Opening a restaurant is one of the most prevalent ways to become an entrepreneur in the United States. Restaurant workers account for 10% of the US workforce, according to the National Restaurant Association. Furthermore, restaurant business sales are expected to reach $863 billion in 2019. While it might seem apealling, opening a restaurant means entering a highly competitive market. In the United States, there are over 1 million restaurant outlets, and 60% of them fail within the first year. So, how do you stand out and create something lasting? Here, you’ll learn how to open a restaurant regardless of whether you have money or not. We have also outlined what it costs to open a restaurant and maintain it.
How To Open A Restaurant: Detailed Checklist
Regardless of your background or degree of experience, nothing can fully prepare you for opening your first restaurant, or really any business. Furthermore, no matter how much you study or research, there are some aspects of being a restaurant that can truly only be learned by experience. Nonetheless, the actions outlined below can assist you in avoiding some of the most typical mistakes.
#1. Choose a niche
There are many different types of restaurants around the world, and it needs a wide range of talents to keep them running successfully.
What food, service, or convenience do you regard as lacking in your own tiny corner of the universe? What gourmet need is still unsatisfied? Would operating a pizza shop, a food truck, or a cafe be the best way to service your market?
#2. Create a business plan.
In the same way that recipes provide a blueprint for creating an amazing dish, your restaurant business plan is the recipe you’ll follow to ensure the success of your business.
Finally, drafting a business plan requires you to think through and answer questions about your future restaurant that compel you to consider the market you serve, the sustainability of your entire plan, and problems you may not have considered otherwise.
When done correctly, this method will assist you in refining and defining the following steps required in opening your restaurant, giving you the best chance of success.
Here are some important questions you should be answering as part of your future restaurant’s business planning:
- What kind of restaurant do you wish to own and operate? This is your “elevator pitch,” and it is something you will repeat to friends, family, clients, lenders, investors, and just about everyone else.
- Who is your restaurant aimed at? This is known as your target market—the group of customers who will be served by your business.
- What are your rivals’ names? It is beneficial to understand who your competitors are in your industry and how their restaurants are similar and different from yours.
- Where will you open your restaurant? Putting a pricey steakhouse in the center of a low-income area is unlikely to succeed.
- What is your unique selling point? What distinguishes your eatery from the competition?
- How will customers learn about your restaurant? Will you promote your company using word-of-mouth, paid advertising, social media, or another method? We recommend using popular review applications like Yelp, OpenTable, and Resy to help guests find and evaluate your restaurant, as well as book reservations online.
- What equipment will your restaurant require? Make a list of all one-time and recurrent charges you’re expected to incur as part of your cost of doing business, leaving no stone unturned.
- How will you make money with your restaurant? Your restaurant’s business model dictates how it generates income, covers expenses, and eventually makes more money than it spends.
- How long will it take your restaurant to break even? Determine how long it will take to recover your initial investment, break even, and run a profitable business using a revenue estimate.
- What are you unwilling to give up? What are your most significant values, both personally and professionally? What are your absolute non-negotiables? This will help you make important business decisions in the future.
- What is your staffing strategy? Your head chef, friends, and family will be the first places to look for stand-up, smart, and dependable people. Even if you find the appropriate people, you’ll have to train them.
- What is your ultimate goal? Are you constructing a restaurant with the intention of eventually selling it, or are you constructing a long-term, sustainable business? Understanding where you want to go and when will assist you make numerous business decisions along the route.
#3. Decide on a name and legal structure for your restaurant.
If you intend to utilize a distinctive name for your restaurant, file your “doing business as” (DBA) name with your state’s agency to avoid losing your name concept to another firm.
Once you’ve determined your DBA, you’ll need to choose a business entity type for your restaurant. The structure you choose will have an impact on how you file state and federal business taxes, the roles of different team members, and how you can be held liable if someone brings a legal claim against your company.
Due to the long-term and potentially significant implications of your selected business structure, it’s a good idea to consult a business attorney before making this decision. The basic types of entities for business owners are:
- Partnership
- Sole proprietorship
- Limited Liability Corporation (LLC)
- C-Corporation
- S-Corporation
#4. Get your restaurant’s tax identification number.
This number, also known as your employer identification number (EIN), assists the IRS in keeping track of your firm for tax purposes.
Consider it your company’s social security number.
If you intend to retain employees (think wait staff, hosts and hostesses, kitchen staff, and even dishwashers), and especially if your company is organized as a corporation or partnership, you’ll need this figure to keep things running smoothly.
