A Comprehensive Guide to Starting Up Your Restaurant
So you’ve developed your perfect restaurant concept. What comes next? Any business requires thorough planning for optimal results. In the competitive restaurant arena, your approach affects your success rate.
Excellent food and service are vital. Yet, the lack of a marketing strategy or a good grasp of financials will tank your business. With more than one million restaurants to compete with, startup planning gives you the advantage.
Use this startup checklist to inform your process and design a plan to build revenue from day one.
Restaurant Startup Checklist
- Complete in-depth research
- Select your business support team
- Develop a restaurant business plan
- Review finances and funding options
- Consider locations and layout options
- Secure restaurant permits and licenses
- Pick restaurant equipment and suppliers
- Choose software and hardware for your restaurant
- Create a robust marketing strategy
- Staff your restaurant startup
- Follow restaurant startup best practices
Complete in-depth research
Before you get into the nitty-gritty of restaurant planning, gather data to help you build a comprehensive strategy. Each stage of pre-planning delivers insights that form the foundation of your process. Use research data for your:
- Restaurant Business Plan
- Funding and Financing Needs
- Restaurant Marketing Strategy
Scope out your competition
Competitive analysis gives you an overview of your direct and indirect competition. Plus, it helps you define your unique selling points (USP). This crucial step adds valuable data that you’ll use in many ways, including:
- Adding competitive data to your business plan.
- Planning your marketing goals and actions.
- Establishing a strong USP and key messages.
- Selecting a restaurant location.
- Obtaining funding or attracting investors.
Perform competitive analysis by looking at competitors’ strengths, weaknesses, opportunities, and threats (SWOT). Get information by looking at websites, social channels, menus, restaurant review sites, and loyalty programs.
Strengths. What does your competition do well?
Weaknesses. What could your competition do better?
Opportunity. How can you leverage their weaknesses to your advantage?
Threats. Does your competition offer something you do not?
Review a neighborhood map to find restaurants in your general location. Write down each competitor and mark them as direct or indirect. For added impact, pick one restaurant that inspires you. Restaurants with similar cuisine and service models are your direct competitors. Those with different food or models, yet the same target market, are your indirect competitors.
Perform a SWOT analysis of five key areas
- Operations. Number of employees and types of positions, hours of operating, number of seats, types of available food services (carryout, delivery, or catering)
- Menu. Prices, food selection, portion sizes, and use of different menus (seasonal or by shift)
- Promotions and advertising. Discounts, special promos, and where the restaurant advertises
- Customers. Social media mentions, restaurant reviews, and other examples of how guests communicate about your competition
- General. Date founded, number of years in the current location, info on financial backing, and any other details
Define your target market
Your competitive analysis also provides information about your target market. Target market research goes into your business plan. It also helps you create customer profiles for your marketing strategy. Discover who your ideal customers are and what they want by examining:
- Demographics. General information about age, income levels, education, sex, and other basics
- Psychographics. The values and attitudes that your target market collectively shares
- Behavior. Specific habits or hobbies and how they use digital platforms
Refine your unique value proposition (USP)
With a competitive analysis under your belt, look for gaps that your restaurant can fill. Your unique value proposition is what makes your business offerings different. Your USP will go into your business plan and your marketing strategy as well. Turn the answers to these questions into a concise statement:
- What makes your restaurant unique from the competition?
- Why would a customer choose you over the restaurant down the street?
- What problem do you solve?
- How do your customers benefit from choosing your restaurant?
- What guarantee do you give your guests?
Finalize your restaurant concept branding
Now, head back to the drawing board and take a look at your restaurant concept. Use your new data to tweak your branding. You may want to rework your mission statement to reflect evidence from your market and competitive research.
If you haven’t already, then now is also the time to complete your restaurant name and logo. Do a quick online search with your state to make sure that your restaurant name is available for use. You may want to reserve your company name until you’re ready to go through with the licensing process.
