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. Opening a restaurant in itself is a daunting task, there are so many costs and factors that need to be weighed in before actually starting out. So, how do you ensure success in such a scenario?
Like some would say, a good concept and great food are all you need to get started. But, the truth is that it may be enough to get you started but to keep you in business in the long-term you need a good plan and foresight.
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.
Why Does Your Restaurant Need A Business Plan?
1. Helps You Define Your Vision
Having a business plan helps you give shape to your ideas. When you sit down and put your vision on paper, it helps you put your ideas to test and analyze each aspect more fundamentally. This exercise can also be very helpful in getting your ideas across to your team or partners.
2. Builds A Road Map
A restaurant business plan not only defines your visions but also lays down the detailed path that you can follow to execute your ideas.
3. Accounts For Operational & Financial Expenses
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 re-occurring expenses. Projecting these expenses and comparing them to your expected revenue streams helps you gain a better understanding of your financials. It also gives you an opportunity to plan your investment and loans while controlling and managing expenses.
4. Evaluates Your Roadmap
A business plan not only helps you create a roadmap to follow, but it also helps you set benchmarks for your business and assess the on-going progress. Setting up timelines helps you adhere to your plan.
5. Reduces Risk Factors
There are many factors, internal as well as external that could impact your restaurant business. It is essential to plan and be on top of opportunities and the risks that are involved in running a restaurant. A restaurant business plan helps you stay on course and prepares you for contingencies.
How to open a restaurant?
1. Decide on the concept of your restaurant
2. Decide The Location For Your Restaurant
3. Design A Stellar Menu
4. Arrange Suppliers & Vendors For Your Restaurant
5. Evaluate All Restaurant Costs
6. Prepare A Business Plan
7. Work Out Investments To Fund Your Restaurant Business
8. Choose Your Restaurant’s Name and Legal Structure and Procure Licences
9. Get Restaurant Insurances
10.Get Manpower For Your Restaurant Business
11. Install Right Technology At Your Restaurant
12. Create a Restaurant Marketing strategy
How can I get a loan to open a restaurant?
There are several types of loans available for opening a restaurant
A term loan from a “brick and mortar” bank.
1. SBA Loan.
2. Working Capital Loan
3. Merchant cash advance
4. Business line of credit
5. Equipment financing
How much does it cost to open a restaurant?
Opening a restaurant can cost you anywhere between $95000 to 2 million depending on the nature of your restaurant and also on whether you want to own the building or lease it.
How long does it take for a restaurant to become profitable?
Restaurants operate on a thin profit margin with the average profit margin after removing all other costs hovering at around 6.2 percent only. Very successful restaurants are able to break even after approximately two years of operation while average ones may take 4-5 years.
How much profit should a restaurant make?
The average profit margin for the restaurant industry is somewhere between 3-6 percent , however for individual establishments it can vary between 0-15%.
How much does a successful restaurant make in a year?
Successful restaurants can make anywhere between $29,000- $160000 per year while the national average is at around $65,000 per year.
How to create a restaurant business plan?
Here are some of the key elements of an effective restaurant business plan:
Key Elements Of a Restaurant Business Plan
Here are some of the key elements of an effective restaurant business plan:
- Executive summary
- Business overview
- Industry analysis
- Marketing plan
- Operations plan
- Financial analysis
Now let us take a deeper dive into the specifics
1. Executive Summary of Your Restaurant Business
The executive summary of your restaurant acts as a summary introduction to your business. It should cover all aspects of your restaurant including the concept, your target audience, and the financials.
The executive summary is essential in business plans that are being presented to outsiders, say bankers or investors. A lot of investors make their decision based only on this summary, so it falls on you to grab their attention from the word go! Start with a mission statement and the concept behind your restaurant and include the legal structure and ownership. Add a short overview of your target market, your team, competition, and your financing needs. Mention your previous experience in the restaurant industry, your areas of expertise, and your plans for the future of your current restaurant venture. Remember people have short attention spans so your summary should be persuasive but also to the point.
On the other hand, if the executive summary is only for internal purposes then you would be better off spending your time on Business overview and operational plans.
2. Business Overview
The Business Overview is like a description of your restaurant. It should talk about 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 will be your target audience?
- What service/product will you provide to your target clientele?
Once you have explained the concept of your restaurant, you can move to other specifics.
- Management Team
- Type of Service and Interior layout
- Sample Menu
a. Management Team
The business overview should include the details of your Management Team and the responsibilities assigned to each member.
b. Type of Service and Interior layout
Based on the concept of your restaurant, you may already have a service type in mind; fast-casual, fine dining, or others, so you can start working on particulars like restaurant layout, interiors, and other details.
The layout and the interiors of your restaurant should not only be in-sync with the brand identity that you want to project but should also be practical keeping in view the service type. The colors and the imagery you use inside your restaurant should be a reflection of your brand. Adhere to your brand theme while designing your menu and deciding on the uniform of the waitstaff.
c. Sample Menu
It goes without saying that if your customers like your food, your restaurant will be able to survive the competition. So, thw menu should be the focus of any restaurant plan. Discuss each item 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. 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.
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.
