Opening a restaurant can be one of the most difficult, yet rewarding journeys for an entrepreneur. The unpredictability from day to day can be exhilarating, but if not managed properly, things can spiral downward quickly. Here is a step by step guide to opening a successful restaurant.
1. Restaurant Concept
Your restaurant concept is what defines your restaurant. It encompasses the theme, service style, decor and type of food. If you have a passion for burgers, by all means open a burger shop.
After you’ve identified what type of food you will be serving, choose a style of service and restaurant decor. When I think of burgers I think casual and fun.
When opening a restaurant be sure to balance passion and business. It’s important to follow your passions in life, however, thousands of restaurants fail each year because owners forget to balance business with passion. That’s why it’s important to research your potential market before deciding where your restaurant will be located.
2. Market Research
Conducting market research will ensure you aren’t opening a restaurant in an area where that niche isn’t needed. Here are a few things to consider.
Who is your customer base?
If you’re planning to open a restaurant with local, organic ingredients, your price point may be a bit higher than other similar restaurants, so it’s important that your potential customers are comfortable paying those prices.
There are plenty of websites like census.gov that can give you an idea of the demographics in a certain area. There you can find things like median income, average age, and even how many people typically dine out in that area. Simply type whichever city, town or neighborhood you’re contemplating, followed by “demographics” and browse the results.
Found an area you like?
If you’re having a hard time deciding what type of food to serve, but you are dead set on a specific area, start by researching gaps in the market. Which type of restaurants are missing, or if most niches are filled, what type of restaurant can you open that will stand out.
Look for town activity to decide operating hours
If you’re thinking about opening a restaurant that will stay open late, make sure the demographics support it. Maybe you found a building that you really love, but it happens to be in an area with a lot of families or with an older population. Odds are you won’t have a late crowd, so closing around 9 or 10 would be your best bet to save labor.
3. Create a Menu
Now that you’ve done your market research and decided on a concept and area of interest for your restaurant, it’s time to build a menu.
Menu Items
When building a menu, there are a few things to remember: never settle on something you don’t love, don’t try to please everyone because you’ll likely end up pleasing no one, and a dish is only ever as good as the ingredients you put into it.
Creating and selling items that are in line with your concept will ensure that your guests take you seriously. If you open a burger restaurant, but put an acai bowl and orange chicken on your menu, chances are some guests will get the impression that your restaurant has lost its identity, thus devaluing the community’s impression of your business.
Sourcing Ingredients
When opening a restaurant, deciding where you’ll get your ingredients hinges on many personal factors. Do you want local, organic or farmers market ingredients? Do you want a one-stop-shop service? Do you have a personal referral that you trust?
There are many distributors that sell more or less the same type of items. It’s up to you to decide how specialized you want your ingredients to be. Broadliner companies like Sysco and US foods will carry almost everything you need, yet the quality and customer service may not be the best.
Then there are companies that specialize in farmers market produce, or sustainable fisheries, or grass-fed organically raised livestock, or even some that only sell cheese. It’s up to you to decide which trade offs you’re willing to make. Just remember not to spread yourself or your staff too thin.
Drinks
If you’re opening a restaurant with a full bar, depending on your concept, you may want to hire a bar manager, especially if you plan on creating specialty cocktails and changing them seasonally. The other option is to hire a bar consultant to help you build a menu.
If you’re going the more casual route, you may want to simply offer a full bar and make sure you hire bartenders who can execute the standard rolodex of cocktails that diners expect.
Ease of execution
With drink and food, I can’t stress enough how important it is to make sure your recipes are easy to execute. When food and drink recipes get complicated, it slows the staff down, which slows your ticket times down, which can spiral into chaotic situations that almost always end in customer dissatisfaction.
In the kitchen, I do my best to never need more than 1 pan when cooking an item. Behind the bar, keep the specialty cocktails simple. Purchase the necessary equipment to set your staff up for success.
Menu Cost
After you’ve decided which items you plan to have on your menu and where you will source your ingredients, it’s time to find the cost of these items. You should be aiming for an overall food cost percentage of 25%-30%.
Start by deciding if you’ll be doing these calculations yourself, or if you’ll want to purchase a program to do it for you. Either way, there’s a decent amount of leg work. However, after opening a restaurant, programs like Parsley can make life much easier down the road.
Next, if you haven’t already, you’ll need to weigh every single ingredient in every recipe in order to get a true and accurate plate cost. If an ingredient is sold by the each instead of a weight, remember to calculate that ingredient in your plate cost by the each. (e.g. If an avocado costs you $1 and you use half that avocado in a dish, your cost for that avocado will be 50¢.)