Select your business support team
An attorney and accountant are critical partners for any business. You’ll sign plenty of contracts in the upcoming days. And you may need to submit financial statements as well. Avoid delays by developing relationships with legal and finance teams before you start your restaurant.
Develop a restaurant business plan
Your restaurant business plan provides an overview of your branding, finances, and structure. You may use your business plan to obtain investors or secure local licenses. Present your information in a structured and visually-friendly format. The essential parts of a business plan include:
Concept, USP, and elevator pitch
Define what makes your restaurant unique. Potential investors may only read this section. So, it’s important to generate excitement.
Give an overview of your menu, including prices. This is a nice area to add a visual, like a mock-up of your menu. For funding purposes, base your rates on a cost analysis. Show how your menu prices support your business model.
Not all restaurants need this section. Add details about wine presentation or delivery options here. If you’ll offer a full bar or catering services, then mention this as well.
Highlight your current team. Include details about their background and years in the industry. If you haven’t hired a manager yet, then talk about your management structure. List your standards and requirements.
Add visuals to give readers a general feel of your restaurant. You may use actual images or provide inspirational graphics.
Sum up your ideal customers using data from your market research. Keep this area brief, but add statistics relevant to the potential success of your concept.
List the neighborhoods or areas of potential sites. Make a connection between your ideal customers and selected locations. Point out any competitive advantages based on gaps found in your competitive analysis.
General market information
Deliver an overview of local statistics from your local government agency. Point out how you will address any problems faced by businesses in the area.
If you’ve hired a team, list their experience and what they’ll handle. Include details about the channels you’ll use and touch on your pre and post-launch plan. If you have existing accounts with a following, list those as well.
Include any others who help with your business. List your attorney, accountant, designer, or general contractor. The goal is to show a reliable support team of professionals who know what they’re doing.
Quickly describe the business structure (partnership, limited liability company, or corporation) that you’ll use for your restaurant. If you’re undecided, then come back to this later.
In most cases, you’ll want extra help from your accountant in this area. For investors, you’ll share necessary information like:
- Capital requirements budget
- Estimated profit and loss statement for the first three to five years of operation
- Break-even analysis
Review finances and funding options
52% of restaurant professionals list high operating and food costs as a top challenge, according to the Toast Restaurant Success Report. These difficulties add stress, and restaurants often fail from a lack of capital.
Financial preparation is critical to your restaurant’s success. Regardless if you’ll fund your restaurant startup and operating costs from personal accounts or seek alternative funding sources, you’ll want a good idea of your costs and expenses. Start by breaking down your costs into two areas:
- Startup costs
- Operating expenses
Some expenses may be one-time costs. Others occur yearly. In each category, define your expenses as fixed or variable. A fixed cost is a regular payment that remains the same each month, like rent. A variable cost fluctuates, like your electric bill.
Examples of startup costs
- Beginning food inventory
- Business registrations and licenses
- Software and pos equipment, hardware, installation and training
- Restaurant equipment and supplies, like tableware and microwave
- Construction or renovation costs
- Loan downpayment or rental security deposit
- First-month rent, wages, and salary
Examples of operating expenses
- Marketing costs
- Food costs
- Pos monthly fees
- Payment processing fees
- Other SaaS fees
- Breakage expenses
- Pest control
- Labor costs including benefits, taxes
How much money should you set aside for a restaurant launch?
A survey on RestaurantOwner.com shows the differences in startup costs. Average amounts range from $175,500 to $750,500. Along with startup expenses, you’ll want at least three months of operating costs set aside. Yet, many businesses don’t show a profit in the first year. So, it’s important to have enough cash to operate for your first year.
Should you get a startup loan?
Many restaurant owners ask about startup loans or alternative funding options. This is a personal decision where you’ll need to weigh several factors. For example, loan interest and monthly payments will increase your startup and operating costs.
However, having access to a line of credit is useful. Especially in case of an emergency, such as equipment malfunction. A line of credit may provide you with the capital needed to open your doors another day.
