The U.S. restaurant industry is a $799 billion market, according to the National Restaurant Association. Unlike starting a food product business, starting a restaurant business involves a greater degree of licensing, particularly on the local and state level. New restaurants are required to obtain food handlers permits for their employees, as well as adhere to local regulations regarding best practices for sanitation, fire safety, and zoning. Restaurateurs must think creatively and innovatively to develop a novel business idea with a specific, well-researched target market that utilizes the owner’s specific skills and expertise and/or fits a given culinary market need.
Like with any business, entrepreneurs starting a restaurant venture must name their business and register the business with the appropriate local or state authorities. The restaurant owner should also choose a business structure. Once you’ve got these out of the way, it’s time to start planning for success.
How to Start a Restaurant Business
Starting a new restaurant business can be a fun and exciting process. In order to ensure you find success in this new venture, consider these first steps for opening a new restaurant:
1. Think about your restaurant’s service style and overall design.
Are you planning to open a café, a steakhouse, a place to grab a quick bite, a takeout place with a few seats for dine-in patrons, or a fancy upscale eatery? Determine what kind of restaurant you seek to open, and what kind of food you will serve. This can be based on your skills and experience (for example, if you have obtained training for baking at the Culinary Institute of America, it may be foolish not to open a bakery), or based on the preferences of your target market.
Typically, restaurants are classified into three main categories: quick-service or “fast food,” midscale, and upscale. Fast food restaurants offer a standard menu of items that can be prepared, as their name indicates, quickly, and sold very cheaply. Fast food ventures may often have drive-thru windows and take-out service for patrons’ convenience. Fast food places typically serve foods such as hamburgers, hot dogs, pizza, and some ethnic foods.
Midscale restaurants offer full meals that have a slower preparation time than fast food places while still providing a good value. In full-service midscale restaurants, diners place orders and have them delivered to the table. In a limited-service food establishment, customers order at a counter and obtain their food at their table. Buffets are also an example of a limited-service restaurant.
Upscale restaurants are much fancier and provide an excellent dining experience at a premium. Upscale restaurants focus more on dining ambiance and providing novel food experiences rather than price or convenience.
2. Consider your target market.
In choosing your overall restaurant concept, it may help you to think about the target market for your restaurant. Remember that you cannot capture 100% of the restaurant market, but you can target a small subset of the market, say, 10%, and work on developing your brand. For example, you may seek to establish a smoothie place that mostly focuses on catering to younger people who are health-conscious and always up on the latest smoothie trends, such as acai bowls. Alternatively, if you live somewhere where there are many people with children, you may seek to open a family-friendly restaurant that features a kids’ menu and some classic crowd-pleasing dishes. If you seek to open a restaurant in an area surrounded by offices, you may seek to establish a grab-and-go sandwich eatery that is only open Mondays through Fridays during business hours. Whatever you decide, make sure that you choose with your market in mind.
3. Identify a niche for your restaurant.
Think carefully about your restaurant’s niche. Ideally, your niche combines your skills and experience with the needs of your target market and supplies customers with a unique experience that is not matched by other competing restaurants in the area. You may need to do some research to determine what dining options are available in your location and how you can innovate to offer a fresh, new dining concept. You will need to determine whether your establishment will or will not serve alcohol, as an alcohol license will be required if you will sell alcoholic beverages. Start with determining the best niche for you as a restaurateur, what you want to be doing on a day-to-day basis, and what responsibilities you are willing to take on, and then work with that to develop a niche for your restaurant startup.
4. Devise a business plan.
How much will it cost to operate your business? A well-thought-out, comprehensive business plan that covers all aspects of your operations is essential in starting a new restaurant venture. You will need to utilize your business plan to reach out to potential investors, develop a strategy, and determine how feasible the plan is. Your plan should include an overview and description of your business idea, as well as analysis of the market, your business offerings, management, marketing strategies, and financial estimates for the operation of your restaurant. This will help you obtain funding from investors or a loan, and assist you in determining how much money is needed to run the restaurant on a day-to-day basis.
