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How to Open a Pizza Shop
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Pizza is a mealtime favorite for many Americans, so you might be thinking about opening a pizza shop in your area. Being a restaurateur and small business owner is not easy, but if you’re determined to share your pizza recipe, here’s how to open a pizza shop.
- Write a business plan
- Consider buying a pizza franchise
- Choose a business structure
- Decide on a location for your pizza shop
- Get funding
- Obtain licenses and permits
- Hire employees and get small business insurance
- Open a business bank account
- Track your cash flow
1. Write a business plan
When opening a pizza shop, start with writing a business plan. This will help you decide how to turn your idea for a pizza restaurant into a profitable business venture. A business plan for a pizza restaurant should include a market analysis, which will involve researching what competitor restaurants are doing to be successful in your area. You’ll also want to ask yourself how you will be able to differentiate your pizza shop in the industry. Will it be your unique toppings, fast delivery service or secret sauce?
Your business plan for your pizza shop should also include your marketing strategy for how to attract and keep customers, as well as offer financial projections for your restaurant for the next five years with your forecasted income and expenditures.
2. Consider buying a pizza franchise
If starting a pizza business from the ground up, consider buying a pizza franchise business. When you buy a franchise, you benefit from the brand recognition of the existing business. Most of the market research is done for you, which you can use to make informed marketing decisions. The franchiser might even help you find a suitable location, provide support with training new employees and get you access to bulk products to keep your expenses low.
That guidance will be helpful if you’re new to entrepreneurship, but franchising comes with high upfront costs. Most franchises have stringent financial requirements, such as a certain net worth and liquid assets, to be eligible to purchase. Franchising a Pizza Hut, for example, requires you to come up with an upfront fee plus ongoing royalties which vary depending on the franchiser’s gross sales. FranchiseDirect estimates that initial costs for a Pizza Hut franchise would cost between $367,000 and $2,063,500, while a Domino’s franchise would fall into the range between $101,450 and $667,500.
3. Choose a business structure
The next step in how to open a pizza shop is choosing a business structure. Selecting the right business entity for your pizza shop will determine which liability protections you’ll have and how you’ll pay taxes.
A pizza business may want to consider a limited liability company (LLC), S corporation or C corporation as each of these entities limits personal liability. If you opt for a sole proprietorship, you could be held personally liable for anything that might occur at your place of business. That means if a customer falls in your shop and is injured, they could go after your personal assets in a lawsuit.
Your choice of business entity will impact how you file and pay taxes, so consider consulting with a tax professional before making a decision.
4. Decide on a location for your pizza shop
The next step in opening a pizza shop is to choose the right location for your business. You’ll want to find out which areas are zoned for commercial use and compare average rents in each area. You may not want to locate too close to other pizza businesses, but a busy commercial area with other types of restaurants and shops could bring more traffic to your restaurant. You’ll also want to make sure the space itself is set up for starting a pizza shop and has room for your business to grow. Unless you have the cash for a down payment, you may want to consider renting the space at first.
5. Get funding
Once you have a plan for your business and a location picked out, you’re going to need funding to get started. The cost to open a pizza shop can vary between about $95,000 and $2 million, depending on whether you’re opening a small, counter-serve location or a larger sit-down restaurant. With startup costs for restaurants so high, you may want to consider a small business loan.
Here’s a few different financing options to help open your pizzeria:
- Commercial real estate loan: If you’ve decided you’d like to buy instead of rent, a commercial real estate loan can help you purchase the real estate for your pizza shop. If you qualify for a loan backed by the Small Business Administration (SBA), you’ll likely get better rates than you would with a traditional loan.
- Equipment financing: The equipment required for a pizza shop — including pizza ovens, refrigerators and other large appliances — can be costly. Instead of paying the costs upfront, equipment financing allows you to purchase needed business equipment usually with a low down payment. You’ll pay the loan back in installments and at the end of the term, own the equipment outright. Equipment leasing gives you the option to rent the equipment you need for a set period of time, but you won’t own it at the end of the lease.
- Line of credit: From stocking your kitchen with ingredients, decorating the restaurant or investing in marketing, there’s a lot of operating costs to open a pizza shop. A business line of credit could be a good option for these types of expenses, as it is a flexible form of funding that offers you access to a revolving credit to draw from. You’ll only pay interest on the amount you borrow from the credit line.
6. Obtain licenses and permits
When opening a pizza shop, check local laws to find out what are the licensing and permitting requirements for restaurants in your area. You’ll likely at least need a business license, a food service license and a resale permit. If you’ll be selling alcohol at your pizza business, you’ll also need a liquor license, which can be expensive.
You’ll also likely need to apply for an EIN or Employer Identification Number. This isn’t a license or a permit, but may be required by the IRS to monitor your business activities. Your EIN is your tax ID number that you’ll use to apply for funding, file your taxes and open a business bank account. You can apply for your EIN online with the IRS.
7. Hire employees and get small business insurance
You’ll probably want to hire some employees to help cook, serve and deliver those pies. If you do, you’ll need several types of small business insurance to protect your employees, including disability insurance, unemployment insurance and worker’s compensation insurance. Even though it’s technically not a type of business insurance, if you have over 50 employees, you’ll also be required to provide health insurance for employees or pay a penalty.
Regardless of your employees, you may want general liability insurance and commercial property insurance, and you may also want business income insurance coverage. General liability coverage helps cover your legal fees and judgments against you for lawsuits related to things like bodily injury, property damage and false advertising. Commercial property insurance is similar to a homeowners policy — it covers your pizza shop equipment in the event of an unexpected event like a fire. And business income insurance helps you continue to pay your rent or mortgage after such an event, even if your business is closed and not earning income. You may be able to find a business owner’s policy that offers most or all of the coverage you need in one policy.
8. Open a business bank account
As you prepare to open your pizza shop, it’s important to keep your business expenses separate from your personal expenses if you want to avoid a headache come tax time. The best small business bank accounts allow you to avoid monthly fees, earn interest and offer fee-free transactions each month.
9. Track your cash flow
Now that you know how to start a pizza shop, the final step is to monitor your cash flow. A cash flow analysis allows you to evaluate whether you’re earning enough income to pay your business expenses and if you’re earning a profit. Your goal should be to generate positive cash flow, and then to reinvest some of that extra income into growing your pizza business.