Apply for an employer identification number online at the IRS website.
#5. Register your business with the state and municipal governments.
In addition to federal business taxes, most states and territories in the United States will need you to pay income and employment taxes for your company. Many states have additional fiscal responsibilities, such as workers’ compensation and unemployment insurance mandated by the state.
Registration, regulations, and filing procedures differ greatly from state to state, so research the company tax information for your state.
#6. Get restaurant permits, licenses, and insurance.
The FDA changes the Food Code every four years, although the specifics of what is needed, strongly suggested, and simply optional vary by state and even county.
You could read the FDA’s 600+ pages, but we recommend starting by locating your state’s food service code regulatory department. Here are some of the highlights you should expect to experience while bringing your neighborhood up to code. This resource is helpful, but it is not exhaustive; thus, verify with your local health department to ensure that all of your bases are covered.
Maintain a master calendar with reminders for all of your renewal and payment due dates.
#7. Create accounting paperwork.
There is a lot of paperwork involved in running a restaurant. Accounting paperwork are required to file taxes, request for business funding, and track your sales, expenses, and profitability internally.
Every restaurant owner should, at a minimum, keep the following three fundamental accounting records on file:
- Balance sheet
- Profit and loss statement
- Flow of funds statement
If you’re feeling overwhelmed by these accounting procedures, you should look for a qualified public accountant. It is critical to select someone whose personality matches yours, who will be ready to answer problems as they arise, and who can manage financial areas in which you have less experience.
Hiring a CPA who is familiar with the restaurant sector will help you grasp your local regulations and avoid problems with servers’ minimum wage, tips as revenue, and over time for your employees.
#8. Invest in the proper restaurant equipment.
Managing the accounting records above by hand can quickly become daunting, especially with all of the moving components involved in an operating restaurant.
Not to mention employee scheduling, timesheets, payment processing, payroll processing, and all the other complexities involved in keeping your business running!
Fortunately, there are excellent restaurant accounting software solutions and other handy tools available that will take the uncertainty out of your bookkeeping and automatically generate these accounting papers.
POS system for restaurants
A restaurant POS system is something that many entrepreneurs neglect while researching how to operate a restaurant. A restaurant POS system is a mix of hardware and software that enables you to execute a variety of critical operations such as payment processing, front-of-house administration, order routing, and tip reconciliation. Most POS systems also generate useful information that help you operate your business more efficiently.
#9. Meet your restaurant’s tax requirements.
Understanding and completing tax regulations should be a top concern in the financial management of your restaurant, along with keeping your books in order. Failure to file your state and federal company taxes has serious implications, including the loss of your firm and criminal prosecution.
Hence, while dealing with the IRS can be scary, it is not something you should neglect.
Here are the major business tax duties you’ll need to be aware of:
- Income taxation
- Tax on self-employment
- Tax estimate
- Taxes on employment
#10. Finance your freshly launched restaurant
Unless you are independently rich, you will most likely require some outside capital to open a restaurant.
Entrepreneurs can fund their enterprises in a variety of methods, but the most popular is to obtain a business loan. The expansion of the alternative lending business has resulted in a vast range of loan products designed to fulfill the demands of entrepreneurs, each with its own set of charges, payment arrangements, and application processes.
Some business loans available include:
- Temporary loans
- SBA financing
- Finance for machinery
- Short term loans
- Credit facility
How To Open A Restaurant With No Money
This is a common inquiry these days, and we love seeing people’s delight when they realize this is even an option. Before you get too worked up about how you’re going to raise finances or find an investor, just know that finding restaurant funding is easy.
So then, how do you raise money to open your restaurant?
#1. Begin with a restaurant incubator.
If you have little money and no business expertise, you should look at restaurant incubators in your area. A restaurant incubator is a shared area with all of the necessary culinary equipment. It provides a distinct area for food preparation from where you serve food.
#2. Apply for restaurant loans or investigate capital options.
We’ve written about restaurant funding before, and it’s always a difficult topic to broach. However, there are a few restaurant credit programs, such as the Small Business Association (SBA) loan program, that allow partnered lenders, community development groups, and micro-lending institutions to participate in small enterprises. If you are beginning a small business, there are several resources available online; you simply need to look for them. A small restaurant can have a significant impact on a community, and many cities and local governments desire them to locate in their areas.
Another alternative is to join a peer-to-peer lending service, which connects lenders and borrowers. Yet, there is a chance that the borrower would default on the loans obtained through peer-to-peer lending platforms.
Bank loans, which often offer low-interest rates but lengthy approval processes, are another option for restaurant startup funding.