3. Industry Analysis
The Industry Analysis primarily consists of
- Target Audience Analysis
- Location Analysis
- Competition Analysis
a. Target Audience Analysis
Based on the concept of your restaurant, you would obviously have an understanding of the type of customers that your food and restaurant would appeal to. Analyze the customer demographic including their income level, education, interests, and behaviors such as specific food habits, and spending habits. This study will help you understand your customers and serve them better.
b. Location Analysis
Finding the ideal location for your restaurant is one of the biggest challenges that you will face. While selecting the location keep the concept of your restaurant and your target audience in mind. You should select a location that has ample space for the layout you have in mind and is in an area that is frequented by your target audience. Here are a few things you should consider while selecting a location for a restaurant.
- The location of your restaurant should be easily accessible and should ideally have a parking area.
- Figure out how you plan to manage the supplies in the future.
- If you have plans to offer delivery through third-party services, you should consider a waiting space for delivery drivers.
- Also, consider if there is adequate space for any expansion plans that you might have in the future.
c) Competition Analysis
The restaurant industry is a highly competitive industry. Analyze the competition in your area. Identify and create a list of all the restaurants in your vicinity both with similar concepts and those with an entirely different concept catering to a different target audience altogether. Study each of your competitor in detail:
- Restaurant type/ their target audience
- The kind of cuisine they serve
- The strengths and weaknesses of your competitors.
- Promotional/marketing strategies
- Their growth rate
You should also check their website, reviews on their pages, and their other social media profiles to get a comprehensive view of their business.
A SWOT (Strength, Weakness, Opportunity, and Threats) Analysis must be included in your Restaurant Business Plan as it helps you identify all factors that can impact your restaurant.
a) Strength- Focus on the key strengths that distinguish you from your competitors. Something that you do better than anyone else- it could be your food, your competitive pricing, prime location, superior service, low-cost resources, etc.
b) Weakness- Weaknesses are inherent features of any organization. These are the weak links that you need to work upon. Analyze each aspect including your staff, resources, procedures, training, and equipment to check where you might be falling short.
c) Opportunity- Opportunities are upcoming trends in the market that your competition has failed to capitalize on. If you are able to spot and exploit these opportunities at the right time, it can help you leverage your restaurant’s growth.
d) Threats- Threats are external factors that you have no control over yet they can affect your business. It could be anything from new competition, a shortage of supplies, or a natural disaster. The best way to deal with threats is to have a contingency plan in place.
5. Operations Plan
The Operations Plan covers every aspect of the daily operations of your restaurant
- Restaurant Licences and Permits
- Technology Stack
- Staff Management
a. 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 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 other 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 beforehand.
b. Restaurant Technology Stack
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
c. Staff Management
The success of any restaurant depends on its food and customer service. 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 operations; kitchen staff, waitstaff, and management staff. You should also work out details of the recruitment procedure and job descriptions for each category of employee.
Training the Staff
Every restaurant should have a training manual in place for each category of employees. 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.
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.
While writing the business plan for a restaurant, you must include financials including a balance sheet, cash flow statements, revenue projections, and cost analysis. This will help you to keep track of your cash flow and control expenses.
a) Cash Flow Statement
It is the record of where the money is coming from and where it is going.
Opening a restaurant requires substantial capital and you need investors or partners, so it becomes important to plan financials. Your restaurant business plan should include details of your finances and how much you are ready to invest.
- How much capital you are investing and where it is coming from?
- Allocate funds to operating expenses, fixed expenses, marketing, and other departments of your restaurant.
- How long can you support the system?
- When do you expect to break even?
- Apart from that also set up a contingency fund for unforeseen events.
Capital and Operating expenses give you the details of where the money is being spent.
- Capital expenses are long-term investments that are non-recurring in nature. It includes the cost of equipment and machinery, cost of utensils, interior designing cost, furniture, cutlery, crockeries, and other fixed expenses.
- Operating Expenses: These are the costs that you will incur to run your restaurant on an ongoing basis like salary, rent, electricity, etc. You need to project these costs and include them in your plan.
- Cost Projection- You should include cost projections for at least 6 months in your business plan.
- Revenue Projections for the first six months.
- Projected Statements of Income
For a more comprehensive guide on how much does it cost to open a restaurant, you can check out this article which breaks downs all the relevant costs involved in opening a restaurant.
7. Restaurant Marketing Plan
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.
- Social Media Platforms
- 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. 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.
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.
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
c. Customer Relationship Management
It is vital for any restaurant to manage and use customer data to guide their future marketing strategies. An integrated customer relationship management tool can help you to store and use important customer data.
- Contact Details: Phone number, email, address, bday, etc.
- Visit Frequency
- Preferences or most ordered Menu items
- Average Spend per visit.
A restaurant CRM platform that is integrated with your POS system will help you stay engaged with your guests and customize your marketing messages based on the previous purchase history of the customers. Ideally, your online ordering solution and loyalty program should also be integrated into your POS. This will help you gather customer data from all sources and use it to provide a superior customer experience.
Here are a few sample Restaurant Business Plan Templates
Coming up with a restaurant business plan requires a lot of patience and attention to detail, but is it definitely worth the effort. The time that you spend strategizing and fine-tuning every aspect of your restaurant business translates into smooth execution of your ideas.