Starting a Restaurant Is No Easy Feat, but You Gotta Start Somewhere! Here’s Our Guide on How To Open a Restaurant in 10 Steps
If you’ve been daydreaming about running your own place, being your own boss, and diving into the world of hospitality but are unsure how to open a restaurant—you’ve come to the right place. We put together a succinct guide to get you started and keep you organized.
1. First, you need to establish a business plan.
Create an “elevator pitch” or a 30-second rundown of what your business will be. Think of this as the ‘who, what, where, why, how.’ The plan must include identifying what you will offer, who will eat with you, who your competitors are, where you will be, why people should choose you, how people will hear about you, and how this adventure will become profitable.
What is your concept? What kind of food are you serving? What kind of beverages? Are you getting a liquor license, just serving beer and wine, or just non-alcoholic drinks?
Example: I’m serving gourmet burgers, fries, and craft beers in a comfortable and unpretentious setting.
It is essential to consider who your target audience is so that you can cater to them and think about what they want and where they are. It is also important to identify who your top competitors are.
Example: My customer will be upper-middle-class and blue-collar folks seeking a delicious burger and a unique experience. My competitors include upscale American food joints and cheaper, more convenient fast food options.
Location is a determination you can glean from the who. Where does your target audience live? Where do they work? Where are they frequenting?
Example: My average customer likely works downtown but lives on the outskirts— because burgers are more of a lunch food and people go downtown during the day, the inner city is my best bet when seeking a business space.
You must decide your value proposition. Use everything you’ve brainstormed so far for your restaurant to develop core values. If your core values include that your staff is treated equitably and fairly (which should be a no-brainer), hard times could mean sacrificing higher quality products or marketing efforts to keep staff working.
Additionally, why should/will people choose your restaurant over your competitors or other dining options? Why should they spend more or go further?
Example: My values are people above all else. If I care about my team, my customers will care about this place. They will feel welcome and excited to be here. Therefore, if money is in a pinch, I sacrifice staff LAST. First, I tighten the marketing budget and hope my regulars get us through.
People will choose to go to my restaurant because we will provide a unique experience and a unique yet quality product. It will be fun to be there, and the food will be memorable.
Make notes of how the company will become profitable. First, list out any and all possible expenses related to opening your restaurant and getting people to come in and eat— including marketing and advertising budgets. Next, describe how you will end up making more money than you spend. How much will you need to charge? How will you pay staff? Figure out these details to estimate how long your business will take to regain your invested money, break even, and turn a profit. Finally, describe your end goals. Are you planning to eventually sell the business or make this a long-term sustainable income for yourself?
Example: My long-term marketing plan is to rely heavily on word-of-mouth, but starting out, I will promote information on my opening. I will call food publications and fellow businesses, print flyers, use organic and paid social media, and put my business on delivery apps.
2. Name your new baby and choose its legal structure.
If you have a specific idea for what you want to call your business, you need to file and pay for your “doing business as” or DBA name ASAP. You don’t want your name swiped from under you by another business.
Once your special name is locked down, you have to choose a business type. The structure you decide on will determine how you file taxes, what sort of team you need, and different levels of liability.
Here are the most common entity types for restauranteurs, but learn more here.
This is the most basic entity type— it says that you are the sole owner of the restaurant and hold all liability.
If you plan on a small operation such as a food truck, won’t make huge purchases, and won’t need to hire staff, this is your guy! The best part is you are good to go if this is your choice. You can start slinging snacks after filing your DBA.
As the name suggests, this is a good option if there is more than one of you. Of partnership structures, you can choose from a general partnership, a limited partnership, or a joint venture.
The downside to this entity is little protection from liability. As in any partnership, communication is key! Make sure this is someone you trust, and you are in it for the long haul together.
This entity is more complicated but offers less liability, so it is often recommended to restaurants. The C-Corp requires a board of directors and more complex tax filing requirements.
These are very similar to a C-Corp but are taxed at the individual business owner level instead of being taxed corporately. An S-Corp is a great middle-ground for those who want more protection without more complicated taxes.
Limited Liability Company (LLC)
An LLC lets you have your cake and eat it too! It has liability protection AND tax simplicity. A few types exist, including a single-officer LLC, a partnership LLC, or a limited-liability corporation.
3. Do a bunch of REAAAAL boring stuff, OR hire a great tax attorney and/or accountant.
- Get your tax ID (EIN)
- Register your restaurant for state and local taxes
- Get any required permits, licenses, and insurance
- Set up accounting documents
- Balance sheet
- Income statement
- Cash flow statement
- Keep up with tax obligations
- Income tax— based on revenue received and on the structure of your business or business entity
- Self-employment tax— small business owners must pay social security and Medicare taxes via a self-employment tax (similar to taxes withheld for employees)
- Estimated tax— Income/self-employment taxes both qualify as “pay as you go” taxes, meaning you must file quarterly
- Employees result in additional tax obligations! Social Security/Medicare, federal income tax withholdings, and federal unemployment
4. Find capital.
All kinds of loans and lines of credit are available to those who want to open a restaurant. Here’s a quick rundown.
