little experience in running a restaurant, consider a soft opening, where you invite friends and family to dine at your restaurant for a discounted price. This will allow you to work out any kinks in your operations before opening to the general public.
After your soft opening, advertise your restaurant through signage, social media, word-of-mouth, and other marketing channels in preparation for your Grand Opening and beyond.
Be sure to track your sales and customer feedback so you can make necessary adjustments to your business.
If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Restaurant FAQs
Starting a restaurant can be difficult, but it is possible to succeed if you have a well-thought-out business plan, the right location, and the necessary funding. Your success will depend on your ability to execute your business plan and attract customers to your restaurant.
If you have no experience in the restaurant industry, it is important to do your research and develop a well-thought-out business plan. You should also consider hiring an experienced consultant or manager to help you run your business.
There is no one-size-fits-all answer to this question. The most profitable type of restaurant will depend on factors like your location, the type of food you serve, and your operating costs. In general, higher-end restaurants tend to be more profitable than fast food or casual dining establishments.
A restaurant's business model is based on generating revenue from the sale of food and beverages. In order to be successful, a restaurant must generate enough sales to cover its operating expenses and generate a profit.
Owning a restaurant can be profitable, but it is important to carefully consider all of the costs associated with starting and running a business. There is no guarantee that your restaurant will be successful, so it is important to have a well-thought-out plan and realistic expectations.
There are many reasons why restaurants fail, but some of the most common include poor restaurant location, bad management, high costs, and low customer demand. Additionally, many restaurants fail because they do not have a clear vision or purpose.
According to IbisWorld, there are 254,744 restaurants, and the restaurant industry generated $181.0 billion in revenue in the United States alone last year. This represents an annual growth rate of 3.5% over the past 5 years.
The Full-Service Restaurants industry is segmented based on the main type of food served. The main segments include Asian, American, Mexican, European and Pizza.
A number of factors affect the performance of the restaurant industry. These drivers include:
- Consumer spending: Taxes, consumer sentiment, and oil prices are some of the factors that influence the growth of consumer spending. Conversely, when the economy is good, consumers will be more likely to spend money on eating at restaurants.
- Consumer Confidence Index: During a recession, demand for discounted value products from restaurants increases, driving revenue down.
- Health Eating Index: Consumers are aware of issues related to weight and obesity, fatty-food intake, and food safety issues.
- Households earning more than $100,000: Full-service restaurant customers are from higher-income households. Due to this fact, growth in the number of households earning over $100,000 annually will benefit the industry.
- Purchases – Purchases comprise the largest cost for industry operators, which include items such as alcohol, food, and other incidentals, like paper towels, cleaning equipment, and glassware.
- Wages – Wages are the next largest expense category for an average operator’s revenue.
- Rent and utilities – Rent and utilities are also a major expense.
- Other Expenses – Other costs include those incurred in the normal course of business, such as insurance, accounting and legal costs, licensing fees, stationery, and office costs. These costs account for an estimated 6.0% of the average restaurant’s revenue.
1. Ensure You Have Sufficient Start-Up Capital
Always overestimate your capital needs. Opening a restaurant is an expensive venture and requires the following:
- Enough cash reserve for the first 12 months
- Initial start-up costs (construction, equipment, furniture, etc.)
2. Determine the Best Location
Market research is crucial in deciding the best location and the following should be considered:
- Sufficient parking
3. Have a Business Plan
A restaurant business plan is the essence of your restaurant, and a poor and unrealistic business plan will not earn you any profits. A good plan will also attract potential investors or banks for financing.
From being greeted at the door to paying the check, first impressions determine repeat customers. Furthermore, with the proliferation of user-review sites like Yelp and Urbanspoon, these platforms will become the gatekeepers to customer acquisition.
4. Establish Quality Control
Ensuring quality and consistency in the kitchen is essential for a successful restaurant. If it’s not good enough, don’t serve it – it could ruin your reputation.
5. Implement a Simple Menu
Long menus lead to confusion for everyone. Start with a simple menu concentrating on quality items done well vs. quantity. This will increase efficiency and there will be less waste and costs.
6. Calculate Food Costs
Determine the appropriate menu prices based on costs and market research. Pricing factors
- Food costs
- Portion size
- Quality of ingredients
- Competitor pricing
7. Execute a Strategic Marketing Plan
The goal of a restaurant’s marketing plan is to ensure long-term success. Employ an integrated strategy that will reach your target market segments. Utilize marketing, public relations, advertising and sales efforts to gain brand recognition and ultimately drive revenue.
8. Control Inventory and Costs
Profitability analysis and inventory control is an important task of every restaurant owner, which must be carried out regularly in order to prevent theft and reduce unnecessary costs.
It has been shown that the average monthly restaurant loss is about 20%.
9. Keep It Clean and Organized
There’s nothing worse than a dirty restaurant. Make sure all your staff have the right hygiene certificates and set up a thorough cleaning regime. Get to know your local environmental health officer so they can help you with any issues that may arise.
Average restaurant startup costs vary from a few thousand to a few million. According to a survey, the median cost to open a restaurant is $275,000 or $3,046 per seat. If owning the building is figured into the amount, the median cost is $425,000 or $3,734 per seat.
A well-run restaurant typically makes between 5% and 8% profit.
Top Tips for Starting Up in the Restaurant Industry
Restaurant Startup – Creative marketing plans for restaurants
Additional Resources in the Restaurant Industry
For additional information on the restaurant market, consider these industry resources:
- National Restaurant Association: www.restaurant.org
- Institute of Food Technologists: www.ift.org
- Nation’s Restaurant News: nrn.com
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