Food is a necessity for life and that's what makes restaurants a profitable venture.
After all, everyone needs to eat.
The Restaurant Industry is so lucrative that it has generated revenues in billions in past years.
According to the National Restaurant Association, restaurant workers make up 10% of the United States workforce.
What's more, projected sales in the restaurant industry are projected to reach $863 billion in 2019.
How Much does it Cost to Open a Restaurant?
How much it costs to start a restaurant could be your single most important question right now.
So let's get right to it.
The cost of opening a restaurant varies widely depending on the type of restaurant you want to open, service style, decor, location, menu, and more.
However, a recent survey by RestaurantOwner.com provided some insight into what entrepreneurs might have to pay.
According to a survey of 350 restauranteurs, a small restaurant can cost as much as $175,500 in total startup costs.
A medium sized restaurant costs up to $375,500, and a large restaurant costs up to $750,500.
Are you a business owner in Nigeria?, you can register your business online with this guide.
How to Start a Restaurant Business
1. Choose a Restaurant Concept and Brand
The first step in owning a restaurant is to pick a niche. You would have to choose a category which you want your restaurant to be based on.
Restaurants are classified into three primary categories: quick-service, midscale and upscale.
Quick-service restaurants are also known as fast-food restaurants and they are mostly known to serve french fries, chicken, hot dogs, sandwiches, pizza, hamburgers, and fresh sea foods.
Quick-service restaurants offer limited menus of items that are prepared quickly and sold for a relatively low price.
They often come with drive- thru.
Midscale restaurants offer patrons their meal at their tables after placing their orders at a counter.
Upscale restaurants offer full table service and they focus on the quality of their cuisine and the ambience of their facilities.
Selecting a Food Concept
Concepts are like the backbone of your restaurant, they are what help buyers know what to expect from a restaurant.
2. Create and Test Your Menu
After establishing your concept, the next item on the menu is to create your menu😁
The Menu is the statement of food and beverage items available or provided by food establishments primarily based on consumer demand and designed to achieve organizational objectives.
The menu will dictate the type of equipment you'll need, the skills you should look for in your staff, and the type of crowd you hope to attract.
Your menu should be taken like an experiment, always be on the look out b for ways to improve on it and see which one works.
Consider having a dinner party featuring your proposed menu where you ask people for their honest feedback.
3. Write a Restaurant Business Plan
Starting a restaurant, like any new business, requires a solid business plan.
Not having a business plan is like setting yourself up for failure.
The purpose of the plan is to help you flesh out the finer details and summarize your business to potential investors.
The business plan is proof to investors and yourself that you believe that your restaurant or business will succeed.
This also applies to your restaurant business plan.
Its your declaration of confidence in the future of your restaurant.
It's you declaring in written form that you believe so much in your restaurant.
Below are the principal components of a restaurant business plan:
Executive Summary - This is the first section in your business plan, but it's helpful to write it last and make it a summary of the other sections you've already completed.
Company Overview and Description - Use this section to write a more detailed company overview than what you've included in the executive summary.
Concept and Menu - In this section, describe all the details of your restaurant concept and menu.
Management and Ownership Structure - Outline your management and ownership structure. It's helpful to use charts as a visual aid.
Employees and Staffing Needs - This helps you accurately determine the number of employees you are going to be having and the roles to be designated to them.
Marketing and Competitor Analysis - This section of your business plan requires careful research. You'll need to provide an analysis of the demographics and competition for your chosen location.
Advertising and Marketing Strategies - Use the marketing analysis you completed in the previous step to choose the right marketing strategies.
Financial Projection and Summary - When it comes to obtaining funding for your new restaurant, this section is the most important.
Use it to provide a sales forecast and break-even analysis.
Take a look at the 12 biggest questions you should be answering as part of the business planning process for your future restaurant:
What kind of restaurant do you want to run? This is known as your “elevator pitch,” and it’s something you’ll repeat over and over and over to friends, family, customers, lenders, investors, and just about everyone else.
Who is your restaurant for or who is your target market?
Who are your competitors and how are their restaurants different or similar to yours?
Where will your restaurant be located?
What is your value proposition or what makes your restaurant different from the competition?, What's your USP?
How will customers find your restaurant? Will you market your business through word-of-mouth, paid advertising, social media, or another method?
You could leverage popular review apps like Yelp, OpenTable, and Resy to allow customers to find and review your restaurant or even book a reservation online.
What resources will your restaurant need?
Take the time now to list out all the one-time and recurring expenses you’re likely to incur as part of your cost of doing business—leaving no stone unturned.
How will your restaurant make money?
Your business model determines how your restaurant will generate revenue, cover expenses, and eventually make more money than it spends.
