How to Start a Restaurant Business in 12 Steps

Starting a restaurant business takes much effort, time, and dedication. However, opening a restaurant will be exciting if you're passionate about culinary arts. Imagine having to plan a menu for your customers, design the interiors of your business, and make money while doing something you love. 

As more people continue to dine out or purchase precooked meals, the choice to open a restaurant is excellent. Americans eat out at least once a week, and adding to the number of restaurants in the country can help meet the increasing demand. Besides the deduction to start and run a business, you need the passion and ability to manage the different sections to make the restaurant successful. 

The journey of starting and running a restaurant isn't for the faint-hearted, as many small restaurant businesses shut down within a year. It's not to discourage you, but you must be prepared for eventualities. In this post, Foundeck shows you how to start a restaurant business in 12 steps. 

Understanding a Restaurant Business

A restaurant is a service-oriented business. Restaurants offer dining experiences to guests who visit to taste and enjoy various dishes. These are the general elements of a restaurant business:

1. Restaurant reception counter for reserving or accommodating walk-ins
2. A kitchen where all the dish preparations happen
3. A dining room where customers eat
4. Wait for staff who take customers' orders, serve their food, and provide any other requirements they might need. 
5. A cashier desk where customers pay for the meal they want to have or take away

12 Steps to Starting a Restaurant Business

Before starting a restaurant, consider working in a restaurant like the one you're about to open. Becoming a restaurant employee means getting hands-on experience and an opportunity to observe the day-to-day operations of your soon-to-be source of revenue. 

Since you're on a mission, observe all aspects of the business, from creating employee work schedules to payroll to finding suppliers. 

Working in a similar restaurant gives you a perspective of what your employees will be going through, and you can better understand them. Learn how the moving parts of a restaurant come together for the success of the business, and once you're confident, you can move to the next steps of creating your business.   

1. Concept Viability

There are more than one million restaurants in the United States, which is a lot. Thus, you need to identify a niche for your restaurant and specialize in it to win customers and keep them coming back.

Remember, it's not about competing with the world but seeking to provide excellent services to your local community. Identify a gap in the current market and find a way to fill it. That way, you'll be solving an existing problem in your community. 

Entering a saturated market isn't a good idea for any business, which includes a restaurant. So, you need to think carefully about the kind of restaurant you want to start to ensure you're in business and not just adding to the count of restaurants. You need to start and run a unique business so everyone will become the town buzz before they make it there. 

The concept you settle for will play a significant part in every future decision you make in your business, from the menu to the atmosphere. Answer these three questions before you launch your restaurant:

1. Do you know your target market?
2. Who is your competition?
3. Do you have a value proposition?

1a) Identify Your Target Market 

Your target market is the group of potential customers your restaurant will serve. Depending on the population you aim to serve, determine if they are many enough to support a thriving business. Ensuring the area where your restaurant will have enough of that population as the target market is important to keep your business going.

 For instance, opening a fine dining establishment near a college may be unworthy as students are always on a Budget. Your menu selection, prices, and atmosphere should appeal to the people in the surrounding area.

1b) Identify the Competition

You'll probably realize your restaurant is one of many competing with that target group. Hence, you need to study your competitors, examine their offerings, and find the gap your services will fill. 

Visit your future competitor's websites and social media accounts to find out how they operate, their prices, and the services they provide. From your research, find out what they're doing right and what you can do better to identify your value proposition.

1c) Identify Your Value Proposition

A value proposition is like the Unique Selling Point (USP) your restaurant promises to deliver to your customers. What is unique with your business compared to your competitors? What will you bring to the table that they don't? 

Your value proposition may be a unique cuisine or environment only to be found within your restaurant. Capitalize on what makes your business different in your overall marketing strategies.

