How to start a restaurant

There are already more than 660,000 restaurants across the US, and competition for leisure dollars has never been higher. If you’re going to make your restaurant a success you’ll need a novel concept, a great marketing plan, first-class location, terrific food and a reason for people to come back again and again. 

1. Choose a restaurant concept and brand

From your location to your restaurant décor, menu, marketing, even your pricing policy, your restaurant concept influences your whole business. 

Do your research before settling on a theme. What kind of cuisine is already available where you intend to operate? Is there a gap that nobody else is filling? Can you build a successful business within that niche? Additionally, you might want to consider the operating style of your potential competitors. Can you offer something that they don’t have? For example, if your area is full of casual diners, is there room for a restaurant that offers a high-end experience? (In such a case, you might also want to ask why there are no high-end restaurants there already – does the local customer base want such a business?)

Popular restaurant concepts include:

• Fast-food
• Casual dining
• Fast casual
• Café 
• Fine dining
• Food truck
• Pop-ups, or experimental

Within these genres there are myriads of sub-concepts, for example, Italian, French, International, American, Asian, Caribbean, Mexican, Fusion, BBQ, etc. From here you can further finetune the concept – is it a to-go type of restaurant, a self-service eatery, or maybe it’s full-service where the wait-staff take your order at the table? Ultimately, your restaurant concept will be a mix of these categories. 

Concept example: Mexican fast casual with order at the counter and delivery to your table.

Once you have your concept settled you can consider other important details, such as your restaurant name, brand logo, interior design and of course, your menu…

2. Create your menu

It’s never too early to draw up a draft menu. The kind of food you sell will impact your costs, your pricing and your profit margin. You’ll need this important information for your business plan. 

Building a successful menu means more than just offering the same old classics. How can you make your restaurant’s cuisine stand out? Is it high-end ingredients such as wagyu beef? Is it a fusion of cuisines from around the world? Is it just a very short menu of solid cooking done to the very best? Keep in mind that your menu will be judged against similar competitors – and your food is the only way you can make a great impression on the folks who order your menu to go.

3. Write a business plan

Before you commit money to your project, you should conduct essential research. This is the kind of information you need to know upfront:

• Where will you base your business? 

After your food offering, the location of your business is the most important part of opening a restaurant. You want a location with high visibility in an area with good foot traffic and perhaps a parking lot nearby. You also want a viable customer base. Do the math. Is the area where you want to open big enough to support another eatery? Can you attract enough people to your restaurant to sample your menu? Are there already too many restaurants selling in the same territory? If your chosen location is either too competitive or the local population is too small to support your business, look elsewhere.

• Who are your target customers?

Apart from some of the major fast-food franchises, few restaurants can appeal to everyone. Instead, you’ll aim your business at a small segment of the people who eat out in your area. Who are they? What is their price point? What expectations will you need to meet – for example, are you fine dining or middle market casual fare? Determine your ideal buyer, then shape your theme, menu, branding and marketing accordingly.

Once you’ve got a handle on your market and who your customers are, you’ll need to create a business plan that lays out your vision. This will be especially important if you’re seeking external investment or a commercial business loan to open your restaurant. Investors and lenders will expect a detailed plan that covers every aspect of your potential business, including financial forecasts. Keep in mind that business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them. 

Even if you don’t need investment or a loan, a business plan can still be an extremely useful tool. Use it as your business manual, referring to the contents to guide your strategy and manage your financials.

Find out more about creating your business plan here.

4. Obtain restaurant funding

If you don’t have enough cash on hand to launch your new restaurant on your own, you’ll need funds from investors or lenders. Many new business get started using financial support from friends and family, but if that’s not an option, there are networks of venture capitalists and angel investors readily available online. Bringing in external investment can give you the cash you need to get your restaurant off the ground but be aware that investors will usually want a piece of the action in exchange for their money. This means you will need to give up a share of your ownership and you may lose overall control of the business. 

With a business loan you don’t have to surrender a share of your restaurant to get the funds. Although it’s never easy for new businesses to borrow money, some lenders have special products and programs for startups and entrepreneurs. These types of financing include:

• Term loan – this is a lump sum that you pay back over time. Borrow up to $5million over as long as 25 years. Collateral may be required.
  
• Business line of credit – a loan that functions like a high-value credit card. Withdraw cash anytime up to the maximum of your credit limit. You only pay interest on the sum you withdraw, not the whole line. This can significantly reduce your borrowing costs. Collateral may be required.
  