Lastly, whether from a bank or a non-bank lender, alternative loans are becoming a more common option. Dealing with a lender who understands the subtleties and challenges of the restaurant sector, with distinct criteria, approval processes, and payback schedules than traditional loan institutions, can make the process smoother.
#3. Locate an investor, preferably an angel investor.
Many investors are hesitant to engage in restaurant enterprises since they are perceived as hazardous investments with low financial returns.
If you’ve developed a good business plan, you may begin the process of locating a restaurant investor that shares your interests, complete with pitch meetings, site visits, and so on.
You could also look for an angel investor. An angel investor is someone who contributes to the financing of an idea or company plan for one basic reason: they trust in your vision.
While looking for an angel investor, look for someone who believes in your ability and wants to contribute to your cause.
An angel investor might be anyone, including one of your previous restaurant mentors or a friend of a friend who was moved by your narrative. Begin your angel investor hunt by tapping into your existing network. Who knows, one of your family members or friends may know someone who is looking to lend money to a local business.
#4. Be inventive with your crowdfunding efforts.
Crowdfunding sites such as Kickstarter, Indiegogo, GoFundMe, and AngelList have helped several restaurateurs open their second or third location. If you already have customers who know and love your brand, why not ask them to contribute a few dollars to help support your next location? In exchange, they may receive a gift card, a tote bag, or other stuff.
#5. Start with a pop-up, food truck, or catering business first.
Before investing in a brick-and-mortar restaurant, many restaurateurs start with pop-up restaurants, food trucks, or catering enterprises.
Pop-up restaurants are temporary restaurants that are held in a variety of places such as existing restaurants, pubs, abandoned arcades, bowling alleys, theaters, or even chefs’ homes. They are a low-cost way to test out running a mini-restaurant business.
#6. Speak with your landlord about your alternatives.
Another approach is to start by locating a suitable place. When you find restaurant real estate, ask your landlord about your alternatives for restaurant buildout. In some situations, your landlord may agree to lower your rent if you offer them a stake in your business. They may also provide a tenant improvement allowance (TIA or TI in a letter of intent or lease agreement), which is often a financial sum multiplied by the square footage or size of the space.
Regrettably, there is a widespread perception that many eateries have strained relationships with their landlords. To avoid having a bad relationship with yours, make sure everything is in writing from the start, and if possible, work with a lawyer or restaurant real estate adviser to request a tenant improvement allowance in the letter of intent.
#7. Check with your local restaurant association for assistance.
Restaurant associations were formed to help local food businesses, and many have forums where restaurateurs can ask fellow restaurateurs for advice on loans and funding, as well as links to local restaurant consultants who can help you navigate the restaurant funding space.
Your community is there to assist you in the same way that you would support them! Don’t be scared to turn to them for help; your fellow restaurateurs have your back.
The main line is that when it comes to securing restaurant funding, assistance is there – as long as you look in the correct places!
What Does It Cost To Open a Restaurant?
It can cost anywhere from $180,000 to $800,000 to open a restaurant, depending on a variety of factors. According to a recent poll, the average cost of launching a restaurant is $275,000, or $3,046 per cover for leased space. With the addition of land, this figure rises to $425,000, or $3,734 per cover. These figures can be deceptive because there is no one-size-fits-all answer to this subject. A number of things will influence the cost of your restaurant, including its location, restaurant concept, and whether you choose to lease or buy your facility.
Costs of Opening a Restaurant
Before you come up with a final figure and apply for a restaurant startup loan, become acquainted with the sorts of expenses you must account for in your budget in order to calculate the cost of operating a restaurant. We’ll provide you with an average restaurant setup cost breakdown as well as some tips on how to save money.
#1. Down Payment or Security Deposit
One of your major expenses will be securing a location for your restaurant. If you intend to buy the home outright, a 10% down payment is required to secure your loan. The cost of real estate varies tremendously depending on location, but when it comes to restaurants, location is everything. If you choose a bad location because it is less expensive, your company may suffer in the long term.
Loan Down Payment: $12,500-$40,000
#2. Building or Renovation
Construction costs will be one of your largest expenses, whether you are improving an existing structure or starting from scratch. Water, gas, and energy expenditures may quickly mount up and typically run from $1,000 to $2,500 per month for a 4,000 square foot firm. Having your restaurant ADA accessible from the start may cost you $10,000 to $30,000, but it will save you money in legal bills later on. The final cost will be determined by the amount of your construction and renovations.