2. Restaurant Type

Restaurants come in many styles and formats. From the results of your market research, some restaurant types will be more favorable than others. The following are the general restaurant categories, and yours will fall into one of them: 

1. Fast Food restaurants offer a relaxed atmosphere, a restricted menu selection that allows faster food preparation, and affordable pricing. These businesses mainly rely on their customers to be self-sufficient, reducing the number of service employees hired in a business. Thanks to the lower prices in a fast food restaurant, they aim to serve more customers to bridge the lower prices and generate profits.
2. Fast-casual restaurants are a hybrid of fast food and freshly prepared foods that people can dine quickly. Although they aim to be affordable, fast-casual food is more expensive than fast food. It's a good choice for anyone who is service-oriented. 
3. Cafés create an atmosphere for people to meet up for coffee, a quick bite, or a place to relax after a long day. Most cafes serve breakfast and lunch items like pastries, coffee, muffins, sandwiches, small plates, and appetizers at an affordable price. Service-oriented individuals who like to entertain guests and create an inviting environment will love this kind of business. 
4. Buffets are eateries that offer a modest food selection for a fixed price per plate. Customers get a casual dining experience by selecting from a wide variety of options. 
5. Casual Dining establishments offer their customers comfortable eat-in experiences and relaxing environments. Since customers get full-service, they should expect to spend more money and stay longer in these establishments. They're comfortable, offer quality services, and finger licking foods are the main aspects of a casual dining restaurant.
6. Gastropubs is a blend of a full-service experience restaurant and a high-end bar. They often pair with upscale pub foods, craft beers, and cocktail drinks. Gastropubs has the unique benefit of hosting customers from categories or those who want to eat and drink something afterward. Food prices in gastropubs are cheaper, not because of poor quality but because the alcohol prices make up for them. 
7. Family-style restaurants offer casual, family-friendly dining experiences to everyone, children included. The space serves food on large platters, which encourages sharing. Mostly, they offer full-service accommodations, and guests serve themselves from the platter like they would at home. 
8. Fine Dining restaurants offer a unique, high-end experience where high-quality food and top-grade service are essential for the business to succeed. Customers are aware of the higher prices, so they come to the restaurant with higher expectations. A restaurant owner who wants to offer an extravagant dining experience from start to finish at a higher price should consider this option. 

3. Name Your Restaurant

Your new restaurant needs a name before it's opened. The business name must be easy to read and remember for all potential customers. There are rules about naming a business depending on the state where you establish your restaurant business. 

Customers should know what to expect from your restaurant by reading the name. Regarding food, people prefer to avoid surprises; hence, you should choose a name that properly represents your offerings. Use name search tools to find out if the name you have in mind is available and reserve it. You can also conduct a domain name search to find out if the URL is available or taken. To be sure your business name is fully available, conduct a search using a business name search. 

4. Write a Business Plan

Before starting your new restaurant, you need to write a business plan that captures all the aspects of the upcoming business. A business plan will provide details like the restaurant name, cuisine type served, location, startup costs, and target market. Creating a comprehensive business plan saves you time and resources when you start your new business.

The document also outlines your restaurant's long-term and short-term goals and proof of concept for your business idea. Like a good recipe, every ingredient is added with careful thought, measurement, and precision for the best outcome. Thus, you need to do the same for your business plan.

4a) Elements to include in a business plan

A business plan is a blueprint for profitability and business success. It's a roadmap that guides decision-making while uncovering any blind spots in your plans. The elements of your business plan should be: 

1. Business structure
2. A description of your restaurant's concept
3. Description of your target market
4. Marketing strategy
5. Startup costs and capital (estimations)
6. Hiring of staff and retention plans
7. Financial projections - the profits you foresee the business making shortly.

When preparing a business plan, you must be thorough and accurate in the information you provide, as potential investors will review it. The primary purpose of a business plan is to present it to potential investors or lending institutions for funding. Hence they must be accurate and convincing to woo them or qualify for a loan. 

5. Choose a Business Structure

After choosing the type of restaurant to open, you must choose a legal entity for your business. The structure you choose One of the most impactful steps to opening a restaurant, the legal structure of a restaurant is the foundation on which you will grow your business. The most popular business structures in the US include:

1. Sole proprietorship 
2. Partnership  
3. Limited Liability Company (LLC) 
4. Corporation

An LLC and Corporation (C Corp, S Corp) are legal entities that offer the owners protection and separation of finances. Whatever the business owns (finances, assets) under these two structures has no connection to what the owners own in their personal lives. If a company is in debt, it doesn't blow over to affect the owner's assets or finances.

5a) Incorporate Your Business

Now that you have your new restaurant's business name and structure, you must register it with your state government. Registering your business helps you qualify for tax benefits while protecting your assets from bankruptcy and debt.

5b) What are Ongoing Costs In Your Restaurant?

Building a restaurant business from the ground up to success can be time-consuming. Since most early earnings are reinvested back into the business, the ongoing costs remain constant, while the operating costs will change over time. Hence, you need to keep some extra cash for emergencies when the business might not be self-sufficient and need support. Here's a list of the ongoing costs you must consider when operating a restaurant:

1. Labor costs
2. Food costs
3. Equipment and maintenance
4. Rent and building fees 

6. Get an Employer Identification Number (EIN)

Whatever business structure you choose for your restaurant business (apart from a sole proprietorship), you must get a tax ID or EIN. The number is used by the Internal Revenue Service (IRS) to identify a business taxpayer in this case. 

If you choose to structure your business as a sole proprietorship, you’ll be taxed as an individual and your tax ID is your Social Security Number (SSN). A sole proprietorship is a non-entity, meaning it doesn’t pay taxes. You can apply for EIN on the IRS website and get it in a few minutes. Here are the different places your restaurant’s EIN will be used:

1. Income tax: Your business structure will determine how your income tax is paid and the returns you must file. For instance, an LLC can elect how to be taxed. You can make quarterly estimated tax payments or withhold them for payment at the end of a tax year. 
2. Self-employment tax: Sole proprietors must pay Social Security and Medicare tax using their SSN. 
3. Employment taxes: Any business with employees must pay payroll expenses like Social Security and Medicare taxes for their employees. Employees can pay federal income tax directly, or the employer can withhold and submit it along with unemployment tax.
4. Sales tax: In most states, businesses, including restaurants, must collect sales tax from customers and remit it to state or local governments according to local regulations.

7. Choose a Location for Your Business

The location of your business is important as it determines the success of a business. Let your target market drive you to where you should locate your business. For instance, if you're serving lunch hour meals, it's wise to pick a spot near the largest office buildings. For a fine-dining establishment, being close to a high-income neighborhood, near luxurious designer stores.

If you want to buy a property to set up your restaurant, consider getting a commercial real estate loan to purchase the land or building. Once your restaurant is up and running, you can cover the 

cost of any construction while you pay back the loan.

7a) Create and Design Your Restaurant Space

After choosing where to establish your new restaurant, you need to lease a space to accommodate your potential customers in comfort and style. Getting a space near the City center helps gain high visibility, translating into more customers. However, you must know such busy areas are more expensive. 

If you're starting small with limited funds, you can opt for areas away from the City according to your budget. Your business will still attract more customers if you offer high-quality meals, good customer service, and a well-planned marketing strategy. 

Creating a good ambiance for your customers will also make them comfortable and happy to eat in your restaurant. How do you achieve this? You can create a good ambiance by using high-quality furnishings, strong colors, and suitable decor for the space to attract customers.

8. Get Necessary Business Permits

For every business to operate legally, it must obtain the necessary permits and licenses. Besides, you also need insurance to protect your business finances. Hence, you need to check with your local government in the state where you plan to establish your restaurant to find out the licenses and permits necessary for your restaurant. The most common restaurant licenses include: 

1. Health department permits are essential for anyone serving food, and you can get them from your local health department. You might also need to acquire specific permits for your kind of restaurant. 
2. Use an occupancy permit from your local zoning or building office, even if you’re taking over an existing space. If you have to construct or renovate the restaurant, you must submit more paperwork and additional inspections.
3. Food manager certification from a certified food manager who supervises food handling once your business is open to help prevent foodborne illnesses. In most cities, you must pass an exam to get certified. 
4. A liquor license is a must if your restaurant plans to serve alcohol. You get it from the Alcohol and Tobacco Tax and Trade Bureau. The other liquor license is from your local alcohol beverage control board.
5. Business insurance will help protect your business from various lawsuits like slip-and-fall lawsuits, among other risks. You must also get workers ' compensation coverage if your business has employees. Check with your local government for any other insurance coverage you may need. 
6. A business license is the approval you get from your local government to operate a business in a city or county. Some cities require proof of insurance to get a business license. 

9. Create Your Menu

With all the business requirements in check with your local and state government, it's time to create a menu for your restaurant. Regardless of the cuisines you plan to serve in your international restaurant, include popular local dishes from the location. Even though your restaurant is a local eatery, ensure the menu is dominated by the dishes locals prefer. 

Diversify your menu to include multiple courses, such as starters, main dishes, and desserts. To make more profits, cater to different customer types: you can have a menu for kids, a dairy-free specialty, or a vegan-friendly option for people of that caliber. 

When pricing your menu, consider all expenses related to running the business, the target audience, and desired profit margins. Try to provide numerous portion options at varying prices to accommodate different customer needs.

9a) Hire Your Staff 

With a menu in hand, you need to hire adequate and well-trained staff who can make your dream restaurant come to life. They range from chefs to receptionists to wait staff; if there's alcohol, you need skilled bartenders. 

You can advertise the vacancies in local newspapers and conduct interviews to ensure you select suitable staff for each role. For part-time employees, you can hire college students if full-time employees prove to be expensive for you. 

Once the business is operational, cultivate a work culture that makes everyone feel included. In addition, you should pay your staff adequately and promptly to make them dedicated to the course and for longer retention. 

10. Get Funding

Startups may need more money to fund their business fully. Hence, it's important to get business funding if you need it to get your restaurant business up and running. Here are some factors to consider: 

1. The amount of money you'll be investing
2. How much more you'll need to keep the business running, and 
3. Where to get the additional funds for the business 
4. How to repay the bored amount

Making the right estimates and the funding you need to start your business in advance may be challenging. Here are some variables to consider and help you get it right: 

1. Upfront-specific equipment costs
2. Payroll and employee salaries
3. Marketing or advertising expenses
4. Facilities - rent or commercial lease
5. Inventory and ingredients
6. Utility bills and recurring payments
7. Licenses and administration expenses

It's recommended that entrepreneurs estimate a full year's budget to ensure the business functions throughout the year, whether it's making profits or not. 

10a) Where to Get Business Funding

Most restaurant owners require some form of external funding when starting. Startup costs might be overwhelming, but that doesn't mean your business has to wait because you can get funding. How and where? New business owners have many options when it comes to raising business capital. Some of them include:

1. Financial support from friends and family
2. Venture capitalists
3. Crowdfunding campaign
4. Angel investors
5. Bank loan 

The above methods will help you raise capital to fund your startup business. However, they all have pros and cons, which you should weigh to decide which will work best for you. 

If you accept financial help from numerous investors, you must set up your business as a corporation. By running your business as a corporation, your investors will receive stocks or shares as part of their business ownership. 

If you plan to take out a bank loan, you need to explain in your business plan why you believe your business will be profitable enough to pay back the loan. Before applying for the loan from any institution, consider the terms, payment rates, and payment periods from different institutions, then settle for the most favorable offer. 

