A restaurant can be costly to start, and meticulous planning is essential. The average cost for starting a restaurant in the U.S. ranges from $295,000 to $660,000.
There are also some tough questions you need to ask yourself to establish whether this is the right business for you.
Have you worked in a restaurant before, and do you know what it entails? Are you willing to work long hours, over weekends and over holidays? Are you willing to mop floors, prepare food yourself, deal with irate customers etc.? Can you work in a stressful, fast-paced, emotionally-charged environment with people from diverse backgrounds?
If you should fail, can you live with failure, pick up the pieces and carry on? The restaurant business is notoriously risky. Even the best-planned restaurants can fail, sometimes due to circumstances beyond their control. Recent studies done by Dr. Haragopal Parsa from Daniels College of Business at the University of Denver, Colorado show 59% of restaurants fail in the first three years.
But if you are of the 41% that succeed, the good news is that it could be financially rewarding to start your own restaurant.
How much does a restaurant owner make?
Research shows the average restaurant owner earns around $60,000 per year. It is important to mention there is a considerable range in that amount, from about $29,000 to $153,000. Restaurant owners can make more than this through bonuses or profit sharing.
How much does it cost to start a restaurant?
$15,000 – $100,000
Fast Food Franchise
$10,000 – $2.5 million
How to Start a Restaurant:
1. Outline your concept.
Your concept includes your brand, the style of your restaurant and the food you are planning to serve, including your menu. Build a detailed, clear picture. If there are gaps initially, do not be concerned. The picture will take shape and become clearer as you go.
Outlining the concept of your restaurant:
- Decide which demographic you want to target.
- Define your brand.
- Outline the service style.
- Decide on the ambiance you want to create.
- Determine the food you are planning to serve.
- Plan your menu.
2. Do your market research.
Doing market research for your restaurant will determine exactly who your customers are, if there are enough of them, and how best to make them happy.
Organize and automate the process by investing in some project management and document management software. Many of these solutions offer free trials and free versions, which will save you money initially.
Check if your concept is feasible. Will enough people with enough spending power go to your restaurant? Who is your prospective patron? Will they be drawn to your concept?
Talk to local restaurateurs and ask them what kind of restaurant this market needs, or doesn't need more of.
Get accurate facts, figures and statistics. To get accurate market information, you could hire a professional market research firm. Or you can teach yourself to do market research, and use data analytics tools. There are free options available if you don’t want to spend on these initially.
Align what you have to offer them with what they have to offer you. Your concept has to meet your target market's needs. You can stick to your original concept for the sake of self-expression, but then you have to make peace with a high risk of failure.
Rework your concept. Now that you know your target market, it is time to rework your concept to ensure it is in line with your target market's needs.
3. Draft a businesses plan.
It is very important to draft a detailed, compelling business plan to secure finance. Starting a restaurant is a high-risk venture, and investors will be more approachable if you are armed with a good business plan.
Essentials for a Restaurant Business Plan:
- Executive summary.
- Company description.
- Products and services.
- Marketing plan.
- Operational plan.
- Ownership's personal financial statements.
- Financial plan.
4. Make a detailed list of what you need.
To get an idea of what it is going to cost you to open your restaurant and what it will take to get it off the ground, make a list of what you’ll need to purchase and find prices.
What You Need to Start a Restaurant:
Premises. There are many factors to consider when choosing premises for your restaurant, and at this stage you would still be looking around to get an idea of what is available. Contact commercial real estate brokers in your area to get an idea of what is out there.
Legal expenses, permits, and licenses. You can get some legal forms online, as well as information from the National Restaurant Association and your local state restaurant association. Bear in mind that once you open your restaurant, you would need an attorney from time to time.
Shopfitting—front of house and back of house. Depending on your budget, you would either hire a shopfitting firm, a shopfitter or do the work yourself (with the help of friends and family). Shop around for furniture to find the best deal for the best price. Auctions are a good place to source almost new furniture. Depending on your budget and the style of your restaurant, you can also shop around for second-hand furniture.
Price Range for Shopfitting a Restaurant:
Shopfitting costs range from $300.00 to $500.00 per square foot for a kitchen, and $150.00 to $300.00 per square foot for a dining room.
