Opening a Restaurant: Startup Costs and Best Practices

Starting a restaurant doesn’t always require culinary expertise. In fact, if you have business sense, a well-researched business plan and a skilled staff,  you may have the potential to develop a successful restaurant concept and become a consistent feature in your community as a local restaurateur. Read more about the benefits of opening a restaurant, costs associated with it, deciding on a concept and more information on starting your restaurant business.

 

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Benefits of opening a restaurant

Owning a restaurant is an exciting and flexible career path for people with business sense, adaptability and strong problem-solving skills. When you own a restaurant, you curate an environment for your community and build lasting relationships with your customers. Express your creativity and passion through your menu, design and decor. Running a restaurant takes a high level of commitment and dedication, and can also be lucrative when the business is fully mature.

 

Costs of opening a restaurant

The average startup costs of opening a restaurant range from $275,000 if you’re renting your restaurant space to $425,000 if you want to own the building yourself. Some people spend millions of dollars acquiring prime real estate and renovating with state-of-the-art equipment, while others find smaller, previously owned restaurant spaces with used supplies to save money on their initial development costs. Here is a breakdown of the major costs of opening a restaurant and how you should allocate your startup budget:

 

Down payment or lease deposit

One of the biggest expenses for your business is the down payment you pay when purchasing real estate. Even if you are renting your restaurant space, make sure to budget for a deposit to secure your lease.

 

Permits and licenses

Business and health permits can cost a couple of hundred dollars each. While this is one of the smaller expenses of starting a restaurant, they can add up if you are not expecting them.

 

Remodeling

Upgrading your building with new decor allows you to cultivate an environment where customers will want to spend time and money. Remodeling can include installing new lighting fixtures, repainting walls, adding windows and updating the floor plan.

 

Equipment and furniture

Outfitting your kitchen with ovens, stoves, vent hoods and industrial freezers is a significant startup cost. Dining room furniture, silverware, glassware and incidentals like tablecloths and napkins are essential for a complete dining experience.

 

Software

Modern restaurants commonly use point of sale software known as POS systems, which handle customer orders and payments. They are an essential part of the workflow and store sensitive customer information, and can cost in the range of tens of thousands of dollars.

 

Branding and signage

Your design suite includes the restaurant logo, menus and signs. Having an eye-catching main sign allows you to attract customers and develop your street presence.

 

Onboarding and training

Before you open, you’ll need to hire and train your initial staff members. Account for the cost of wages, benefits and uniforms.

 

Deciding on a concept

Before opening your restaurant, you need to have a clear vision of its style and ambiance. The restaurant concept you choose should be informed by your personal interests and market research that indicates the local demand. Factors that impact your overall concept include the price range, the type of food you serve, how customers order and the interior design.

Begin developing your concept by choosing the way your staff will interact with customers. Popular service styles for restaurants include:

  • Fast food: Fast food restaurants commonly have walk-up windows or drive-thrus where customers can place an order and receive their food in a short period of time. Fast-food style restaurants usually have a simple menu that features several staple ingredients to allow for efficient preparation methods.
  • Counter service: Also known as fast casual, restaurants that use the counter service style have customers walk up to a register, place their order, take a number and then sit down in the dining room. Counter service restaurants usually do not have servers attending to tables.
  • Casual dining: Sit-down restaurants with a casual setting are popular dining options. Casual dining involves table service and affordable entrees.
  • Family style: At family-style restaurants, most of the dishes are designed for sharing between several people and are served on platters. Each dish may have a higher cost than the single-servings at casual dining establishments, but each portion includes multiple servings.
  • Buffet: Restaurant staff prepare large pans of food and display them under heat lamps for customers to serve themselves at buffet or cafeteria-style restaurants.
  • Tabletop cooking: Mongolian barbecue, Korean barbeque, hot pot and teppanyaki are all examples of restaurant concepts where the food is cooked tableside, either by a chef or by the customers themselves.
  • Upscale: Fine, upscale dining is characterized by higher meal prices, attentive service and high-quality ingredients.