5. Find the right location for your restaurant business.
In choosing the optimal location for your restaurant space, consider the space’s visibility and accessibility. How close will the site be to your potential diners, and what demographics characterize the location? Determine, also, whether the rent you will be paying will be appropriate given your estimated first year of revenue in running your business.
Make sure to consider the factors that will make customers more willing to visit your establishment, such as low traffic density, ample parking space, proximity to other businesses, and future development projects in the area.
Be aware, also, of restrictive ordinances or zoning which may affect the location, and make sure that the renters’ terms are something that you can agree to and are not unacceptable.
6. Create a menu your target customers will enjoy.
Rely on the brainstorming you did when coming up with your personal niche, as well as your restaurant’s niche, earlier in steps 2 and 3. Be cognizant of the trends in restaurant food offerings, as well as dietary restrictions such as vegetarian, vegan, kosher, halal, etc. Eaters are becoming increasingly picky about their food, so there is a large market for these types of special dietary needs.
7. Hire great employees.
Determine where you can recruit qualified workers and what the employees’ exact responsibilities will be. You will want to come up with a job description that lists what the employees will do, and should include any special skills or licensing that the employee requires. The next step is to establish a pay scale and to do this, you will need to check with your state’s Labor Department to ensure that your pay scale is compliant with rules and regulations, whether employees are eligible to receive tips, and to ensure that you adhere to all wage-and-hour and child labor laws. Make sure that you provide excellent training to your employees, as even seasoned restaurant employees will need to learn the ins and outs of working at your new establishment.
8. Get the appropriate licensing.
While you may think opening a business does not have a significant licensing burden like a professional field like law or medicine might, the truth is that restaurant business owners must obtain many different licenses and are subject to regular inspections by local and state authorities, who ensure that sanitation, fire safety, and food safety are regularly inspected and meet set standards. If your operation sells alcohol or tobacco products, you may also be subject to further licensing standards. Your state’s general information office can help you determine which licensing your business venture requires.
9. Develop a marketing and promotion strategy for your new restaurant.
A good business plan requires a solid marketing strategy. Keep in mind that your marketing and promotional efforts should accurately portray who you are and what you do. Stay true to your “brand voice” in your marketing efforts.
Word-of-mouth remains the best marketing strategy, and people who receive a restaurant recommendation from a friend or family member are most likely to patronize your restaurant. However, in in the digital age, you may want to rely on social media such as Facebook, Twitter, or Instagram to promote your new business as well (e.g., by offering Facebook-only coupons or gift certificates) and to gain exposure. You can also donate coupons or gift certificates to local organizations holding raffles, or to radio stations for their free on-air giveaways.
When your new customers visit your restaurant, ask them how they found out about your establishment, and take note of this information so that you can take stock of how effective your marketing efforts are.
10. Think outside the box.
In starting your new venture, you don’t need to keep normal operating hours. You may want to operate four days a week or have special menus for happy hour or one evening a week. A “soft opening,” in which the business is open to a limited number of people before a public grand opening, may also be a good idea for your business. New, fresh ideas which enable you to connect with customers and obtain feedback before opening your doors to the public may help you in the long-term.
The steps outlined above are not meant as a checklist but as a general guide of things to consider when opening a restaurant. While opening and running a restaurant is a lot of work, with some careful planning and attention to detail, your establishment can thrive even in the dynamic and competitive food-service industry. As with any business, it’s best to start small in opening a restaurant business. You may even want to consider operating a food truck initially to test your local market and build and gain feedback from your clientele.
Restaurants with an overambitious business plan that does too much too soon are more likely to fail than eateries which start with a small budget and minimal expenses and scale up gradually. Once a restaurant is successful, foodservice entrepreneurs can work to get financing from investors or via a bank loan. Be careful not to overspend in the initial stages of starting your business, as overspending can lead to excessive debt that can spell the death of your business venture. Owning and operating a successful restaurant takes a lot of work, but is possible for the savvy entrepreneur who is in it for the long haul.