You’ll need a complete list of all ingredients you plan to use and the cost of each ingredient. Remember to check different options for pack size since smaller pack sizes tend to cost exponentially more.
After you have organized your ingredient list with their costs you’ll need to find the cost of all of your sub recipes. Sub recipes are things like tomato sauce for pasta, or balsamic dressing for a salad. Once you’ve identified your sub recipes and their costs, you can now find your plate cost for each menu item. Add the cost of each ingredient in your plated dish and divide that by how much you plan to sell it for. Here’s a more in depth guide to calculating food cost while opening a restaurant.
Menu engineering
Your final step in developing your menu should be menu engineering. This pertains to the actual menu that guests will be placing orders from. You’ll want certain items ordered more than others due to their low cost, ease of execution, or maybe it’s a dish you want your restaurant to be known for.
Menu engineering uses the placement of items, boxes, symbols, colors, fonts and over all design of the menu to subconsciously push guests to order certain items. Think about how many times you’ve seen a menu item with a box around it and have been compelled to order that item because it seems special. That was menu engineering at work.
4. Business Plan
A business plan is essentially the backbone of your restaurant. It’s where you have organized all of your plans and details for opening a restaurant. Smart investors will demand a detailed business plan. But even if you plan to finance the project yourself, it is important to formulate a business plan to keep you on track.
A good business plan should include: your concept statement, market research, menu and pricing, detailed financials, all of your financial information, including start up and running budgets, a marketing plan, hiring and training programs, and details on how you plan to handle adversity, which you will unquestionably face.
5. Legal Structure
When opening a restaurant, or any business for that matter, there are essentially 5 choices: sole proprietorship, partnership, C-corporation, S-corporation, and a Limited Liability Company. For a restaurant, you’ll almost always want to go with an LLC. You’ll get the benefits of a corporation without the strings like board members or shareholder meetings attached.
Setting up an LLC is a fairly easy process, although it may change from state to state. You can use websites like LegalZoom or BetterLegal for a quick and easy set up.
6. Secure Funds
There are many ways to secure funds for your new restaurant, it’s simply a matter of what you’re more comfortable with. However, it is absolutely imperative to understand how much money you’ll need in the first place before opening a restaurant. For almost any method of securing funds you’ll need a thorough business plan which should contain all necessary financial info.
Almost every restaurant falls into a period of unexpected expenditures and having a cushion can make or break your restaurant.
Personal Wealth
Using your own personal wealth or savings is an option that is rarely taken, but can have its advantages. When opting to use your own money, you’re not weighed down by the fact that you will eventually have to pay a bank or investors back for that money. Although it is a good idea to treat yourself like a bank and repay your pockets with interest.
The two most popular loans for restaurants are SBA loans and conventional business loans.
SBA Loans
Small Business Administration loans can be a great option for borrowers without top tier credit. SBA Loans are offered through financial institutions like banks and not the SBA themselves. They offer low rates and flexible payments because the government has promised to pay back 85% of the loan to these institutions in the event that the borrower defaults on the loan.
Conventional Business Loans
Bank loans can be much more difficult to qualify for than SBA loans and can potentially offer higher interest rates depending on credit history, cash flow, and capital. You can find more info on SBA vs. conventional loans here.
Investors
Another very popular way of financing your restaurant is to secure funding through investors.
When dealing with Investors, it’s important to remember that you’re dealing with an individual’s finances and not a lump of cash from a faceless institution. There needs to be a sense of understanding and partnership between you and your investors. Remember, finding an investor is a complex process that will take time, check out this article to get a better sense of how to find one.
Crowdfunding
Crowdfunding is an unconventional way of securing funding and can be a great alternative to loans or investments. There are plenty of sites to start crowdfunding campaigns like Kickstarter, AngelList, GoFundMe, and Indiegogo. And lots of restaurants have used this method to help with start up costs.
7. Tax Obligations
When opening a restaurant, I always recommend hiring an accountant to handle the restaurant’s financials, which should include all tax obligations.
A restaurant, like any other small business has a long list of taxes, they are obligated to pay. These include federal income tax, payroll tax, tax on tips, health taxes, state and local taxes. Make sure to do your homework on each of these taxes and understand how they will affect your restaurant operations.
Tax Deductions
A perk of being a business owner is that there are plenty of deductions to claim on your businesses tax returns. You can deduct things like plateware, equipment, marketing expenses, food cost, and much more. Discuss your possible list of deductions with your accountant to maximize your returns.
8. Licenses, Permits and Insurance
Licenses and permits are almost all tied to your local laws and regulations. It may help to start a document with the license or permit name on the left side, and the website or place to apply on the right for reference.
