How to Open a Restaurant in South Dakota

Planning to launch a restaurant in South Dakota? To help you on your journey, we've created a detailed, step-by-step guide on how to successfully open a restaurant in this vast midwestern state.

Navigating local regulations is one of the most important steps in starting your restaurant. Whether you're opening a café, bar, or other food service establishment, it's essential to secure the necessary licenses and permits.

From liquor licenses to food facility health permits and occupancy certificates, each has its own set of rules, sometimes with overlapping requirements. Understanding what's required in your specific city or county is key to ensuring your restaurant opens legally. 

Key takeaways

• Define your unique concept: A strong concept is crucial for your restaurant. Begin by outlining it, as it will influence all aspects of your operations.

• Create a business plan: This should include an executive summary, company overview, industry analysis, marketing plan, business and service model, operating plan, and a financial analysis.

• Get funding: These options include traditional bank loans, alternative lending, small business loans, merchant cash advances, lines of credit, crowdfunding, and financial support from friends or family.

• Choose the best location: Focus on your ideal customer profile (ICP), real estate market, community, size of the space, previous tenants, and zoning.

• Apply for licenses and permits: These include an employer identification number (EIN), business license, certificate of occupancy, food seller’s permit, food handler’s permit, liquor license permits, and a food facility health permit.

• Insurance for South Dakota restaurants: This includes workers compensation, general liability, commercial property, business income, and cyber liability.

• Design your menu items: Include food and drink options that set your own restaurant apart in a competitive market. Set prices that support long-term profitability.

• Hiring and onboarding employees: Network with industry professionals, use social media, connect with culinary schools, and post job openings on industry boards.

• Invest in important technology: Implementing the right technology can streamline your operations and provide valuable insights into your business.

• Create a marketing plan: Word of mouth can be powerful once your restaurant is established, but reaching target customers and turning them into regulars depends on marketing channels like social media and email campaigns.

• Plan your soft launch and grand opening: Hold a soft opening to test your operations. Then, focus on planning and promoting your grand opening.

How to start a restaurant in South Dakota

1. Create a unique concept for your restaurant

What kind of experience are you shooting for at your South Dakota restaurant? Begin by creating a unique concept. To help shape your vision, consider these questions:

• What specific items will I include on my food and drink menu?

• Who are my local competitors, and how can I differentiate myself from them?

• Will I emphasize a full-service dining experience or focus on takeout with limited seating?

• Who is my target audience or ideal customer persona (ICP)?

• Should I start with one location, or should I plan to expand?

• How many staff members will I need, and will the service be casual or more upscale?

• How should the restaurant’s design and layout be structured?

Define your mission and core values to help shape your brand vision

Creating your brand vision is important for the success of your restaurant. Begin by defining your mission and core values, as these will influence everything you do, from hiring practices to marketing strategies. After establishing these elements, you can design a unique name and logo that embody your brand’s personality.

2. Develop a business plan for your restaurant

A restaurant business plan serves as the roadmap for transforming your South Dakota restaurant dream into a reality.

Begin by selecting the appropriate legal structure, such as an LLC, sole proprietorship, partnership, S corporation, or C corporation. For a more detailed exploration of these options, including their advantages and disadvantages, refer to our guide on restaurant business entities.

Ownership models can range from a single-owner operation with staff to more intricate arrangements involving investors or co-owners, where employees may also have equity. Many restaurants adopt a mix of these structures, with owners and partners managing the operations while employees share in the profits.

Next, determine your management style and how profits will be distributed within the restaurant. It's advisable to consult a South Dakota-based attorney and accountant to ensure your legal and financial foundation is robust.

Your business plan should contain these sections:

• Executive Summary: The name of your restaurant and its unique concept

• Company Overview: Business model and organizational structure

• Industry Analysis: Target market, location, and competitors

• Marketing Strategy

• Business Model: Type of restaurant (quick service, fine dining, etc.)

• Operations Plan: Staffing, service procedures, payroll, POS systems, and suppliers

• Financial Plan: Startup costs, financial projections, cash flow, and food cost estimates

3. Obtain funding for your restaurant

Launching a restaurant requires a large financial commitment, with costs ranging from $95,000 to $2 million. In South Dakota, you have several funding options to explore:

• Traditional bank loans

• Alternative lenders

• Small Business Administration (SBA) loans

• Merchant cash advances

• Lines of credit

• Crowdfunding

• Assistance from friends or family

Each funding option has its own criteria, loan amounts, collateral requirements, repayment terms, and processing timelines.

Bank loans generally provide fixed rates and extended repayment periods, while SBA loans are preferred for their lower interest rates and flexible terms, although the application process can be more tricky. Merchant cash advances may be a good fit for those with lower credit scores but often come with higher costs. Crowdfunding enables you to raise funds from the public, often in exchange for future products or services.

For further information on these funding options, refer to our guide on restaurant financing and loans.

4. Choosing the Ideal Location for Your Restaurant

Selecting the perfect location for your South Dakota restaurant is crucial to its success. Consider local demographics, market trends, competition, and factors such as the size, visibility, and history of the space.

You'll also need to determine whether to purchase, lease, or construct your restaurant, as this decision will have a significant impact on your startup costs. Each option presents its advantages and disadvantages, with building or renovating often requiring additional permits and adherence to regulations.

When evaluating a location, consider these factors:

• Ideal customer profile (ICP)

• Current conditions in the real estate market

• Neighborhood and community atmosphere

• Size and layout of the space

• History of previous tenants

• Zoning laws and past property usage

Make sure that the size and layout match your restaurant's concept. For example, a small, cozy space may work for a cafe in Rapid City, while a larger venue would be better suited for a sports bar catering to large amounts of fans in Sioux Falls.

