How to Start a Restaurant in 12 Steps
Starting a restaurant is a huge undertaking even if you have the skills to make it work, with profit margins typically between just 3% and 5%.
But if you’re passionate about providing great food and customer service, careful planning before starting your restaurant can help set you up for success.
1. Find your niche
The first step in opening a restaurant is to choose a restaurant concept — the central theme or idea that will define your eatery. To find your niche, consider your existing knowledge and experience. For example, if you already know how to make the perfect pizza, you might be most successful opening a pizza shop. It can also be helpful to analyze the types of restaurants that are already available in your area to look for any market gaps you may be able to fill.
Types of restaurant businesses
In addition to choosing the type of cuisine you want to serve, you will also need to consider the scale of operations you’re prepared to handle. Restaurants typically fall into one of three categories: quick-service, fast casual and full-service.
Different types of restaurants require different levels of service, which will significantly impact the time, energy and funds you’ll need to spend to get it up and running. Here are a few restaurant types to consider:
- Food trucks: This is a mobile eatery that’s typically housed in a van or truck. Food truck businesses are less expensive because they don’t require a brick-and-mortar location, instead using a mobile kitchen to prepare and serve food at events, festivals and farmers markets.
- Pop-up restaurants: As the name suggests, these temporary restaurants don’t have a physical location — rather, they “pop up” in locations for a limited time. This is a popular option for small business owners looking to test new menus or gauge customer interest.
- Fast food restaurants: These quick-service eateries prioritize speed and affordability, typically offering a simple menu with limited seating. Drive-thru and takeout services are usually available.
- Casual and family dining restaurants: These restaurants provide a full-service dining experience at a relatively affordable price. The atmosphere is more relaxed than with a fine dining restaurant, but less casual than a fast food establishment.
- Fine dining restaurants: This is an upscale establishment that focuses on creating an elegant, sophisticated and memorable dining experience. In addition to serving more expensive cuisine, fine dining restaurants also require highly trained staff and a more luxurious atmosphere.
Buying a franchise gives you the right to use the branding and business model of a well-known restaurant. You’ll have access to marketing materials and may even get assistance and training from corporate headquarters.
There may be less risk working with a business concept that’s already been successful and that consumers are already familiar with. However, you’ll need to give up some creative control, follow certain rules and pay fees and royalties.
2. Write a business plan
A business plan is a detailed document that outlines a company’s key objectives, strategies and procedures. A good business plan builds the foundation for your business, ensures your idea is viable and serves as a guide for running your restaurant.
Your business plan should include:
- An executive summary explaining the scope of your business and why it will be successful. Include details about the type of restaurant you plan to open, the type of food you plan to serve and the leadership team that will make it all happen.
- A market analysis showing you understand your target audience and key competitors.
- Details on your restaurant concept and menu, including the food, drinks and experience you’ll create and details on how you might scale your offerings in the future.
- A marketing and sales plan outlining your branding, sales and promotion strategy.
- Financial projections for the first five years of your restaurant, including how long it will realistically take to turn a profit.
The research involved with writing your business plan can help you identify potential opportunities and challenges. It’ll also come in handy when you apply for business financing.
3. Build your menu
Now it’s time for one of the most exciting steps in the process: designing your restaurant menu. Choosing the menu items your restaurant will offer should be fun, but it should also be based on the market research you did when choosing your restaurant niche and concept.
For example, if you’re running a food truck or fast casual restaurant, you’ll want to pick menu items people can easily eat on the go. Offering menu items for specific dietary restrictions, like vegan or gluten-free customers, can help you bring in a wider audience.
Aim for three to seven menu items per category, and try to limit your total ingredients to reduce waste and supply costs. Don’t overwhelm yourself by setting a bar you can’t achieve. Remember that you can always expand your menu at a later date once your restaurant is established.
4. Set your prices
Setting the right prices for your menu items is a delicate balance. If your prices are too high for the food and service you’re providing, attracting customers will be difficult. On the other hand, if your prices are too low, turning a profit will be next to impossible.
To set prices for your menu items, consider the following factors:
- Food costs: Calculate the cost of ingredients for each dish. Keep in mind that the cost of ingredients can fluctuate, so you may need to keep an eye on them and adjust your prices accordingly. Organizations like the National Restaurant Association can provide insight into wholesale food costs.
- Labor costs: Consider the wages of the kitchen staff involved in preparing and serving each dish. Labor costs can vary significantly depending on your location.
- Overhead costs: Factor in expenses like rent, utilities, insurance and marketing. At least a portion of these costs will need to be covered by your menu prices.