How long will it take for your restaurant to turn a profit?
Use a revenue forecast to determine how long it will take to recuperate your initial investment, break even, and run a profitable business.
What are you not willing to compromise on? What values are most important to you, both personally and as a business? What are your non-negotiables?
This will help you make critical business decisions down the road.
What is your staffing plan?
Your head chef, friends, and family will be the place to start looking for stand-up, smart, reliable people. But even when you find the right staff, you'll have to train them.
What's your endgame? Are you building a restaurant that you hope to eventually sell, or are you working towards a long-term, sustainable business?
Knowing where you want to end up, and when, will help to inform many of your business decisions along the way.
4. Get Investment To Fund Your Restaurant Business
Having a dream is not enough. You need money to fund it. Money is one of the things needed to start and run a successful business.
First, depending on the concept of your restaurant you must finalize how much capital is required to start a restaurant in India.
When you have the numbers, then you can go about with these three ways through which you can raise money for your dream restaurant:
Self-funding – If you have enough money in the bank, then congrats, you have crossed the first hurdle of opening a restaurant.
It is also a good idea to open a restaurant in partnerships, as it reduces the risks of investment.
Loan- You can take a loan to fulfill your restaurant dream.
However, securing a loan from a bank may include hassles as they look for collateral or someone who can underwrite the loan.
VC/Angel funding- Getting investors on board can be difficult, especially if yours is a first-time venture.
Investors usually look for your restaurant venture’s growth potential, quality, and scalability of your business model.
The performance of your first few outlets is taken into consideration before one agrees to invest in your business.
5. Evaluate All Restaurant Costs Involved
Restaurant costs are a significant part of running a restaurant and need to be evaluated and planned carefully.
Below are the significant costs involved in starting a restaurant business:
Food Costs- Food cost is the cost of all the raw materials used in preparing a dish. Ideally, the food cost should be around 30% of your menu price.
You should finalize the vendors for sourcing the raw materials beforehand to ensure a smooth supply of stock ingredients.
Labor Costs – Labor cost is the second most important restaurant cost that adds up to the expenditures while opening a restaurant.
We have discussed the manpower you need to start a restaurant in detail, ahead.
Overhead Costs– Overhead costs are the other expenses that are not related to food or labor. These include:
Rent- The rent covers a significant part of your restaurant costs, and is profoundly affected by the location of the restaurant.
However, the rent should never exceed 10% of your total revenues.
Interiors– You can decide on the interiors based on your restaurant concept and theme, and your budget.
Kitchen equipment- Purchasing the right quality equipment may seem heavy on the pockets, but they always recover their costs in the long run.
Know about the various types of essential equipment without which you cannot run a successful restaurant, here.
License- Restaurant licenses are an essential expense of your restaurant, and cannot be ignored.
Based on your establishment type, the license fee varies.
We have covered the topic of the restaurant license in detail below.
POS- The new age, modern technology POS can smoothen your restaurant operations like never before.
The price of POS depends on its features and functionalities, which should be chosen considering your restaurant needs.
We have covered the topic of POS below in detail.
Marketing- You should ideally spend 1-2% of your revenues on marketing your restaurant.
There should be a perfect balance between offline and online marketing.
Word of mouth marketing, along with digital marketing can do wonders for your restaurant.
6. Set up accounting documents
Running a restaurant involves a lot of paperwork.
You’ll need accounting documents to file your taxes, apply for business financing, and for internal tracking of your revenue, expenses, and profitability.
At a minimum, every restaurant owner should regularly maintain these three basic accounting documents:
Balance sheet
The balance sheet is essentially a snapshot of your restaurant’s financial standing at a given moment.
It lists the assets, liabilities, and equity your company holds at a given time and is used to calculate the net worth of your business.
Maintaining a “balanced” balance sheet—one in which total assets equals liabilities plus equity—is the foundational tenet of basic bookkeeping.
Income statement
Sometimes called a profit and loss statement, your income statement summarizes your business revenues and expenses over the course of a year, letting you calculate your net profit or loss for that year.
Maintaining an accurate income statement is critical to measuring profitability over time.
Cash flow statement
Having enough cash on hand to cover expenses can make or break a restaurant’s financial health.
In fact, this issue is so important, there is an accounting document dedicated to the tracking of cash flow.
Your cash flow statement reflects the inflow of revenue and outflow of expenses resulting from all your restaurant activities during a specific time period—usually a month or a financial quarter.
Inflow will come from serving food and drink to your paying customers, while outflow represents things like purchasing ingredients, payroll, and paying rent and other overhead expenses.