5. Secure the required restaurant licenses and permits in South Dakota

Like in other states, South Dakota has particular requirements for the licenses and permits necessary to open a restaurant. Some licenses are regulated at the state level, while others are overseen by local authorities (such as city or municipal offices), with fees varying depending on the type of license and the year.

In South Dakota, the licenses and processes you'll need to open a restaurant may include:

1. Employer Identification Number (EIN), which connects your business to the IRS. The restaurant license application can be found on the IRS website, including all instructions and restrictions.

2. Business License, which is issued by the state of South Dakota. You can register for and manage your annual license on the South Dakota Secretary of State website.

3. A Certificate of Occupancy is provided by your city or county, if required, to confirm that your restaurant complies with commercial building codes and local regulations.

4. A Food Seller’s Permit, also called a retail food establishment license, is essential for any business selling taxable goods. This permit enables you to collect sales tax on food sales and must follow the guidelines of the South Dakota Food Code.

5. A Food Handler’s Permit, also known as Food License or Food Handler Card, is not required state-wide for every employee — but every establishment needs to have at least one trained Food Safety manager. This license shows employees or managers have taken a course teaching them the proper food handling protocols on how to prevent foodborne illness. This can be accessed on the Food Service Manager Training website.

6. Liquor License Permits are required for any type of business to sell and serve alcoholic beverages to its patrons. Since alcohol has a high markup and a long shelf life, it’s often beneficial from a profit standpoint to sell alcohol. A liquor license can be acquired through the South Dakota Department of Revenue website, and typically costs between $100 - $250.

7. Food Facility Health Permits in South Dakota are managed by city and county health departments. To guide you through the application process, contact your local public health department or the South Dakota state department of health. Ensure you obtain all necessary health permits before opening your restaurant and consistently adhere to safe food sanitation, handling, storage, and preparation practices in your day-to-day operations.

Get additional information about the types of permits, license fees, and license costs in South Dakota at SD.Gov.

6. Essential insurance types for South Dakota restaurants

Consider these insurance options for your South Dakota restaurant:

• Worker’s Compensation Insurance: Required by law in South Dakota, this insurance covers medical expenses and lost wages if an employee is injured or becomes ill while working.

• General Liability Insurance: Although not mandatory, it's strongly recommended as it protects your business from lawsuits related to customer injuries or property damage.

• Commercial Property Insurance: This optional coverage helps with repair costs for damage to your restaurant or equipment, making it a wise investment.

• Business Income Insurance: While not required, this insurance can help replace lost income if your restaurant is impacted by events like fires, theft, or natural disasters.

• Cyber Liability Insurance: Provides protection against data breaches, particularly important if you handle sensitive customer information. Though not mandatory, it’s a valuable safeguard.

7. Develop your menu and beverage selections

Design your menu, whether you're working with a chef-owner, a general manager, or handling it yourself. Be ready to refine your food and beverage selections in collaboration with your kitchen and bar teams once they are hired and trained.

Concentrate on crafting unique dishes and drinks that will distinguish your restaurant in a competitive market like Sioux Falls, the largest city in South Dakota. Strategically price your menu items to ensure sustainable profitability.

Leverage menu design and engineering techniques to boost the appeal and performance of your offerings, positioning your restaurant as a local favorite.

8. Hire and onboard your restaurant staff

When hiring staff for your South Dakota restaurant, make sure that you comply with local labor laws and regulations.

Your employees are vital to your restaurant’s success. From front-of-house staff enhancing the customer experience to kitchen staff preparing meals and support roles ensuring smooth operations, every team member plays a key role.

To build a strong team, leverage industry contacts, use social media, engage with local culinary schools, and check job boards to find the right candidates.

To attract and retain top talent, create a positive work environment. Offering competitive wages and benefits, like health insurance, can set your restaurant apart.

For more information, check out these Toast resources:

• How to Recruit Your Next Star Employee

• How to Onboard a New Restaurant Employee

• How to Train New Restaurant Employees

• How to Reduce Restaurant Employee Turnover

Also, explore our video course on hiring and retaining restaurant staff for additional guidance.

9. Invest in key equipment and technology

As you prepare for opening day, it's essential to invest in the right technologies to ensure your restaurant runs smoothly from the start.

For restaurants in South Dakota, consider investing in:

• Cloud-based POS systems with mobile features

• Kitchen display systems

• Online ordering platforms

• Reporting and analytics tools

• Inventory management software

• Accounting solutions

• Employee scheduling and communication tools

• Payroll management systems

• Customer loyalty programs

• Contactless payment options

Implementing the right tech solutions can streamline your operations, provide valuable insights, and enhance overall efficiency in your dining area, ultimately supporting revenue growth and long-term success for your South Dakota restaurant.

10. Develop a restaurant marketing plan

A successful marketing strategy is crucial for your South Dakota restaurant to build brand awareness. While word of mouth plays a significant role, it’s important to initially prioritize marketing channels like social media and email campaigns to connect with your target audience and develop a loyal customer base.

Utilize local festivals and events in South Dakota to promote your restaurant. Here are some notable ones to consider:

• Sturgis Motorcycle Rally

• South Dakota State Fair

• West Boulevard Summer Festival

11. Organize your soft launch and grand opening events

When your restaurant is ready to open, start with a soft launch. Invite family and friends, and have your staff help spread the word. This allows you to fine-tune your operations and address any issues before the official launch.

Next, shift your focus to planning and promoting your grand opening. Use social media to generate excitement, distribute flyers in the community, and leverage your network to increase attendance on the big day.

You’re all set!

Opening a restaurant is a challenging yet fulfilling adventure. To ensure you stay on top of crucial tasks and milestones during your first year, refer to our detailed, time-bound restaurant opening checklist outlined below.