Business license
Restaurants are required to have a business license due to the liability to the public for potential foodborne illness. The business license process is different from county to county, so simply enter your county and “business license” and you should find all the information you need on obtaining a license before opening a restaurant.
Employer Identification Number (EIN)
Sort of like your business’s social security number, it allows the government to identify your restaurant as a legitimate business. EIN’s are granted through the IRS.
Certificate of Occupancy
A certification of occupancy is given by your local government, after building construction has finished, as proof of compliance with local building and safety codes. Search your city followed by “certificate of occupancy” to find instructions on how to obtain one.
Food Service License
You will need to apply for the license through your local health department. They usually offer guides and instructions on how to ensure your restaurant will pass their inspection. They will come out to inspect and offer you a pass of fail. The health department is the ultimate authority for restaurants and can shut you down with the snap of their fingers, so make sure you’re on their good side.
Sign permit
A sign permit is a document ensuring that your restaurants sign or signs abide by the local county’s guidelines. Search your county’s name followed by “sign permit” to find out how to obtain yours.
Music License
In order to play music in a public place, any business needs a music license. This ensures the people who made those songs get paid. Soundtrack Your Brand is a great choice to get a license quickly and start legally playing music in your restaurant.
Resale Permit
A resale permit is obtained through your state and is sometimes referred to as a sales tax permit. Every business that sells tangible goods must have one. Search your state followed by “resale permit” to find out how to obtain yours.
Employee Health Permit
Requirements for employee health permits, also known as food handler’s cards, vary from state to state. ServSafe is run by the National Restaurant Association and ensures their certificate is valid in whichever state you’re in.
Liquor License
Liquor licenses are offered by your city and can vary in difficulty to obtain and price. Contact your local Alcohol and Beverage Control (ABC) office to obtain the appropriate forms and turn those in to get your application processed.
Valet Parking permit
Depending on your restaurant concept, opening a restaurant with a valet service may not be necessary. They are often used for higher end restaurants, although if parking is an issue in your area, casual restaurants may want to look into the service. Valet parking permits are offered through your city. Type your city followed by “valet parking permits” for instructions on how to obtain one.
9. Proper Tools for Restaurant
You’ve come a long way on your journey, and opening a restaurant you can be proud of is just a few steps away. It’s time to get you to tools you need to ensure everyday success. An overview of this step should already be in your business plan, but now it’s time to decide exactly what tools your restaurant will need for success.
Accounting
As stated before, I highly recommend outsourcing your accounting. However, if you have experience in that field, and truly feel you will have the time to do it on your own, then let’s at least get you the best software. Quickbooks is the most popular software and often regarded as the best all around accounting program for small businesses.
Food Cost
If your menu is fairly small (under 25 items) and you don’t plan on changing items very often, then I would suggest calculating food cost by hand and storing the data in a spreadsheet.
If your menu is larger than 25 items and you believe you’ll be changing menu items frequently, or maybe you’ll have a retail or catering arm of your business, I would recommend a program like Parsley. Parsley allows you to upload thousands of ingredients, control food cost, manage recipes, and count inventory with a few clicks.
Point of Sale System
There are lots of POS systems to choose from and most of them will do everything you need them to do. My personal favorite is Toast. Toast is user friendly, has tons of great features, and offers hand-held POS systems that allows your servers to input orders and process payments right at the table.
Dining Room Essentials
Tables and Chairs, if you haven’t already picked them out, plateware, glassware, and flatware are all an important part of your brand. Your tablescape will give diners a foreshadowing of the experience they’re about to have.
When choosing your tablescape, keep in mind your overall brand, what type of experience you want the guest to have, the quality of the items you choose, and of course your budget.
Smallwares and Equipment.
Opening a restaurant comes with a lot of expenses, smallwares and equipment will be a large chunk of that cost. Smallwares include everything from table top machinery for food and drink preparation, to kitchen and bar utensils, to storage containers. Equipment include your larger items like ovens, refrigerators, and fryers.
There are a few ways to go about acquiring smallwares and equipment.
You can work with a company like Trimark who will send a representative to meet with you, discuss your needs, then procure and ship all your products to your restaurant.
You can do the shopping yourself at restaurant supply stores like Chef’s Toys. They also have representatives to assist you and can ship most things to your restaurant. This route is nice, because you can visualize the items in the store before you purchase them.
Or you can order everything online through a site like Webstaurant. Be careful going this route. Webstaurant may not accept returns on some items and shipping can be expensive.
Whichever route you decide to go, make sure to compare pricing between multiple suppliers to ensure you’re getting the best deal. And don’t be afraid to haggle a little bit, you might save yourself a couple thousand.
10. Build a Great Team
I can not stress enough how important it is to hire people you trust. Being extremely diligent in the hiring process pays off when life gets stressful and you know you’ve surrounded yourself with people you trust to do their job well. You will be spending more time with these people than your own family, so choosing candidates who will be team players and get along with the crew is important. However, depending on the role, experience should be just as important as attitude.
Recruitment
When recruiting staff, the most efficient way is to post on job boards. There are plenty of options like Culinary Agents, Craigslist, or Indeed. Depending on your area, or the position you’re looking for, one board might be more successful than the other. I would suggest using multiple job boards at first and see where you find success.
Referrals are also a great way to gain reliable staff. If you have friends in the industry, tell them what positions you’re looking for and urge them to ask around. Candidates who’ve come from referrals are more likely to be trustworthy since you share a personal connection.
Interview Process
Be thorough, take your time, and call references. Yes, you can get a good sense of a person’s character within the first few seconds of meeting them, but don’t rely solely on first impressions. I’ve hired people who interview very well, yet turn out to be awful employees and I’ve hired people who don’t interview well, but turn out to be amazing.
Never rush to hire. More times than not, you’ll hire someone that isn’t right for the position simply because you just “need a body”. I see this all the time and it makes me cringe. You’ll be setting yourself up for frustration and disappointment in the very near future.
Depending on the position, I ask for references before the interview so as to not waste my time on candidates with poor work history. People almost always add references they know will speak positively about them, but you can often pick up subtle cues in a person’s voice even if they are speaking positively about the candidate.
11. Marketing Plan
You’re so close to your dream of opening a restaurant. You have done all of the heavy lifting and hard work and now it’s time to put your marketing plan into place. In your business plan, you should already have an overview of the marketing channels you’re planning on using, now it’s time to implement those channels.
Social Media
If you haven’t already created social media accounts for your restaurant, now is a great time to do so. Social media will be one of your most effective marketing channels, so make sure you take it seriously. Remember that quality and consistency is key. Use guides like this to get that follower list up.
Email Marketing
Email is a great way to engage with customers and to send offers and reminders. You’ll need to create a strategy to gather emails like having a pop up or creating a section of your website for users to sign up for your mailing list. Don’t be afraid to get creative here.
Email Marketing services like mailchimp are great for restaurants because they are easy to use and relatively inexpensive.
When implementing email campaigns remember to put yourself in the shoes of the people who will be receiving the emails. Here is a great guide to email marketing for restaurants.
SEO
Search Engine Optimization is a set of strategies to push your website or listing to the top of the search engine results page. SEO is becoming more of a common term for the average person, but still highly underutilized. If you have hired someone to build your website, or opted to build your own, it’s likely that your developer or site builder has an SEO tool connected to your site.
Local SEO is a subset of SEO focusing on your physical location and how to draw customers to you. Optimizing your Google My Business Account, managing your reviews, and ensuring your name, address, and phone number are consistent across your listings are a few easy wins for local SEO.
Paid Ads
Paid advertisements can be a great way to generate sales, but make sure to do a little homework before blowing money on ads with little return on investment. Here’s a great guide to paid advertising for your restaurant.
Order and Delivery Platforms
In recent years, courier services like Postmates, Grubhub, and Uber Eats, have made a huge impact on the success of some restaurants. Some food travels much better than others, and some cuisines like chinese or pizza are known to be take out friendly options.
However, with the COVID-19 pandemic, many restaurants haven’t had a choice, but to pivot to take out and have found success in doing so. Each platform offers slightly different options for pricing and usability, so do some cross referencing and decide which, if any, is right for your restaurant.
If you’ve decided to go with Toast as your POS system, you should also know that they have partnered with Doordash to offer low priced delivery options and a streamlined user experience.
12. Open Slowly
I can’t stress this enough. The smoothest and most successful restaurant openings I have been a part of have been the ones that open slowly. So many owners, even the experienced ones, push to make a big splash and open the floodgates on opening day. It takes time for things to smooth out, don’t make avoidable mistakes by burying yourself early on.
Tips to remember
Have a training budget and stick to it
Use in depth training program, Stay Organized
Don’t spread yourself or staff too thin
Do plenty of mock services and friends and family events
Open doors without announcement
Let people slowly find out for a couple weeks to get wheels rolling
Finally, send the word out through all marketing channels.
You did it. You have followed the 12 essential steps to opening a restaurant and can call yourself a restaurateur. If at any time through this process you are uncertain of anything, we can help.