Consider hiring a bookkeeper or accountant
If you feel a bit overwhelmed by these accounting protocols, we recommend asking around for a certified public accountant.
It’s important to choose someone whose personality fits with yours, who will be available to answer questions as needed, and who can handle financial areas where you have less experience.
Having a CPA experienced in the restaurant industry will help you understand your local laws to avoid problems when it comes servers minimum wage, tips as income, and over time for your staff.
7. Arrange Suppliers & Vendors For Your Restaurant
A healthy relationship with your supplier and vendor is essential for the smooth functioning of your restaurant.
You must have at least two-three vendors in each category.
This would help compare prices, and will also serve as a backup in case some problem comes up with one.
You must always have two days worth of stock in your inventory in case of emergency situations.
The items must always be delivered in the morning and checked every day.
Both quality and quantity checks must be done at the closing time of your restaurant.
It is always preferable to have long-duration contracts with the vendor as it helps in maintaining the consistency of your raw materials.
You also need to check the Trade Identification Number (TIN) of the vendor before you give him your restaurant’s supply contract.
8. Choose a Location and Lease a Commercial Space
When choosing a location for your new restaurant, the following factors are among the most important:
Visibility and Accessibility - Select a location with good visibility that receives plenty of vehicle and foot traffic.
Consider parking availability and ease of access for cars and pedestrians.
Demographics - The target market of your restaurant should match the demographics of the area.
Labor Costs - Your labor cost will vary depending on location.
In areas where the cost of living is higher, you'll need to pay a higher wage to attract good employees.
Local Competition - The key to key here is to choose a location where similar restaurants are successful, and to avoid a location that is saturated with restaurants that directly compete with your concept.
Here are some factors to consider when deciding on a restaurant location:
Anticipated sales volume - How will the location contribute to your sales volume?
Accessibility to potential customers.
Consider how easy it will be for customers to get into your business.
The rent-paying capacity of your business - If you've done a sales-and-profit projection for your first year of operation, you will know approximately how much revenue you can expect to generate, and you can use that information to decide how much rent you can afford to pay.
Restrictive ordinances - You may encounter unusually restrictive ordinances that make an otherwise strong site less than ideal, such as limitations on the hours of the day that trucks can legally load or unload.
Traffic density - With careful examination of food traffic, you can determine the approximate sales potential of each pedestrian passing a given location.
Two factors are especially important in this analysis:
total pedestrian traffic during business hours and the percentage of it that is likely to patronize your food service business.
Customer parking facilities. The site should provide convenient, adequate parking as well as easy access for customers.
Proximity to other businesses - Neighboring businesses may influence your store's volume, and their presence can work for you or against you.
History of the site- Find out the recent history of each site under consideration before you make a final selection.
Who were the previous tenants, and why are they no longer there?
Terms of the lease- Be sure you understand all the details of the lease, because it's possible that an excellent site may have unacceptable leasing terms.
Future development- Check with the local planning board to see if anything is planned for the future that could affect your business, such as additional buildings nearby or road construction.
Appearance- It's important that the building or site be attractive and inviting in order to draw customers.
9. Restaurant Permits and Licenses
These are some of the most important licenses required:
Business License - All restaurants require a business license to operate in the US.
The type of business license you'll need, the cost of the license, and how often you need to renew varies by state.
Employee Identification Number - Start the application for an Employee Identification Number (EIN) early in your process, because it can take some time to get approved.
You'll need an EIN to officially hire employees and set up your payroll.
Foodservice License - To get a foodservice license for your new restaurant, you'll have to pass an inspection that shows your business meets all food safety regulations.
Liquor License - If you plan to serve alcohol at your restaurant, you'll need a liquor license.
Alcohol can boost your sales immensely, but the process of obtaining a liquor license can be lengthy and costly.
10. Design Your Layout and Space
Keep these factors in mind when designing your dining room layout:
Seating Capacity - Local regulations determine the seating capacity of your dining room.
You must meet requirements for square footage per customer based on the size of your space and the number of exits.
Dining Room Furniture - Choose restaurant seating that aligns with your concept.
Consider seating capacity and comfort level when choosing the style and shape of your restaurant furniture.
Ambiance and Decor - You can enhance your restaurant's ambiance through the use of decor and lighting.
Cleanability - Flooring and wall fixtures should be made of materials that are easy to clean and disinfect.
Carpeting is not the best choice for a dining room because it absorbs odors and spills.
Fabric window treatments and drapes also absorb smells and are costly to clean regularly.
When designing your kitchen layout, consider the flow of service and allocate sufficient space for the following tasks:
Warewashing - The warewashing area should be easily accessible for servers entering the kitchen with dirty dishes.
This area will house dish machines, compartment sinks, and drying racks.