The style of restaurant you choose can have an impact on your menu. For example, if you wanted to feature a Mediterranean menu, a fast-casual style restaurant could feature build-your-own gyros and wraps. An upscale Mediterranean restaurant, on the other hand, would involve a luxurious interpretation of traditional and modern dishes, served in an artistic presentation. You can make your restaurant unique by carving out a niche within your style of restaurant or emphasizing a theme through your menu and decor.

 

How to develop a restaurant business plan

Restaurants can be volatile businesses, especially because of their high operating costs and dependency on a consistent stream of customers each day. This makes having a well-researched business plan and pricing model especially important. Your business plan can help you secure outside funding and prepare to operate while you build a customer base. Use these steps as a guide to help you develop a sustainable business model for your restaurant that will allow you to overcome the challenging beginning years:

 

1. Know your recurring costs

Beyond the startup costs of opening a restaurant, you are also responsible for keeping up with recurring expenses, which can include::

  • Loan repayment
  • Rent or mortgage payments
  • Salaries and benefits
  • Food and beverage orders
  • Utilities
  • Insurance
  • Maintenance

Once you have projections of how much you will spend each month, you can determine the minimum amount of income needed to cover all essential expenses.

 

2. Plan for contingency funding

Fledgling restaurants should not expect to make a profit for the first several months or even years of operation, so you should incorporate a contingency fund into your budget and business plan. The contingency fund exists to cover cash deficits and unforeseen expenses in the gap between business launch and profitability.

 

3. Study the market

Do your market research by studying your competitors and assessing the success of their business models. Analyze both successful and unsuccessful businesses within your niche to learn from their behavior. Form focus groups and research the opinions and buying behaviors of your target market to choose an attractive price point for your menu items and recognize ways to differentiate your business from competitors.

 

4. Test different price points

Calculate the volume of food and beverage sales your restaurant would need to generate each month to hit your profit goals using a range of price points. This can help you find a balance between your own financial goals and reasonable sales metrics for your area. Some restaurants thrive by selling high volumes of low-cost food at an affordable price, while others charge premium prices and cater to a smaller audience that is willing to pay expensive prices.

 

Getting your restaurant licensed and certified

Opening a restaurant requires you to register your business and receive appropriate certification. Because restaurants serve food, they have an obligation to meet public safety standards and undergo regular inspections from the health department. Each state has its own required permits, licenses and certifications that restaurant owners need to apply for to legally operate. Depending on where you are opening your restaurant, you may need to apply for:

  • Business license
  • Tax identification number
  • Food handler’s permit
  • Sign and advertising permit
  • Liquor license

To achieve certification, collect the necessary paperwork from your local tax office, health inspector, food and beverage commission and city hall. After filing and paying all of the fees, keep copies of your permits prominently displayed so that diners know you meet all regulatory heath and business standards. Consider hiring a lawyer to help you make sure that your business is compliant with local and national laws.

 

How to hire a restaurant staff

Your service team is a critical component of your restaurant’s success, making the hiring process especially important during your restaurant’s launch. The restaurant industry has a mix of seasoned professionals who have built careers in food service and people looking for temporary jobs or a source of side income. Follow these steps to create a strong staff that suits your needs in the beginning stages of your new restaurant:

 

1. Gain experience in food service

Employees who work in the food service industry are often part of a tight-knit community with its own set of norms and expectations. Spending time working in a food service position yourself can help you pick up on the nuances of what makes restaurant staff efficient and effective as a team. Gaining hands-on experience also connects you with industry contacts who can help you find skilled employees to fill key positions.

 

2. List your essential roles

Determine what kind of jobs you need filled at your restaurant. Most roles at a restaurant are classified as either “front of house” or “back of house.” Front of house employees include the people who primarily interact with customers, such as hosts, servers, bartenders and food runners. Back of the house employees, like executive chefs, line cooks and dishwashers, prepare food and keep operations running smoothly. You can also consider hiring general managers, bookkeepers, marketing specialists, social media managers and other managerial staff to promote your business.

