How to Open a Restaurant: Your Complete Guide

Want to open a restaurant? Smart planning is as important as a good concept.

Many dream of owning and operating their own businesses. If you’re someone who dreams of opening a restaurant rather than a bookstore, dry cleaner, art gallery or some other small business, you’re not alone. Countless new restaurants open every year, despite a relatively high barrier to entry. Equipment, rent, labor costs, taxes and regulations can put a strain on finances from the start.

While a study of Bureau of Labor Statistics data in the western U.S. shows that only 17 percent of independently owned full-service restaurant startups failed in their first year (far from the 90 percent many sources claim), the median lifespan of restaurants is about 4.5 years. Successful restaurant owners are usually those with the most well-thought-out plans and adequate initial capitalization.

How to Open a Restaurant:

Planning for the Opening

These related articles go in-depth in the multiple areas that need addressed during the planning phase of your restaurant:

• Deciding What Type of Restaurant to Open: Independent vs. Franchise vs. Food Truck
• The 8 Steps to Designing a Restaurant Concept
• How to Write a Restaurant Business Plan
• How to Hire a Good Restaurant Manager
• How to Hire Staff for Your Restaurant
• 8 Surprises to Anticipate When Opening a Restaurant
• The Soft Opening: Planning for a Smooth Restaurant Opening
• Lessons Learned: Wisdom from a Real-Life Restaurant Startup

Type

What sort of restaurant is right for me? Full service or takeout? Fast food, casual dining or fine dining? What kind of food? American or ethnic? Pizza or donuts? Clearly define not only the concept behind your restaurant idea, but your brand identity. What’s the value proposition of the food and dining experience you plan to offer? What differentiates your concept from other restaurants in the market?

Target

What type of demand exists in your area? Identify your primary customers. Be as specific as you can. Who do you want to attract to your restaurant and when? Restaurants can’t be all things to all people. You don’t go to a fast food restaurant expecting to eat a steak by candlelight. Narrow your focus to those most likely to enjoy your concept. The better you understand who your target customer is, the better your odds of success and the more likely you are to get tangential customers.

Seeking Expert Advice

Down the road you’ll have to hire professionals for many tasks, especially if you’re a first-time restaurant owner. That includes attorneys to draw up your legal entity, accountants to audit your books, realtors to help you find locations, architects and contractors if you’re building from scratch, foodservice consultants or designers and so forth. But as you develop your concept, it’s never too early to talk to experts, many of whom will offer advice for free.

Network with other operators to learn about their experiences in both opening and operating their restaurants. Ask them about the pitfalls they encountered and what to watch for. As you develop your menu, talk to an equipment dealer like Central Restaurant Products to explore equipment options in the kitchen and their costs. Interview food purveyors about what they carry to get an idea of what your food costs will be. The same goes for cleaning supply and paper goods distributors.

There also are a host of online and other resources available to small businesses and restaurants in particular (see the “Resources” list at the end of this guide). Some websites have operator forums where you can get answers to specific questions.

1. Small Business Loans

• Term loans, such as fixed or adjustable rate second mortgages
• Small Business Administration (SBA) loans, which also typically require collateral
• Equipment financing, which uses the equipment as collateral
• Short-term loans—for businesses with smaller and immediate financing needs, these can be a lifesaver; they’re similar to traditional term loans but cover amounts in the $2,500 to $250,000 range with terms of between three and 18 months
• Line of credit—often investors will make a line of credit available through their bank to make their investment gradually

2. Business Funding Alternatives

• Angel investors, interested in helping startups get off the ground
• Venture capital firms, which may provide funding in exchange for an equity stake
• Friends and family
• Crowdfunding, through websites such as GoFundMe, IndieGoGo and Kickstarter

Site Selection, Design, and Construction

There are pros and cons to both leasing and owning restaurant space, but one way to save money and time is to look for existing restaurant locations. Use a realtor experienced in the food service business to help you find and negotiate purchase or lease terms.

Use professional architects, foodservice consultants and equipment specialists such as manufacturers reps, an equipment dealer and installers to help you nail down your construction budget. The more detailed the information provided by these sources, the better equipped you’ll be to select and negotiate with a general contractor.

Even if you’re not building from scratch, you’ll need to create schematic and mechanical drawings for your interior; especially the kitchen and dining areas. The more accurate they are, the less likely you’ll run into problems or need to make costly adjustments or additions during construction.

These experts also can help you cut through red tape to get permits issued and walk you through the process of getting licenses and meeting with local building and health code regulations.

Staffing Up

While your design and construction team is readying the facility, you also need to nail down policies and procedures for how you want your restaurant to operate. Now’s the time to start recipe development and testing, particularly for production of things you’ll want on hand at all times, such as dressings and sauces.

You’ll need to write a policies and procedures manual for general operation of the restaurant, a service manual for front-of-house employees and an operations manual for the back of house. These manuals should not only describe responsibilities and how you want things done, but also a code of conduct and how you want employees to treat customers.

Spend time now refining what you want the interior to look and feel like. You should’ve already picked lighting and surface finishes, but you now need to pick out and order furnishings and decor, and select music. For the back of house, you should be negotiating supplier contracts and working with both food, nonfood and equipment suppliers to select tabletop and smallwares as well as your initial food and supplies inventory.

Create an organizational chart of positions and who reports to whom. Define responsibilities of each position (though you’ll want to cross-train people over time, in case employees have to cover for one another when someone calls in sick or is on vacation). Once you’re clear on the skills you’re looking for to handle each position, start recruiting efforts. Look for management—chefs and general managers—four to six months before opening, so you have them on board two to four months in advance.

Create a hiring strategy that your whole team understands, and prioritize soft skills ahead of experience for certain roles. It’s easy to teach someone how to garnish a plate or clear a table, but teaching them how to adopt a different attitude is nearly impossible.

Fun Fact:

8 in 10 restaurant owners say their first job in the restaurant industry was an entry-level position (such as server, bus person, dishwasher, host, etc.).

Source: National Restaurant Association