• Merchant cash advance – borrow against the value of your credit/debit card sales. As your card sales increase, your credit limit goes up. Pay the loan back with a small percentage of your weekly or daily card sales. No added collateral is required.
• Equipment loans use the asset you’re financing as security, similar to a car loan or a residential mortgage, so no added collateral is required.  Buy machinery, furniture, technology, etc. Use the equipment as you pay for it. 

To get these types of loan you can approach banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of startup loans from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a startup loan before. 

5. Choose a location and lease a commercial space

Your restaurant concept and your business location influence each other. For example, if you choose a location in a downtown area where there are lots of offices, you may do well by offering lunchtime cuisine and a place for office workers to hold impromptu meetings. Alternatively, if your location is near a scenic waterfront, a fine-dining establishment may be in order. 

When it comes to cost, turning a vacant space into a restaurant, with a kitchen, dining area, bar, serving stations, customer restrooms and so on, will consume the largest part of your budget. Depending on your location and the size of your operation, leasing and build-out costs can be anywhere from $100,000 to several $million. No matter if you’re leasing the space or buying the property for cash or with a commercial mortgage, be aware you will also be responsible for property taxes, permits, inspections and agency fees.

6. Register your business and apply for permits

You’ll need to register your restaurant with local, state and federal authorities. But before you do that, you’ll need a name for the business. You’ll want a name that is not taken by another organization, as infringing on someone else’s brand name and copyright could end up in a costly lawsuit. Check the official trademark database with the US Patent and Trademark Office to make sure your business name is available.

You will also want a website and branded email addresses for your eatery. Check to see if your preferred company name is also available as a domain name– such as: www.mynewrestaurant.com. You can do this at the global domain name database – WhatsmyDNS.net. If your domain name is available, you should be able to buy it via any of the advertised web hosting services. 

Once you’ve settled on a name, you must decide if you want to run the business as a sole proprietorship, an LLC or a corporation. Although it involves more paperwork, operating as a corporation can protect you if the business does not succeed, as you are not personally responsible for the company’s debts. If you choose this route, you must submit your articles of incorporation to the secretary of state’s office in the state where you register. You can do this in-person, online, or by mail. You will have to pay a registration fee at the time of filing – typically $100.

Restaurants are governed by a host of laws, and you will need to get the necessary licenses and permits. If you sell alcoholic beverages, you must register with the federal Alcohol and Tobacco Tax and Trade Bureau (TTP). You will also need to get state and local operating licenses and permits for your location, including a health inspection permit from local health inspectors. They will need to inspect your restaurant to ensure it meets hygiene and safety standards before you open for business.

Required licenses and permits for a restaurant:

• Business license – usually provided by local or state agency
• Employer Identification Number (EIN) – available from IRS
• Food service license – from local authority such as city manager’s office
• Liquor license – from TTB and state agency
• Health permit – from your local health inspection agency

7. Design your layout and space

The design and efficiency of your restaurant will have great impact on your business. You want a space that functions well but also provides customers with a pleasing experience. Restaurants are divided into two sections – front-of-house and back-of-house.

• Front of house: This is the area of your restaurant where customers are served – dining room, bar, terrace etc.
• Customer capacity – ensure that your restaurant can accommodate the number of guests you expect to serve at any time based on the size of your dining area and the service you provide. (Customer numbers will also usually be restricted by the fire code set by your local health and safety inspector). Some restaurants maximize the number of seats to increase revenue, while others offer spacious seating arrangements for a more relaxed dining experience.
• Customer experience – as well as creating a free-flowing space that allows your restaurant to work efficiently, avoid aspects that can degrade the customer experience such as visible bussing stations and tables sited close to restroom entry points.
• Furniture – your furniture should be comfortable for your guests and fit your restaurant theme. Consider style, material, and durability to ensure it can withstand the demands of daily use in a commercial setting.
• Ambiance and décor – the ambiance and decor of your front-of-house area are important to create an inviting atmosphere for customers. Specialty lighting, pleasing color schemes, artwork, and music can enhance the dining experience and create a cohesive atmosphere. Pay attention to small details such as table settings, wall decorations, and even plants or greenery to add a touch of freshness and visual interest. 
• Cleanability: In an environment where spills and messes are inevitable, it’s essential to choose materials and finishes that are easy to clean and maintain. Select furniture coverings and flooring that are stain-resistant and durable, such as laminate, vinyl or stone.
• Traffic flow: Your workers need to move efficiently around your restaurant. Ensure your layout provides clear pathways for servers to navigate between tables, serving stations and the kitchen area.
• Back-of-house: This is the area of your restaurant that customers do not see and where food is prepared. It includes kitchen, storage areas, cleaning stations etc. You want a layout that handles all of the back-of-house tasks with good traffic flow and efficiency.
• Ware-washing – you’ll need sufficient space for a ware-washing area. This area should include a dishwashing machine, a three-compartment sink for manual washing, space for dish racks, and shelving for clean dishes. 
• Dry and cold storage – dry storage spaces should be clean, organized, and easily accessible for inventory management and stock rotation. Cold storage spaces, such as walk-in refrigerators and freezers, should be strategically placed to minimize the distance food needs to travel from storage to preparation areas.
• Food preparation – an efficient food preparation area controls the flow of ingredients, equipment, and personnel. This area should include sufficient counter space, cutting boards, sinks, and storage for utensils and equipment. Placing preparation areas close to refrigeration and dry storage areas can help streamline workflow and reduce unnecessary movement.
• Cooking – this area should accommodate your restaurant’s specific cooking equipment needs, such as ranges, ovens, grills, and fryers. Consider ventilation and fire safety protocols when planning the layout of the cooking area. Proper ventilation systems should be in place to remove heat, smoke, and cooking odors from the kitchen.
• Service – this area should provide quick and efficient plating, ensuring proper organization of prepared dishes. It should be equipped with counters, warming equipment, and storage for plates, utensils, and garnishes.