11. Open a  Business Bank Account for your Restaurant

You need a dedicated bank account for your restaurant, and should only accept customer payments after fulfilling this step. Separating your personal and business finances ensures you exercise the liability protection offered by forming a legal entity. Here's why opening a business bank account for your business is important: 

1. Accept business payments and send the right message to anyone you're working with, including customers. Sending business money to a personal account sounds alarming, but with a business bank account, you can receive checks and payments under the business name. This relays a message of professionalism and credibility while separating personal and business finances and assessing profits and losses. 
2. Protect personal assets from the business. By mixing the two, you blur the line separating personal and business finances, also known as piercing the corporate veil. Separating business and personal finances lowers the chance of an audit, making tax filing easier. 
3. Establish and build a good credit history for your restaurant. This will be a strong backup for your business, especially when purchasing expensive kitchen equipment or seeking financial support. 

11a) Invest in Accounting software

Once your restaurant is operational, you need software to help track your business expenses and prepare invoices and financial reports. When selecting reliable accounting software for your restaurant, here are some pointers to assist you: 

1. Ensure the software fits your budget.
2. Assess how user-friendly the software is. 
3. The software should include mobile access or cloud storage.
4. Ensure the software integrates well with other essential platforms in the restaurant.
5. Can you add more features to the software as the business grows? 
6. Allow or let your accountant help you make the right choice. 

12. Host a Low Key Opening

Before you create a grand opening buzz, it's wise to host a soft opening to give the entire staff a test run of the restaurant's operations. The soft opening should feature a limited menu and a guest list of preferably friends, family, and business partners. You should have a point-of-sale (POS) system to collect all payments and track your daily revenue. 

Use this event to market your new business by letting attendees share their experiences on various social media platforms. Let them leave personal recommendations and reviews online for other potential customers to read. You can give your guests coupons to share with friends, and you'll start with a great guest list. 

12a) Promote Your Business

Now that your business is up and running, you need to promote it to help drive more traffic to your growing restaurant. Initially, you can distribute flyers offering limited-time discounts or make it a weekly trend for your business. Promote your business online by creating a marketing strategy that's exclusive to your followers. Since we live in the digital era, you can also create a website and share different information about your restaurant, special recipes, and any information relevant to your business. 

Frequently Asked Questions

How will my restaurant business make money?

Restaurants make money by selling more than they spend. However, the profit margins depend on how the business owner keeps track of specific expenses like wages and Cost of Goods Sold (COGS).

How long will it take for my restaurant to be profitable?

The time it takes for your restaurant to become profitable can vary between one and three years. The success of your restaurant business will depend on various factors, such as location, efficiency management, restaurant idea, and market demand.

What is the best business structure for my restaurant business? 

The best business structure for your new restaurant can be a C corporation or LLC. To ensure success, you can start as an LLC and then convert it to a C corporation if you want to get funding to expand your business. 

Form Your LLC with Foundeck Today

Foundeck offers a range of fast and efficient online company formation services, allowing you to register a business structure of your choice quickly from anywhere and keep it compliant. To get started, kindly contact us here.

In Summary

Does culinary arts send a thrill down your spine? Are you excited about learning a new recipe and try it out? Are you passionate about cooking and serving others? If this sounds like you, it's time to learn how to start a restaurant business. The 12 steps above will guide you into opening your new business geared towards growth and success.

 As the restaurant grows, build your client base and leave room for new customers while offering additional services to accommodate more customers. Remember to invest in the style of the art equipment tools, expand your staff, and you can revise your business plan to include the new sections. 

The guarantee to a successful restaurant business is high-quality food and highly responsive customer service. Customers go where they feel appreciated and taken care of. Hence, if you care for the existing customers, you retain them and leave a chance to attract more. 

Another way to run a successful business is to enforce innovative strategies, like providing unique experiences, delivering orders, and sending targeted emails to customers. Compensate your workers as they deserve, make timely payments, treat your customers with high esteem, stick to a budget, and remain compliant with the law, and you'll run a profitable restaurant. Kindly contact one of our Foundeck experts here if you have any questions about how to start a restaurant business.