Restaurant revenue forecast tips
Sales estimations and revenue forecasts are invaluable in the restaurant business. Base your evaluations on your expected number of patrons and the average amount spent per guest. Estimate both high and low volume times to get an average.
You’ll also want to figure out your prime cost. This formula is direct labor costs plus the costs of goods sold (CoGS), like food and beverages. Lastly, learn how to create and maintain a variety of financial statements, including:
- Balance sheet
- Income statement
- Cash flow statement
- Inventory control
- Profitability analysis
Consider locations and layout options
Now it’s time to make the final decision on your location and layout. Use data from your market, customer, and competitive research. Key considerations include:
- Square footage
- Amount of foot traffic
- Number of available parking spots
Choose a few locations to look at. Then determine extra expenses by location. For instance, demolition work, electrical work, plumbing, or installing new appliances all add to a site’s cost. You’ll also want to review the location for ADA compliance.
Secure restaurant permits and licenses
Before you open your doors, you’ll need several permits and licenses. Regulations vary by state. Plus, your city may have further guidelines for restaurants. It’s essential that you add the cost of these fees to your startup expenses. Then, include the costs in your yearly budget as well. There are six typical licensing requirements.
1. Business registration and license
Go to your state’s website or stop by your local city hall. Double-check the availability of your business name. Then, complete the paperwork and pay the fee. This amount varies from $50 to $500. In most cases, you’ll renew your license annually.
2. Liquor license
Your liquor license is one of the toughest permits to get and keep. Talk to city and state officials to determine the requirements. These may include training for owners, managers, and staff.
3. Foodservice license
This permit comes from your city’s health department. To get a foodservice license, you’ll need to pass a health department inspection. Applying for a license isn’t difficult. You can usually apply online or at your local city hall. The fees vary by location, the number of employees, and the number of seats.
4. Employee identification number (EIN)
Head over to the IRS to get your employee identification number. This is free and easy to do. Simply input your information, and you’ll get your EIN within minutes. The IRS sends you a paper copy of the EIN as well.
5. Food handler’s permit
Each state and city sets requirements for food handler permits. To get this license, you’ll complete a state-approved food handler’s course. Once finished, then purchase an Employee Health Permit from your state.
6. Signage and other permits
You may also face a variety of other regulations depending on your location. You may need additional permits for signs, dumpsters, and even parking. Check with your city hall to determine a full list of licenses required.
Pick restaurant equipment and suppliers
A considerable part of your budget goes to equipment and supplies. Start by creating an exhaustive list of everything you’ll need to open your restaurant. Then, figure out what your budget is for each area.
Start your search online or by looking for local suppliers. Consider checking social media and local advertisements for used or pre-owned items. Many times restaurants sell their equipment when they move or go out of business. Some equipment suppliers also offer rental options for things like dishwashers as well. Another good place to check is with your food supplier. Food suppliers often sell a variety of restaurant supplies along with food items.
When comparing suppliers, compare options by looking at:
- Equipment warranties
- Customer service options and reviews
- Installation and repair service
- Availability and speed of shipping
Choose software and hardware for your restaurant
At the heart of your restaurant operations is your point of sale system (POS). The National Restaurant Association reports, “81%of restaurants use a POS.” A POS combines customer relationship data, inventory control, and other reporting elements into one spot. Some integrate with other services, such as a loyalty program and third-party delivery.
Take time to test various restaurant management software options. Many offer free trials and onsite demonstrations. Along with the basic hardware, figure out how many screens or devices you’ll need. Compare brands by looking at the startup costs, monthly expenses, and functionality.
Depending on your budget and service model, your restaurant may also benefit from other technologies. For instance, the National Restaurant Association also finds that “68% of restaurants offer Wi-Fi for guests.” Other options include:
- Online ordering tablets
- Mobile payment devices for tables or servers
- Customer kiosks
Create a robust marketing strategy
By far, your marketing strategy is one of the most critical elements of your restaurant plan. It defines your communication with customers, prospective guests, and potential partners or influencers in the restaurant arena.