Dry and Cold Storage - Dry and cold storage areas should be close to the receiving area so that shipments can be put away quickly.
These spaces will require shelving and organization.
Food Preparation - This is the space where the kitchen staff will perform all food prepping tasks. You'll need space for work surfaces and food prepping tools.
Meal Cooking - The majority of cooking tasks are performed in this space.
You'll need room for heavy equipment like range tops, deep fryers, and flat top grills.
Service - The service area should be right next to the cooking area so that prepared meals can be passed to servers quickly.
A staging area with heat lamps keeps meals hot until they can be picked up.
11. Find an Equipment and Food Supplier
Before you can open your new restaurant it is advisable you establish connections with your suppliers for kitchen equipment, your kitchen must be outfitted with the right equipment.
There are some types of equipment that every restaurant needs, like refrigeration units and cooking equipment.
You'll also need to find a supplier for food, disposables, and all the items you'll reorder on a regular basis.
Working with a supplier that offers free shipping saves you money when you order bulk supplies.
Look for added benefits like the Webstaurant Rewards® Visa Business Card, which offers rewards for every WebstaurantStore purchase.
12. Hire the Right Staff
Make a list of all the restaurant positions you'll need to fill in order to operate your restaurant on a daily basis.
Consider how many days you'll be open during the week and how many shifts you'll run each day for the front- and back-of-house.
Your staff requirements will vary based on the unique needs of your new restaurant, but these are some of the most common positions:
Management Team - General manager, kitchen manager, front-of-house manager
Kitchen Staff - Head chef, sous chefs, prep cooks, line cooks, dishwashers
Front-of-House Staff - Servers, hosts, food runners, bussers
Bar Staff - Bartenders, barbacks, cocktail servers
Watch your labor costs
A lot of restaurateurs have the urge to hire, hire, hire.
While you will probably need to hire some staff to make your restaurant a success, don’t go overboard.
Paying employees can be daunting, especially in the first few months when you’re not making a lot of money
Invest in training your employees
To better manage your staff, make sure you have employee training materials ready.
Create job descriptions, codes of conduct, and an employee handbook.
Create a training guide so employees are well prepared for their respective positions.
13. Advertise Your Restaurant
A top notch product without audience for it won't generate revenue.
Even the best products have to be promoted.
Below are some tips to market your restaurant:
Build a Website - Your restaurant website should be easy to navigate, and the design should represent your brand.
Include basic information about your restaurant, including your address, phone number, hours, and menu.
Though you can hire a professional to create your website, you can make one with user-friendly website hosting platforms, like Wix, and Squarespace WordPress.
Create a Yelp, TripAdvisor, Google My Business, and OpenTable Account - Registering with these sites makes it easy for potential guests to find your restaurant information.
Guests can also leave reviews after visiting, which increases their authority and appeal, especially if they have a high rating and positive feedback.
Use Social Media - Today, a social media presence is an absolute must for restaurants.
Create Facebook, Twitter, and Instagram accounts to share news, photos, and tidbits about your restaurant.
TikTok might be an appropriate social media option for your restaurant if your target demographic uses the platform regularly.
Offer Promotions to New Guests - Offer a promotion for first-time guests.
A free beverage, dessert, or discount on their first bill is an enticing way to attract customers.
Host a Grand Opening - Create buzz around your new restaurant by hosting a grand opening.
Other special events like wine tastings, live music, or cooking classes are another great way to attract attention.
But even as you consider various marketing vehicles, keep this in mind:
Research conducted by the National Restaurant Association reveals that word-of-mouth is still the best method of advertising.
More than four out of five consumers are likely to choose a table-service restaurant they haven't patronized before based on a recommendation from a family member or friend.
So make the foundation of your marketing program a dazzling dining experience that customers will want to talk about and repeat.
Ask every new customer how they found out about you, and make a note of this information so you know how well your various marketing efforts are working
14. Host A Soft Opening:
Soft openings are a wise option for restaurants because restaurants are always a work-in-progress, and hosting a soft opening will make you aware of all the kinks or flaws.
Before formally opening your doors and revealing your dishes, you can test your goods and services on consumers, take their feedback into account, and make necessary adjustments.
It could be a practice run for your restaurant.
To get the most out of the soft opening, focus on getting feedback, improving your service, and expanding your marketing database.
15. Install Right Technology At Your Restaurant
Restaurant technology is often the most ignored part of running and managing a restaurant, though perhaps the most important.
With new-age modern technology, the robust POS has come up with several integrated features that have streamlined restaurant operations to a great extent.
Niche restaurant technology solutions are available for different types of restaurants.
Good luck with your restaurant.