8. Find an equipment and food supplier

Your key food suppliers will be determined by the theme of your restaurant – for example if you’re operating a fish restaurant, you’ll need suppliers who can get this delicate fare to you as fast and as fresh as possible. Depending on the type of restaurant you are running, you will need food suppliers for the following:

• Meat/fish/poultry/game
• Vegetables and fruits
• Rice and pulses
• Oils and ingredients to make sauces and marinades
• Specialty ingredients such as fish sauce
• Desserts, cakes and pastries
• Soft drinks
• Alcoholic drinks

Your equipment needs will also be shaped by the type of restaurant you operate. Typical commercial kitchen and back-of-house equipment includes:

• Ovens
• Refrigerators and freezers
• Dishwasher
• Glass washer
• Work stations
• Microwaves
• Ventilators
• Ice cream makers
• Grill or fire pit
• Storage racking and cabinets
• Commercial bain-marie
• Mixers
• Pots, pans, knives, strainers, sieves etc.
• Cleaning equipment, scrubbers, rubber gloves etc.

If you don’t have the cash to buy the equipment you need, consider equipment financing that lets you use the equipment as you pay for it. You may also be able to find some used commercial kitchen equipment that will be cheaper, although you should always check for damage and faults before making any large purchase.

9. Hire the right staff

Unless you plan to cover all the bases yourself, you’ll need employees to make your restaurant work. To control your costs you could bring in your head chef as a partner, making them an owner in the business and requiring a lower salary than they would if they were only an employee. You may also be able to operate with only a small number of experienced employees, such as your sous chef, in the early days of your venture. For unskilled work, bulk up your staff numbers with less experienced workers who will command lower salaries. 

The total number of employees you need will be determined by the size of the business and what kind of service you provide. Industry averages suggest a typical full-service restaurant needs at least ten employees. Larger and fancier establishments will need many more. 

10. Market your restaurant

As the old saying goes, advertising pays – and you’ll need to market your new restaurant to establish a solid customer base. Experts suggest allocating up to 20% of your operating budget to marketing activities in the first year of operation. 

Before you start any kind of marketing activity, conduct some basic research – what are your competitors selling? What kind of loyalty programs do they offer? Are there any successful promotional tactics that you can mimic? Create a plan that promotes your brand and sets your restaurant apart from all the rest. Utilize a range of marketing actions to get your story across:

• Social media
• Flyers to local residents and commercial locations such as office blocks, hospitals, bus stations
• Local advertising
• Promotions for special products, discounts and loyalty deals
• Product tastings
• Sponsorships of local school sports teams
• Special events

11. Host a soft opening

Before you go live with your shiny new restaurant, you’ll want to run some tests to make sure everything works and to iron out any glitches. In the hospitality trade, these tests are called a ‘soft opening’ and you will usually invite friends, colleagues and contacts garnered from your business’ social media accounts to come and kick the tires. Typically, you will offer discounts or some other benefit to those that attend. In return, you get to ask them for a detailed review. Holding more than one soft opening – perhaps for a whole week before your grand launch – can give you valuable business information, allowing you to sort out any kitchen issues, finetune menus, improve ambience and décor and tailor with your pricing.