Furthermore, a startup restaurant needs to invest more in marketing to attract customers. FSR Magazine recommends, “If you have a lot of competition, you should be spending closer to 35% of your gross revenue on marketing. If you have very few competitors, 25% may be enough.”
Since this area is extensive, we’ve broken it down into several steps of designing a marketing strategy. On a basic level, it’s essential to:
- Create a marketing strategy framework
- Select specific areas to focus on
- Track your progress and tweak your strategy
Set SMART goals
To set SMART goals, review your market and customer research along with your competitive analysis. Relate your marketing goals to overall business goals. Then, create objectives with milestones set at monthly or quarterly increments. A SMART goal is:
Develop key messages
Use your USP and elevator pitch to come up with your core messaging. These statements are the main points that you want to get across to your audience. Each element of marketing relates to your key messages. Focus on clear explanations that show the benefits and points of differentiation.
Brainstorm marketing platforms
Develop a list of all the ways that you can market and advertise your restaurant. Include digital and offline ideas. Write everything down. Later, you’ll pick your best options.
Examples of digital marketing channels
- Social media
- Review sites
- User-generated content (UGC)
- Content marketing
- Advertising on social media or search engines
Examples of offline marketing platforms
- Direct mail
- Radio or TV
- PR like press releases
- Event sponsorships
- Charitable donations
Select a marketing mix that works
It’s impossible to be everywhere at once. Choose marketing channels that give you the most bang for your buck. To narrow down your options consider:
- Where do your ideal customers hang out online?
- Can you do the marketing yourself, or do you need help?
- What’s your budget for marketing?
- How much time do you have for marketing?
- What is the cost to put in place each plan?
- Are there any risks of starting up or stopping a particular type of marketing?
- What are the potential benefits of each platform?
Allocate your financial and time resources to platforms with the best chance of results. If you spread yourself too thin, then you risk success on every channel. But, if you avoid high-impact marketing options, then you may not attract your ideal customers. Finding balance is tricky, which is why restaurant owners often outsource this aspect.
Choose a method of measurement
Gone are the days where you choose one form of marketing, and that’s that. Now, you need access to data that shows your results. If something isn’t working, then you shift to something else.
Part of your SMART goal is setting precise numbers. Each of the mediums has key performance indicators (KPI) to show you where you stand. Once you’ve developed your list of marketing channels, then determine how you’ll measure results.
Develop actionable steps
With a plan in hand, now it’s time to write down the steps you’ll take to achieve your goals. Some objectives require daily interaction on social media. Others, like direct mail, are less time-intensive. Create a list of daily actions per channel and set up reminder alerts.
Create a pre-launch promotion plan
Make sure there’s room in your budget for pre-launch marketing activities. Fill your seats by generating a buzz before you open your doors. Your pre-launch promotion plan supports your main objectives. But, it specifically focuses on the actions you’ll take before opening. For instance:
- Build brand awareness on social media with “coming soon” or “sneak peek” posts and images.
- Host an exclusive open house for select attendees and follow up with a press release.
- Send out flyers with an incentive for early loyalty program sign-ups.
Staff your restaurant startup
Your staffing needs depend on your restaurant service model and size. Run through your operations from front of the house to the back of the house. Jot down anyplace where you’ll want a person to greet, answer phones, or cook and prep food.
Nine out of ten restaurants employ fewer than 50 employees, according to the National Restaurant Association. So, your restaurant may not require a huge staff, but it’s still tricky to find, train, and keep your crew. Plus, you’re bound by various federal and state laws. Before you start the interview process review:
- Local, state, and federal laws
- Job descriptions and requirements for each position
- Payroll and paperwork requirements
Other key factors include designing an employee handbook, creating a training program, and selecting a method for employee retention.
Follow restaurant startup best practices
Starting up a restaurant, like any business, requires a ton of work. It’s easy to feel overwhelmed. But, today’s restaurateur has access to plenty of resources to assist you every step of the way. For each of the steps listed above, do further research or consider certain outsourcing aspects. Get more tips on what to expect with these interviews with restaurant owners: