Owning a successful restaurant is a dream for many of us. The freedom to explore your passion and be your own boss coupled with the expectation of being a successful restaurant owner can be luring.  But, the reality of running a restaurant business isn’t quite as peachy. 

Opening a restaurant can be a daunting task; there are a lot of costs and factors that need to be weighed in before actually starting out.  In addition, the restaurant industry operates on thin margins and competition is cut-throat, to say the least. According to the stats, 60% of restaurants shut down within the first year of operations, and up to 80% of the restaurants close their operations in the first five years. So, how do you ensure success in such a scenario?

Here’s a step-by-step guide to help you open a restaurant and turn it into the profit-making venture that you envisioned. 

1. Decide The Concept Of Your Restaurant

  • Do you want to be known for using ingredients sourced from local farms?
  • Will your seafood be your USP?
  • Or will it be the dining experience that will make you stand out?

The first thing to consider while starting a restaurant business is deciding the concept behind your restaurant and what makes it unique or stand out among the competition.

Focus on the following aspects:

  • What is your restaurant’s USP?
  • How is it different from other similar restaurants in the market?
  • Who is your target audience?
  • How can you reach out to your target audience?
How To Open A Restaurant?- Concept of your restaurant

The concept behind your restaurant helps you define your target market and will affect the funds required and your marketing strategy. 

2. Decide The Location For Your Restaurant

Choosing the right location can determine the success of your restaurant. When we think of a restaurant’s concept, we usually have a location in mind. However, whether you are planning to buy an existing restaurant space, renting a space, or building your own, you should study the market in the location of your choice.

Delve into details such as demographics and target market. Study the competition in the area to understand their business model. Other important factors to consider:

  • Is the location suitable for the restaurant concept?
  • Does your target audience reside in the vicinity of your restaurant?
  • Is the location close to your suppliers and vendors?
  • Consider actual space for your restaurant operations, accessibility, and parking.

3. Design A Stellar Menu

It goes without saying that if your customers like your food, your restaurant will be able to survive the competition. So, offering a stellar menu should be your priority.

Your menu offerings, design, and pricing should be unique to the concept of your restaurant. Discuss each of the items that you wish to include on your menu with your head chef before finalizing it.  Analyze details like recipes, raw material sourcing, and price points. Develop a list of core ingredients and check if they can be sourced easily. This will also help you to calculate the price of each item on the menu.

How tO Open a restaurant- pricing of menu items

Once you have come up with an initial list with prices, compare it with the menu of other similar restaurants in your vicinity. Check what items they are offering and how your prices compare to them.  After you have weighed up all aspects, prepare a sample menu including only those items that meet both the popularity and profitability criteria. 

How to open a restaurant- Menu Optimization

A well-designed menu can help you save on food costs. The right way to go about menu additions is to optimize your menu over time.  Menu items that are not popular and less profitable can be replaced with new entrees that you feel have a higher chance of success.

4. Arrange Suppliers & Vendors For Your Restaurant

Now that you have decided on the location and menu, it’s time to arrange for vendors and suppliers. It is obviously better if your vendors/ suppliers are close to your restaurant, but more importantly, your suppliers should be reliable and should have a good reputation in the market.

Compare the vendor prices and check on their credibility before shortlisting at least 2-3 two-three vendors in each category. Work on building a good relationship with them. Diversifying your supply chain by building a strong network of more than one vendor allows you to bargain the best prices and maintain continuity in your supply chain.

Go for long term contracts with the vendors to maintain the consistency of raw materials and always have a backup plan in place so that you can meet your inventory requirements in case of a supply chain crisis.  

If you want to maintain a cost-effective supply chain, inventory management should be your top priority. Ensure that you have reliable demand and inventory forecasts to prevent overstocking and wastage. Invest in comprehensive inventory management that allows you to manage and optimize each aspect of inventory management including monitoring inventory status in real-time and reordering from suppliers.

Many modern POS solutions have an inbuilt inventory management tool that allows you to keep track of your individual inventory items, eliminate pilferages/wastages, and get a reliable inventory forecast. Leverage the data and reports generated by your inventory management software and your PoS tools to forecast the demand for different items on your menu.

How to open a restaurant?- Upserve pos

5. Evaluate All Restaurant Costs

Evaluating costs at this stage helps you to get a better understanding of your financials and plan your investment accordingly. Let us take a look at some of the significant costs involved in starting a restaurant business.

How to open a restaurant- Costs involved in opening a restaurant

Up Front Costs

Licenses

There are several types of licenses depending on the concept and type of a restaurant that you need to acquire before opening a food service establishment. 

Building and Interiors

Whether you are planning to build a restaurant from the ground up or simply refurbishing an old place, you must have a fair estimate of the costs involved including the cost of front-of-house furniture, kitchen equipment, utensils, interior designing, cutlery, crockeries, and other fixed expenses.

Restaurant Technology

Over the past decades, we have seen a huge growth in restaurant technologies that assist almost every aspect of the day to day functions of a restaurant. Investing in some basic restaurant technology is crucial to the success of your venture. Create a list of technologies that you consider essential to your restaurant and research the different options available in the market before investing in anything.

Some of the essential restaurant technologies should be looking at are

  • Point of sale system
  • Kitchen Display Screens
  • Guest Management Systems
  • Tabletop ordering and mobile payment
  • Online ordering
  • Customer loyalty and gift cards

Recurring costs

How to open a restaurant- Recurring costs

Food Costs

Food Costs- include the cost of raw materials used in preparing a dish. Ideally, the food cost should be around 30% of your menu price.

Labor Costs 

Includes salary or restaurant manager, chefs, waitstaff etc.

Overhead Costs

Includes rent, electricity, water, and other recurring expenses.

Marketing

You should also set aside some money for marketing your restaurant. A mix of online and offline marketing budget to promote your restaurants and reach out to potential customers.

6. Prepare A Business Plan 

Preparing a business plan for your restaurant can help you explain your ideas to your team, partners, and potential investors. When you sit down and put your vision on paper, it helps you put your ideas to test and analyze each aspect more fundamentally, and layout the detailed path that you can follow to execute your ideas.

A restaurant’s business plan is the blueprint of what your future restaurant will look like, how it will operate, breakeven, and finally be the profit-making venture that you envisioned. It lays down your goals for your restaurant and the path you must take to achieve them. 

A restaurant business plan enables you to consider all the expenses that will be incurred for the first six months of operation including fixed costs and recurring expenses. Projecting these expenses and comparing them to your expected revenue streams helps you gain a better understanding of your financials and an opportunity to plan your investment and loans.

Here are some of the key elements of an effective restaurant business plan:

  • Executive summary
  • Company overview
  • Industry analysis (target market, location analysis, competitive analysis)
  • Marketing plan
  • Operations plan (staffing, customer service policies and procedures, restaurant point of sale, payroll)
  • Financial analysis (investment plan, projected profit and loss statement, break-even analysis, expected cash flow)

For a deeper dive into the specifics of building an effective restaurant plan, you can refer to our article on creating a restaurant business plan.

7. Work Out Investments To Fund Your Restaurant Business

Now that you have an estimation of costs involved in opening a restaurant, you can work out the investment to fund your venture. Here are the obvious options.

  1. Self-funding 
  2. Partnerships if your friends or colleagues are interested in partnering with you, it may be a good idea to bring them on board as this will help you spread out the risks of investment.
  3. Loan- You can also apply for loans for financing your restaurant business.
  4. VC/Angel funding- Although it is difficult to find investors for your first restaurant venture, there is no harm in trying especially if you have significant experience in the food and services sector. However, before approaching investors ensure that you build a robust business plan highlighting your growth potential and past successful business ventures.

Types of Loans You Can Get

Term Loans

Depending on your business needs and credit rating you can apply for a term loan for opening your restaurant business.

SBA Loans

If you are looking to open a restaurant in the U.S., SBA loans can be a great option to fund your venture. Restaurateurs looking for funding can get several types of SBA loans from banks, credit unions, or other lending institutions. The Small Business Administration guarantees as much as 80% of the principal on these term loans to make the participating lending institutions more willing to consider applications from restaurateurs.

You must meet certain requisites to apply for an SBA loan. Good bookkeeping, a positive credit rating, and a robust business plan increase the chances of approval of your loan.

Equipment Financing

You can apply for equipment finance to pay for equipment purchases such as POS, front of house technology, or commercial kitchen appliances. These loans usually charge interests at fixed rates anywhere between 8% and 30%.

Short-Term Loans

Working capital loans help cover operating costs in the initial months of operation. These short term loans are usually extended for a period of three to 18 months. With interest rates as low as 14%, the working capital loan can help you meet your immediate liquidity requirements and cover expenses like rent, payroll, etc.

Line of Credit

A business line of credit allows you to borrow money to meet a variety of business needs. 

After the loan is approved, you can withdraw any amount out of the total fund sanctioned under the agreement. The interest is charged on the amount withdrawn by you and not on the total sanctioned amount. You can borrow and repay the amount on a revolving basis without having to apply for a fresh loan.

Other types of restaurant business loans include merchant cash advances and equity.

How to open a restaurant- Line of credit

8. Choose Your Restaurant’s Name and Legal Structure and Procure Licences

Now that you have figured out the basic structure of your restaurant, it’s time to begin the paperwork. First off, register your restaurant name with your state’s agency, and select a legal structure (sole proprietor, partnership, c-corporation, s-corporation).

The legal structure of your restaurant has a long-term impact on your operations, tax, and other financial liabilities, so it’s advisable to consult a business attorney to help you with the paperwork.

a. Get a Tax Identification Number for Your Restaurant

All business owners in the U.S. must obtain an employer identification number (EIN). An EIN is a tax ID number that helps the IRS keep track of your business for tax purposes. You can obtain it by applying online through the IRS website, or by fax, phone, or mail.  

b. Register Your Restaurant for State and Local Taxes

In addition to federal business taxes, most U.S. states and territories charge an income and employment tax for business. As the details and requirements of these taxes are specific to where you are planning to operate your business, it is best to check out Restaurant Sales Tax By State and City.

c.You Need Restaurant Licenses and Permits

There are several licenses and permits that you need to acquire to open any kind of restaurant.  The nature of licenses and permits that you would require depends on the kind of restaurant that you are planning to open and the costs to acquire them may vary from state to state. 

Here are some of the licenses and permits you’ll most likely need:

  • Restaurant Business License
  • Restaurant Food Service License
  • Food Handler permit
  • Employer identification number
  • Certificate of occupancy

Licenses may take time and money to acquire so you should start procuring them early on in the process.

10. Restaurant Insurance

Being in the food and beverage business can come with its risks. You need to look into business insurance to safeguard your restaurants against any unforeseen events.

Your individual requirement may vary depending on the nature of your restaurant, the kind of ownership, and also the city/state in which you operate. However, some of the basic coverage options specifically made for restaurant owners include:

  • Property insurance
  • General insurance
  • Liquor liability
  • Auto liability
  • Workers compensation insurance
  • Unemployment insurance
  • Life insurance
  • Fire insurance
  • Loss of business
  • Food contamination

11. Get Manpower For Your Restaurant Business

Your staff is an extension of your brand so you should take utmost care while hiring employees. It is best to create certain guidelines for hiring staff and adhere to them as closely as possible during the recruitment process. 

Work on an outline framework of the staff you would need including the number of employees you would need in each area of operation; kitchen staff, waitstaff, and management staff. You should also work out details of the recruitment procedure and job descriptions for each category of employee.

There are three types of staff required in a restaurant:

  1. Kitchen staff- Kitchen staff comprises the cooks, food preparation staff, support staff, etc.
  2. Service staff includes waitstaff, housekeeping staff, busboys, etc. The service staff interacts with customers on a regular basis and must be trained appropriately.
  3. Management staff includes the restaurant manager, chef, cashier, store manager, etc. You should hire experienced staff at the managerial level.

You can recruit restaurant employees through referrals, or posting a vacancy on job boards, social media, and career sites. 

Before you start a restaurant business, you must also remember to train your staff not only regarding their job but also on how they should serve their customers to deliver stellar customer service. Every restaurant should have a training manual in place for each category of employee.

While it is important to provide training to all new employees it is equally important to organize training programs on an ongoing basis. You can maintain service standards at your restaurant by keeping your employees up to date with the latest guidelines for food preparation, healthy kitchen practices, and smart waste management.

Opening a successful restaurant- training od staff

While training your staff you should lay down structured guidelines on what you expect from them in terms of customer service. Make a list of all tasks that a server goes through in a day, for instance greeting guests, pre- bussing tables, taking orders, making menu suggestions, serving food, taking orders by the phone, and the like. Provide clear guidelines for each task in your training program. It is critical to train your front staff in dealing with customer complaints and queries.

Technology has completely changed the way restaurants work and function. Training your staff to use the full stack of restaurant technology that you may have invested in helps you increase their efficiency and productivity and make full use of the available resources.

12. Install Right Technology At Your Restaurant

Investing in some basic restaurant technology is crucial to the success of your venture. While embracing technology we must consider the problem that we are looking to solve. Let’s take the example of customers struggling to keep up with their busy schedules who hate waiting for their meal to arrive. What can you do to reduce wait times in your restaurant? A table ordering system is a great solution that allows customers to immediately view the menu via their tablet, place an order when they are ready, and pay after their meal. 

You can also go for something as simple as this Texas restaurant that provides a bell at each table to call for a server’s attention. Similarly, to cut down wait times on takeout and delivery orders, you could consider allowing customers to order and pay from their mobile devices. 

Analyze each aspect of the customer journey inside your restaurant and work out ways in which you can optimize it.

Speed Vs Experience

Many restaurants focus on speed while compromising on experience. What we must understand is that there can be no trade-off between these two. As restaurant owners, we must learn to balance speed and experience and ensure that you deliver a stellar dining experience to all your customers including takeout and delivery.

Ease of Use

Another thing you must consider before adopting any new technology is the ease of use. For instance, while more and more customers like to order food on the go, the last thing they want is another app on their mobiles. Adopting platforms that allow mobile orders, text orders and voice ordering from digital assistants can help you resolve this.

Embrace Technology

Technology can enable you to deliver stellar customer experiences. Adopting a customer-first mindset and analyzing the frustrations that customers may face can help you identify and leverage technologies to eliminate the pain points and create a more satisfying customer experience.  

To provide a great customer experience you need to streamline operations both at the front end and back-end. The front-end of your restaurant does not work in isolation. If your back-end is slow or disorganized,  it not only impacts your operating costs but also affects the ability of the front-of-the-house staff to deliver orders efficiently and in time. Technology can help you manage and automate almost every aspect of restaurant operations. However, the goal of every technology upgrade should be to simplify an existing system and make it more efficient. 

 Create a list of technologies that you consider essential to your restaurant and research the different options available in the market before investing in anything.

Some of the essential restaurant technologies should be looking at are

  • Point of sale system
  • Kitchen Display Screens
  • Guest Management Systems
  • Tabletop ordering and mobile payment
  • Online ordering
  • Customer loyalty and gift cards

13. Restaurant Marketing

You should have a marketing strategy in place before the launch. Plan out a budget and a strategy for both online and offline marketing.

a. Online Marketing

 Research your competitors to understand how to utilize the various social media channels. Needless to say, your online identity is an extension of your brand and you must ensure that you adhere to your brand image and voice in all your online communications.

  • Website
  • Social Media Platforms
  • GMB
  • Email Marketing
  • SMS Marketing
  • Chatbot Marketing

b. Offline Marketing

A sound offline marketing strategy can help you reach more customers and generate footfalls in the initial days of your restaurant.

Soft Launch

Plan your launch carefully, most restaurant owners prefer to go for a soft launch for only close friends and family to generate initial feedback on their food and services.

It serves as a trial run for your operations and helps you to test various elements like your menu, service, or logistics and iron out any kinks before opening day.

However, going for a soft launch does not mean that you need to slow down the promotions. Ensure that you promote aggressively during the pre-launch period through flyers, and ads(both off-line and online. Organizing an online contest is also a great way to generate interest in the community before your launch. 

You can plan a grand opening – anywhere from a few days to a few weeks after the soft launch.

Your long-term off-line strategy should include:

  • Engaging with Food Bloggers
  • Hosting Events 
  • Advertising through signages and billboards
  • Distributing pamphlets
  • Radio Mentions
  • Television or Newspaper Advertising
  • Partnering with local organizations for fundraisers
  • Coupon distribution

Wrap Up:

Opening a restaurant is a daunting task, running a successful restaurant in the competitive market can seem even more difficult- However, with adequate planning and preparation, you should be able to achieve your dream of setting up a successful restaurant.