- Perceived value: Consider the quality of ingredients, the presentation of dishes and the overall dining experience you’re offering. Customers are often willing to pay more for experiences they perceive to be high value. Research the pricing of similar dishes at restaurants in your area to gauge what customers are willing to pay.
- Profit margin: Ultimately, your prices will need to generate a healthy profit to sustain your business and allow for growth. A profit margin analysis can help you understand the money you need to earn to turn a profit.
By carefully analyzing each of these factors, you can price your menu items to appeal to your target market while also protecting your bottom line.
5. Register your business
As you’re mapping out the concept and menu for your restaurant, you can’t forget to take care of some business legalities. This includes choosing a restaurant name and legal business structure. The structure you choose will determine your taxes, personal liability and the paperwork you need to file to formally register your business.
Once you’ve chosen a business structure for your restaurant, the next step is to register your business with the governing bodies in your area. This is how you will receive your employer identification number (EIN), which you’ll need to open bank accounts, hire employees and file your business taxes.
6. Obtain permits, licenses and insurance
To operate your restaurant legally, you’ll need certain permits and licenses. You’ll also need insurance to protect your business finances. Make sure you have the following:
- Health department permits: You’ll need a food service license from your local health department to run a restaurant. You may also need other health permits specific to your type of restaurant and location.
- Use and occupancy permit: You’ll need a permit from your local zoning or building office that shows your building is up to code. If you’re planning to construct or renovate a restaurant, you might need to file more paperwork or complete additional inspections.
- Food manager certification: In many cities and counties, you’ll need a trained and certified food manager supervising your restaurant when it’s open, which helps prevent foodborne illnesses. It’s typically necessary to pass an exam to get the certification.
- Liquor license: If you serve alcohol at your restaurant, you’ll need a liquor license. The process for obtaining a liquor license can vary by state and city.
- Business insurance: Most restaurants should have commercial general liability insurance, which protects against “slip-and-fall” lawsuits and other risks, along with property insurance, which works like homeowners insurance for your restaurant. If you have a certain number of employees, you’ll also be legally required to have workers’ compensation coverage. You may need other insurance coverages as well.
- Business license: You’ll need a business license to operate in most cities and counties, and you may need to show proof of insurance to get one.
7. Choose a location
Location is one of the most important factors in determining the success of your business. Make sure you consider your target market when choosing a space. For example, if you’re opening a fast food or fast casual restaurant, you might pick a spot near large office buildings to capitalize on lunch-hour foot traffic. If you’re opening a fine-dining establishment, you’ll likely want to be close to high-income neighborhoods and luxury stores.
And if you’re planning to purchase property, consider a commercial real estate loan. If you qualify, you can use the money to pay for land or property and cover the cost of any necessary construction. Alternatively, you could also look into leasing a space.
8. Get restaurant funding
Opening a restaurant can be an expensive endeavor. If you’re opening a food truck or a pop-up restaurant, you may be able to fund your business through methods like bootstrapping and crowdfunding. In most cases, though, you’ll probably need financing to get your restaurant up and running.
There are multiple types of small business loans you can consider. However, traditional lenders like banks and credit unions often require businesses to be in operation for at least two years to qualify. If you’re a new restaurant owner, you might have better luck qualifying for a startup business loan from an alternative lender, though it’s important to note that these lenders tend to charge higher rates and have relatively short repayment terms.
Once your business is more established, you can look into more affordable financing options. Loans backed by the Small Business Administration (SBA) have lengthy terms and capped interest rates, but you’ll need to meet strict credit, time in business and annual revenue requirements to qualify for an SBA loan.
9. Buy furniture and equipment
Once you’ve chosen a location and secured financing, it’s time to start designing the interior of your restaurant. This includes purchasing the furniture and equipment you need to make the space operational and inviting.
In the kitchen prep area, you’ll need to purchase several types of equipment, including commercial freezers and refrigerators, cooking equipment (like ovens and ranges) and more.
For the dining area, you’ll likely need tables, chairs and barstools. And if you’re opening a full-service restaurant, you may also need a host stand and server stations. But regardless of the type of restaurant you’ve chosen, you’ll need to invest in a point-of-sale (POS) system to process payments and manage orders.
Many lenders offer equipment financing that can help you cover these costs. Because the equipment acts as collateral to secure the loan, these loans can be easier to qualify for than other types of financing. But if you want to avoid accumulating debt, you can also look into equipment leasing options.
10. Hire employees
Even if you’re starting small with a food truck or pop-up restaurant concept, you’ll probably need to hire a staff. Depending on the size and scale of your restaurant, you may need to hire chefs and cooks, servers, hosts, bartenders and maybe even a restaurant manager.