#3. Kitchen Appliances
The next most expensive item will be food service equipment. You will need not only cooking equipment such as ovens, flat-top grills, and charbroilers but also refrigeration units to store your food and ware washing equipment to keep your tableware clean. If your restaurant has a bar, you’ll need to purchase a tap system, liquor displays, and underbar storage. Don’t forget to include all of the pots, pans, and tools needed to prepare your menu dishes.
Cost of equipment: $75,000-$115,000
#4. Tableware and Furnishings
Your budget for furniture and tableware is strongly related to your restaurant idea. If you want to create an upscale restaurant with a sophisticated menu, you should probably invest in high-end furniture and fine porcelain dishes. But, if you have a simple menu and a casual approach, your furnishings and tableware will most likely be less expensive. On your busiest shift, you’ll need enough tableware, glassware, and flatware to serve all of your guests.
Furnishings and tableware range in price from $20,000 to $80,000.
#5. POS System
A POS system will benefit your restaurant in a variety of ways. Point-of-sale technology not only simplifies the ordering process, but it also aids in inventory management, employee management, and sales reporting. Front-of-house stations with touchscreen monitors, receipt printers, and credit card readers should be included in your POS solution. Kitchen displays and ticket printers are examples of back-of-house components. Toast POS systems provide mobile capabilities such as tableside ordering and payment, which help streamline operations and free up time for your employees.
POS System Price Range: $12,500-$20,000
#6. First Food Inventory
Because you’ll need to include non-perishable foods, your initial food inventory cost will be more than daily or weekly replenishment. Condiments, spices, oils, and coffee are just some of the products you’ll need to stock your pantry. These ingredients will last a long time before needing to be replenished, especially if purchased in bulk. Begin by examining your menu and pricing out each ingredient to generate an initial food cost prediction.
#7. Authorization
Before you can open your doors, you must obtain numerous types of licenses. You should get a head start on this phase because it might be time-consuming. Liquor licenses, in particular, can be rather expensive, depending on where you reside and whether you live in a quota or non-quota state. Because quota states only grant a limited number of permits, the cost might skyrocket. You should also set aside capital and contingency funds to cover at least six months of downtime in the event of an emergency or low sales.
- The cost of a business license ranges from $50 to $400.
- The cost of a liquor license ranges between $300,000 and $400,000.
- Cost of a Certificate of Occupancy: $100
- Foodservice License: $100-1000
- Health Permit: $50-1000
- Sign Permit: $20-$50
- Insurance Annual cost: $1000-$10,000
#8. Marketing
It is critical to spread the word about your new eatery. You’ll need to set aside money for your initial marketing plan and grand opening. The cost of marketing will vary substantially depending on the venues you choose and whether you use an advertising agency. Hiring a public relations firm can cost you between 3% and 6% of your sales.
Expense of marketing: $6,000-$30,000
#9. Wages
As you begin to acquire new personnel, keep in mind that paid training is standard practice. Salaries and wages will be discussed in the months and weeks leading up to your first day. This cost will vary substantially depending on your staffing needs.
Is It Profitable to Start Your Own Restaurant?
Restaurants are profitable, but their profit margins are poor. Profitability is determined by a variety of factors, including the size and style of restaurant, as well as economic conditions. A new restaurant takes an average of two years to generate a profit.
Do You Need A License To Open A Restaurant?
A business license is required to operate a business, regardless of where you live. One of the most crucial restaurant licenses and permissions is a business license.
What Is the Hardest Part of Owning A Restaurant?
- Working both during the day and at night.
- Locating and Keeping Dependable Employees.
- Keeping Food Quality Constant.
- Calculating How Much Money You Need (And Where to Get It)
Why Do So Many Restaurants Fail?
- Thefts and pilferage
- Bad location and exorbitant rent
- Bad Customer Service
- Lack of experience
- Inadequate Staff Management
- Improper Resource Allocation
- Inventive Menu
- The owner is not involved.
- There will be no reporting or analysis.
- There will be no marketing.
In Conclusion,
Even the most planned and in-control persons might find opening a restaurant to be a very challenging and stressful undertaking. Yet, once those doors are open and people begin to arrive, the procedure is well worth the effort.
Related Articles
- OPEN A FAST FOOD RESTAURANT: How Much Does it Cost? (How to Start)
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- PLANNING RESTAURANT BUSINESS: 10+ Tips to start Off Rightly
- RESTAURANT MANAGEMENT SYSTEM: Guide to Effective Restaurant Management
- RESTAURANT MARKETING: What You Should Know and Strategies
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