Equipment / Technology Loans
Banks or equipment/tech providers may provide a loan wherein you make payments on necessary tools for business— these tend to be the highest costs related to opening your business.
Many point-of-sale providers offer 0% financing or lower upfront costs. These are excellent options for new businesses that are struggling with start-up costs.
Working Capital Loans
These loans help cover operating costs while your restaurant has more expenses than income. Budget up to twelve months of operating costs on your way to reaching break-even.
Lines of Credit
This is a flexible option for those opening a restaurant— just like a personal credit card, you get a limit and pay off the balances you accrue. To be eligible for loans, make sure to make payments regularly and on time to build personal and business credit.
As the name suggests, these offer a set repayment time and a set number of payments with a fixed or variable interest rate. There are many types of lenders and many possible variations that depend on your business needs, credit rating, etc.
Small business lending is considered risky, so the Small Business Administration will guarantee up to 80% of the loan principal for term loans through participating lending institutions. To be considered, you must have industry experience and a spotless business plan. You should also be prepared to take out a (second) mortgage on your home. While this loan can be beneficial, it requires an arduous process and a lot of patience.
5. Invest in the best tools for your restaurant.
You will probably need a few software tools/services for your restaurant— here are a few types you might need and popular brands used in the industry.
- Square for Restaurants
- Lightspeed Restaurant POS
- TouchBistro POS
- Toast POS
- Loyverse POS
- NCR Aloha
- When I work
- Hot schedules
- Push operation
6. Find a space to run your business.
Once you have the technical and financial parts of how to open a restaurant down, you can begin the hunt for your business location! Perhaps contact a commercial real estate agent to look into purchasing or renting a restaurant space.
You will want to revisit your business plan to find the ideal spot. Who are your customers? Where will they be? What atmosphere would they enjoy being in? Would they like a dark, intimate vibe, or do you need a light, airy space with a lot of natural light and high ceilings? Keep all of your planning so far in mind while looking at different spaces because the location could make or break you!
Keep in mind what each section of the space will be used for. Will the bar or kitchen need a redesign for optimum productivity? Note anything that might hold up or slow operations and how much effort or money that would take to improve. Otherwise, bartenders for years to come will be cursing your name.
7. Create a food and beverage program.
You have a general idea of what your restaurant will serve, but now you need to hire a chef and possibly a bar manager to work on the specifics of the menus unless these are things you hope to own by yourself.
You will want to develop at least a few delicious and specific beverage and food options based on your business plan and target market.
If you have a fine dining restaurant, you will need to provide a few great wines that pair well with your food offerings and a couple of cocktails for those less interested in wine. If you are serving English food, you will need to provide English beers. If you have a Thai restaurant, you will probably need to provide Thai tea, etc., etc., etc.
Make sure your food, drinks, values, location, and space are cohesive, and complement each other.
8. Hire staff.
Hiring staff can be difficult, especially in the service industry. It’s challenging to get job openings in front of seasoned service industry professionals and to tell who is serious about working as your employee—not to mention there are often no-call, no-show interviews.
Poached offers a dynamic approach to hiring in the restaurant industry and is built to get your jobs in front of bartenders, servers, cooks, counter, commissary, and more.
Features like in-app messaging, interview scheduling, and automatic reminders streamline the interview process and connect you with serious professionals so that you can focus on your restaurant.
If your business will have events, you can try Poached Shifts to hire workers for individual shifts. This service helps you easily book freelance hospitality professionals working for one-time ordeals or last-minute emergency openings.
It might also take a while to find the right people for your new work environment. In that case, Poached Shifts is a great way to test out potential hires before offering full-time employment so you can build a solid team. If someone does a great job and fits in with your business vision, you can offer employment without paying conversion fees.
9. Put marketing in action.
Make sure to give your marketing plan time to do its magic! Start boosting your opening, pitching to local publications, building up a social media following, and setting expectations for those who become interested.
10. Plan a soft opening and your GRAND OPENING.
A soft opening can serve as a trial run and extra preparation for opening your restaurant. This will teach you where any holes in your planning and preparation are so that you can fix them before launching a large, potentially busy opening.
You can invite fellow restaurant owners, local press, or just friends and family. Whoever you invite should have their expectations set so that they understand there are still items that may need to be addressed and their experience may be less than perfect. Skipping the soft opening could lead to a chaotic grand opening, and you want your start to be smooth sailing and successful.
Poached Shifts is an excellent way to staff up for a soft opening. This way, you and the worker can see if you enjoy working together before committing to full-time employment during a hectic opening.
Whew! Are you still with me? If so, let’s get to business making that sparkle in your eye a reality! Let’s make a baby! I’m already excited to eat at your restaurant.
Having a general understanding of how to open a restaurant is the first step, but you’ll need more guidance along your journey. Read more blogs here for advice and tips on running a restaurant and what you might need to prepare for. Good luck, you got this!