To hire employees for your restaurant, think about the key requirements for each of these roles. For example, if you don’t plan to manage operations and communications as the restaurant owner, you’ll want to prioritize hiring a general manager with several years of related experience. It’s also important to hire reliable cooks or chefs who can create the dishes on the menu with ease.
Cashiers, servers and other entry-level employees may require less know-how, though it’s always a good idea to hire at least a few candidates with prior experience. To find employees for your new restaurant, experts recommend posting open roles on industry job boards and local community forums. And don’t forget to share open positions on social media to see if anyone in your network knows someone who might be interested.
11. Market your restaurant
Marketing your new restaurant is important, and the groundwork should begin before you even open your doors. Pre-launch marketing plans focus on creating buzz and establishing your brand identity.
Here are a few ways to attract those initial customers:
- Build a website: Focus on designing a simple website with your location, contact information and anticipated opening date. It’s also a good idea to include menu details so potential customers know what to expect and what dietary restrictions you cater to.
- Set up social media: Create social media accounts so you can start sharing sneak peeks of your menu, interior design and restaurant team. Be sure to use popular hashtags related to your industry and location to reach a broader audience.
- Engage with the community: Consider attending local events or partnering with nearby businesses to engage with the local community.
- Offer pre-opening promotions: Advertising early bird discounts or special launch week offers might make it easier to attract customers while your business is still new.
12. Host a soft opening
Before your official grand opening, you might want to host a soft opening to give your team a dry run of your restaurant operations. A soft opening typically features a limited menu and a guest list of your friends, family and business associates. You can use the experience to hand out coupons for future visits, encouraging your guests to become return customers.
You can also use the event to market your restaurant. Personal recommendations and online reviews are customers’ preferred method of finding new restaurant options. Encourage your guests to leave a review and pass along a coupon to a friend, and you’ll be off to a great start.
How much does it cost to open a restaurant?
The cost of starting a restaurant can vary widely according to your concept, location, equipment and hiring needs. Obviously, a large, fine-dining restaurant with 40 employees is likely to cost much more to run than a food truck.
In total, restaurant startup costs range from $95,000 for small restaurants to over $2 million for larger, lusher restaurants. To estimate your costs, it may help to think about each category of expenses individually. In general, you can expect to pay for the following:
- Commercial property: Whether you’re planning to buy or lease property, you’ll need to factor these costs into your restaurant budget. If you’re renting, consider your monthly rent costs. If you’re using a small business loan to purchase a space, be sure to plan for your monthly loan payments.
- Restaurant equipment: Your restaurant will likely need several types of essential equipment to function. Make a list of the equipment you need and consider whether you want to purchase the equipment new or used.
- Permits and licenses: You’ll also need several types of permits and licenses to legally run your restaurant, and these licenses and permits have their own associated costs. For example, a liquor license costs an average of $1,500, though it could run you even more in some states.
- Labor costs: The size of your staff depends largely on the scale of your operations. But whether you have four or 40 employees, you’ll need to understand how wages and salaries affect your bottom line.
- Food costs: Of course, one of your biggest expenses will be the cost of ingredients for your food and beverages. To manage these costs, try to limit your total ingredients to reduce waste.
If you can’t afford to open a full-scale restaurant, you can also consider a less expensive culinary endeavor, such as starting an at-home catering business.
Other tips for opening a successful restaurant
Keep in mind that profit margins for the average full-service restaurant typically sit between just 3% and 5%. If you want to beat the average, you’ll need to keep a lean budget and take measures to increase your sales.
While this starts with providing high-quality food and customer service, there are other steps you can take to make your restaurant a success, including:
- Ask for feedback: It’s always important to seek feedback from your customers, but this feedback may be particularly valuable when your restaurant is new.
- Reward loyal customers: Consider creating a loyalty program for your repeat customers. You can also offer discounts and coupons to encourage customers to leave a review online.
- Offer delivery services: To expand your customer base, it might be a good idea to offer food delivery services. Many small businesses partner with third-party delivery apps like DoorDash and Uber Eats to provide these services.
If you stick to a budget and put in the effort to boost sales, you may be able to own a profitable restaurant one day.
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- 1. Find your niche
- 2. Write a business plan
- 3. Build your menu
- 4. Set your prices
- 5. Register your business
- 6. Obtain permits, licenses and insurance
- 7. Choose a location
- 8. Get restaurant funding
- 9. Buy furniture and equipment
- 10. Hire employees
- 11. Market your restaurant
- 12. Host a soft opening
- How much does it cost to open a restaurant?
- Other tips for opening a successful restaurant
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