Small appliances, cookware, bakeware, utensils, crockery, cutlery and glasses. There are a vast number of suppliers of small appliances, many catering specifically to the needs of the restaurant industry. Shop around for the best deals.
Electronic equipment such as a POS system and booking software. Electronic equipment you would need will include a restaurant POS system, and a computer to take bookings and to communicate with patrons, suppliers and others via email.
Tech Toolbox for Restaurants:
Office equipment and basic office furniture. You'll need some basic office furniture for your back office or little corner where you do your restaurant's admin and cash-outs. There are many well-established suppliers of office equipment to choose from.
Consumables. You would need to shop around for the companies that best meet your needs for a range of supplies, such as food and beverages. You won't be able to get all your supplies from one company, so you will find yourself dealing with a number of suppliers with whom you will be building ongoing relationships over time.
Uniforms. These you can get from a company that specializes in restaurant uniforms. You could also agree on a specific outfit that all your staff would be wearing across the board, for instance, blue jeans with white T-shirts.
Price Range for Restaurant Uniforms:
$3.50 to $16.95
$4.95 to $32.80
$16.95 to $29.60
Human resources management and an accountant. If your restaurant is not part of a franchise, you will initially be performing the functions of the accounting, human resources and payroll departments yourself, or between you and your management.
What do I need to start a restaurant?
Legal expenses, permits and licenses.
Shopfitting—front of house and back of house.
Small appliances, cookware, bakeware, utensils, crockery, cutlery and glasses.
Office equipment and basic office furniture.
Human resources management and an accountant.
5. Form your restaurant company.
When you are starting your restaurant you need to form a legal entity. Creating a business entity can save you money on taxes and protects you from liability.
How to form a restaurant company:
Licenses and Permits Needed to Start a Restaurant Business:
A business license authorizes your business to operate. You need to apply for your business license with the city or state where your new restaurant is located. How to get a business license depends on the U.S. state in which your business is located, and the nature of your business.
Certificate of Occupancy
This certificate is required to verify your building is safe for your staff and customers. A Certificate of Occupancy is issued by local authorities in the town or city your restaurant is based in.
Liquor laws vary quite a bit from state to state. Check in on this early so that you know what your costs will be and how long the process will take.
Food Service License
Your restaurant needs a food service license. This is to ensure that your establishment complies with food storage, food preparation and food safety regulations and laws. Contact your local authority to inquire about applying for a food license.
Even if you pay for a subscription to a streaming service, you still need to pay Performance Rights Organizations (PROs) for the right to play copyrighted music in your restaurant. You can pay an annual blanket music license fee with one of the three main PROs in the U.S., namely ASCAP, BMI or SESAC. You can also pay this licensing fee to a music solution that then pays the PROs on your behalf. If you don't pay your annual music license, you can be fined a federal penalty of $750 to $30,000.
Before you erect signage for your restaurant, you may need a sign permit from your local authority. A sign permit will prescribe the dimensions of your signage, and where you are allowed to erect it.
What licenses and permits do I need to start a restaurant business?
Certificate of Occupancy.
Food Service License.
6. Secure financing.
There are many ways to raise money to start a restaurant.
Get an investor/s. Network until you find your investor/s. Reach out to family and friends who have the capital to invest in your venture. You can also try to get an angel investor, an affluent person who invests in you rather than in the viability of your venture.
Apply for a small business loan to start your restaurant.
Approach the Small Business Administration (SBA) for a loan.
Explore peer-to-peer/P2P platforms. Peer-to-peer/P2P platforms match lenders with people or companies looking to borrow money.
Consider renting kitchen space from a food incubator or an incubator program, or starting a catering business from home, a food truck, or a pop-up restaurant. A pop-up restaurant or supper club is operated from factory spaces, private homes and during festivals. Once you get your brand out there, you can try to get crowdfunding through sites like FoodStart, Kickstarter, Indiegogo and GoFundMe.
Contact the National Restaurant Association and your local state restaurant association for advice. These institutions can give you advice on securing finance for your prospective restaurant.
Ask your landlord for reduced rent in exchange for shares in your restaurant. Consider this option once you secure premises for your restaurant.
How to Start up a Restaurant With no Money:
Get an investor/s.
Apply for a small business loan.
Explore peer-to-peer/P2P platforms.
Contact the National Restaurant Association and your local state restaurant association for advice.