Related: How to Write a Chef Job Description Sample

 

3. Post a help wanted sign

Start attracting applicants by placing a help wanted sign in your storefront as you prepare to launch. It is common practice in the food service industry for entry-level candidates for serving and cooking positions to walk into an establishment, fill out an application and be interviewed on the spot. Posting on social media and job boards can help you find upper-level management and other employees with specialized skills.

Related:  5 Chef Interview Questions and Answers

 

4. Ask about their background

Before committing to hiring employees, perform a background check and a reference check to make sure they are reliable and trustworthy. Restaurant employees regularly handle cash and accept important shipments, and a thorough background check can give you peace of mind when delegating important tasks.

Related: 5 Waiter Interview Questions and Answers

 

5. Coordinate schedules

Make sure each shift at the restaurant is fully-staffed to capture as many customers as possible. When hiring employees, ask about their availability and preferred shifts. Create a mock schedule and make notes of which shifts require additional support, then edit job postings to include that availability as a requirement.

 

Tips to optimize workflow at your restaurant

The weeks leading up to your restaurant’s grand opening should involve rigorous training for your new staff to help the first full service go smoothly. Use these tips to make your staff more efficient and improve workflow to provide the best possible service to customers:

 

Create a company handbook

Develop a list of company policies and put them in writing in a company handbook. Having a centralized place that explains each role and its responsibilities creates consistency across your staff and gives them a point of reference to improve.

 

Quiz staff on the menu

Servers and chefs alike need to know all the details of your menu to make recommendations to customers and deliver consistent meals. Create flashcards or a study guide that employees can use to learn the menu, then quiz them to make sure they can answer customer questions about each dish.

 

Practice with a soft open

A soft open is inviting customers to dine at the restaurant with a limited menu and limited hours. This allows your staff to work out unexpected kinks with a smaller volume of customers. Pay attention to the main issues that occur during the soft open and meet with your entire team to brainstorm solutions.

 

Spend time on the floor

Owning a restaurant requires you to handle complex management issues, but you also need to spend time on the floor to understand the main issues and successes. Observe your staff and make note of areas for improvement so you can offer training and support.

 

Methods for marketing your restaurant

Advertising your new restaurant and making sure that members of your community know that it is open is paramount to your overall success. Here are a few of the strategies you can use to market your restaurant and generate interest that leads to paying customers:

 

Celebrate the grand opening

Host a grand opening celebration with fun features like live music or giveaways to generate excitement about the new dining option in the community. Pass out flyers in the neighborhood inviting community members to celebrate, or post prominent signs to interest people driving or walking by.

 

Build your web presence

Well before you open, invest in an accessible and visually attractive website. Your site should have your location, information about reservations, a menu and a contact form for potential diners to reach out with questions. Another way to build your web presence is to document the process of opening the restaurant on a designated social media page. To increase your restaurant’s visibility on search engines, claim your phone number, address and name on a Google listing and create a Yelp page where patrons can leave reviews.

 

Offer promotional discounts

Deals, discounts and coupons are an effective way to drive new and returning customers to your restaurant. A customer may come in for a one-time discount, then become a regular after having a positive experience. Posting coupons in local publications can spread the word about your restaurant while offering an incentive to visit.

 

Frequently asked questions about opening a restaurant

 

How much money do you need to start a small restaurant?

Some small restaurants can start operating on a shoestring budget of just over $10,000, but a more reasonable figure for a small restaurant is in the $50,000 to $100,000 range.

 

How much does a restaurant owner make per month?

Some restaurant owners do not take a salary in the beginning stages of their business, and when they do get paid it depends on the restaurant’s financial success. On average, restaurant owners make a salary of about $5,000 monthly.

 

How much does restaurant equipment cost?

Restaurant equipment costs an average of about $115,000 for the kitchen and bar combined.

 

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