Ask your landlord for reduced rent in exchange for shares.
7. Get a location.
Choosing premises for your restaurant is one of the most important decisions to make when starting your restaurant.
Choosing a Restaurant Location - Checklist:
Is there ample safe parking for my patrons?
Are my premises within my budget?
Who would my local competitors be?
Will the restaurant work well with local weather conditions?
How do I know if my restaurant has ample parking?
TIP: Each city has different rules and regulations regarding parking requirements that you need to check.
Generally, you would divide the number of vehicle parking spaces (e.g. 400) into the building's square footage (e.g. 50,000 square feet), which expresses the result (8 parking spaces) per 1,000 square feet.
You could also estimate how many patrons you would expect on your busiest day. Assume each one arrived in their own vehicle. That is how much parking you need.
8. Build your team.
Betterteam lists all the job roles you typically find in a restaurant, with job ad templates and interview questions. You can find a wide range of resources on their site to assist you with attracting and hiring talent.
Besides making use of recruitment solutions and advertising available positions, there are other ways to build your team.
Ask your staff to notify family and friends about open positions. Once you have built your team and need more hands, spread the word regarding available positions.
Ensure the quality of your team. Paid tryouts are a great way to evaluate new team members before making a final decision.
Job Descriptions and Interview Questions for Restaurant Staff:
9. Market your restaurant.
Depending on your budget, there are many ways to market your restaurant.
Use free options. There are free email and SMS marketing services available to help you curb your marketing expenses.
Run specials. Market your specials extensively.
Be a walking, talking billboard. Tell people about your restaurant and what you've got to offer wherever you go.
Use local SEO. Ideally when someone does a search for a local restaurant, like "best restaurants near me" you are prominent in the results. You can try to learn how to make that happen for your business using local SEO techniques, Google My Business and Yelp!, or hire an agency to help you.
Local SEM Essentials for Restaurants:
Register for Google My Business.
Start a Yelp! profile.
Create a Facebook account.
Create an Instagram account.
Take images of your restaurant's fare.
Upload images and descriptions to all your accounts.
Encourage customers to rate you.
Consider pay-per-click ads.
10. Final steps for preparing to open.
To ensure you finish the journey to starting your restaurant on a high note, you need to follow a few more steps:
- Check that you have all the inventory you need.
- Ensure your staff are trained adequately.
- Ensure your premises are impeccable.
- Prepare for your opening event by having a dress rehearsal.
How to Start a Restaurant FAQs:
How do I start a restaurant business?
Starting a restaurant business can be a costly process with many steps, which you need to plan well. To start a restaurant business you need to outline your concept, do market research, create a business plan and create a legal entity. You also need to apply for licences and permits, secure finance and build a team to start a restaurant business.
How much money do I need to start a restaurant?
This depends on the size of your restaurant, the location of your restaurant and the equipment you invest in. You may also need further funding as you go along. Options include merchant cash advances from your POS provider, crowdfunding, invoice factoring and small business loans.
Can you make money owning a restaurant?
There is the potential to make reasonable money but bear in mind that you would need to put a lot of money back into your restaurant to start off with.
How to Start a Small Restaurant:
Rent kitchen space from a food incubator or incubator program.
Start a catering business from home.
Start a food truck.
Start a pop-up restaurant, also known as a supper club.
Get crowdfunding from sites such as FoodStart, Kickstarter, Indiegogo and GoFundMe.
Top 10 Books to Read Before Starting a Restaurant:
Setting the Table: The Transforming Power of Hospitality in Business by Danny Meyer
Restaurant Owners Uncorked by Will Brawley
Front of the House: Restaurant Manners, Misbehaviors & Secrets by Jeff Benjamin
Kitchen Confidential by Anthony Bourdain
Resilience: Facing Down Rejection and Criticism on the Road to Success by Mark McGuinness
The Chipotle Effect by Paul Barron
Letters to a Young Chef by Daniel Boulud
Your Restaurant Sucks!: Embrace the Suck. Unleash Your Restaurant. Become Outstanding by Donald Burns
The Profit Recipe by Cesar Quintero
The Art of Startup Fundraising: Pitching Investors, Negotiating the Deal, and Everything Else Entrepreneurs Need to Know by Alejandro Cremades