Thinking about opening a restaurant?
At the start of 2020, The National Restaurant Association projected there were over 1 million restaurant businesses in the United States employing roughly 15.6 million individuals with projected sales for the year at $899 billion. As the COVID-19 pandemic has raged on, it's estimated that upwards of 100,000 restaurants have closed their doors for good.
That’s why now, more than ever, new restaurant owners need to carefully consider all of the variables it takes to successfully open a restaurant.
The restaurant industry is a vibrant, creative, fast-paced place to work and build a business. It's also very difficult to make money in the restaurant industry, and competition is fierce. According to exclusive data from Toast, the average monthly revenue for a new restaurant that’s less than 12 months old is $111,860.70. The average profit margin for a restaurant is typically between 3-5 percent.
To help you get started, we put together a comprehensive step-by-step guide on how to open a restaurant, including:
- a customizable restaurant business plan template to map out your vision
- how to secure restaurant financing and capital to make your vision a reality
- the licenses and permits you'll need to secure to operate a restaurant business
- tips on how to do restaurant marketing, and,
- additional insights to help make your new restaurant venture a success.
Let's get into it: Here's how to open a restaurant.
Restaurant Opening Calculator
This calculator lays out some of the fundamental financial costs of opening a restaurant, so you can start planning and bring your dream restaurant to life.
1. Decide on a Restaurant Idea
Diners have endless choices when deciding where to eat. As we covered earlier, there are nearly 1 million restaurant businesses in the United States, and that's not counting virtual concepts or ghost kitchens. Choosing a concept that's unique in your market and intrigues diners in your area is imperative to standing out from the fold and getting butts in seats.
Do you want to be known for using ingredients sourced from local farms? Do you want to be known for letting guests build their own pizzas? Do you want to be known for having the best seafood in town? Whatever your dream is, put pen to paper and write down everything you want to be known for.
While you're at it, spend some time crafting your restaurant's mission and core values to fully encapsulate who you are and what you stand for as a restaurant brand. Next, you will need to develop a unique restaurant logo and craft an aesthetic for your space, your marketing materials, your takeout containers, and any other elements involved in the dining experience. Laying this ground work will help you substantially as you make larger business decisions, like your menu.
A good way to test whether your restaurant idea will stick is to do a dry run as a pop-up restaurant or food truck. This way, you can have a solid proof of concept, build a repeat-customer base, and hammer home to investors that your idea is a profitable one worth getting behind.
As you develop your restaurant business plan, you'll need to put together a detailed outline of your intended concept or restaurant idea. This is also known as your restaurant vision. Which brings us to step number two...
2. Create a Restaurant Business Plan
Without a detailed, well-constructed business plan, you won’t be able to bring your dream restaurant to life. Your business plan is a blueprint that outlines your entire vision for your new venture. It explains in detail how the new business will take shape and operate once the doors are open.
You'll use your restaurant business plan to guide you and your team in the beginning stages and to get funding from potential investors to obtain restaurant capital.
Here are some of the key elements of an effective restaurant business plan:
- Executive summary, including your restaurant name
- Company overview, including your business model
- Industry analysis (target market, location analysis, competitive analysis)
- Marketing plan
- Business model
- Operations plan (staffing, customer service policies and procedures, restaurant point of sale, payroll)
- Financial analysis and business model (investment plan, projected profit and loss statement, break-even analysis, expected cash flow)
If this is your first time crafting a restaurant business plan that accurately conveys your vision, mission, and goals to investors, its worth soliciting help from a trusted advisor or restaurant mentor to ensure you're putting your best foot forward.
Restaurant Business Plan Template
No matter where you’re at in your restaurant ownership journey, a business plan will be your north star. Organize your vision and ensure that nothing is overlooked with this free template.
3. Secure Restaurant Capital
We’re going to be honest right off the bat: Opening a restaurant isn't cheap. Check out our guide on how much it costs to open a restaurant to get a better idea of the specific restaurant expenses you can expect to encounter.
Whether you're franchising, partnering, or going solo, opening a restaurant requires a hefty chunk of capital. For those new restaurateurs opening a restaurant with no money of their own, fortunately, you have several options for restaurant business loans. Here are a few of them:
- Equipment and Technology Loans. Negotiate with your bank or provider a way to procure loans for kitchen equipment and restaurant technology, which can be one of the most expensive costs. Many point of sale providers, like Toast, offer 0% financing to offset the initial cost of the technology.
- Working Capital Loans. Working capital loans help cover operating costs while your restaurant has more expenses than income. Ideally, budget six to twelve months of operating costs until you reach break-even point.
- Lines of Credit. If you’re approved for a business line of credit, you’ll get a maximum credit amount but will only have to pay what you use. Like a credit card, the line of credit constantly revolves. As you pay your balance, you’ll have more credit to draw on for future expenses.
Other types of restaurant business loans include small business association loans, term loans, merchant cash advances, and equity.
When searching for restaurant capital, look to lenders like commercial banks, credit unions, and even your point of sale and payment processing partners.
Whether your goal is to open a new location, invest in new restaurant equipment, or just manage cash flow over the next few months, you're going to need a reliable source of funding to make your dreams a reality.
4. Choose a Restaurant Location
Choosing the right location for your restaurant is critical. You’ll need to do research on the demographics, market, and competition in your location, as well as on the actual restaurant space and its size, visibility, and history. You could also opt to go location-free by becoming a ghost kitchen.
If you choose to have a physical location for your restaurant, you can either buy or lease restaurant space, or you can build your restaurant from the ground up. Here’s some additional criteria to focus on when evaluating a restaurant location to decide if it's right for you:
- Target market and ideal customer profile
- Market conditions
- Size of the site
- Previous tenants
Naturally, the location of your restaurant and layout of the space should bring your restaurant idea to life. If you want to open an elegant steakhouse, you might need your own dedicated building. If you want to serve sandwiches or tacos to beach-goers, maybe a food truck will do.
It's important to keep in mind that your location and available square footage will also play a huge role in your kitchen design and restaurant floor plan. If you envision creating a high-volume fast-casual Italian concept with an exposed kitchen, for example, you will need a larger footprint and the ability to knock down walls and install proper ventilation. Some landlords may not let you have this leniency.
5. Apply for Restaurant Licenses and Permits
Acquiring all of the necessary licenses and permits to open a restaurant involves paperwork and patience.
Depending on your concept and the city or state where you open your restaurant, the necessary licenses and permits you’ll need — and the costs to acquire them — will be different. Some licenses are required for every restaurant (i.e. business licenses), while others depend on your restaurant concept (i.e. liquor licenses).
Here are some other licenses and permits you’ll most likely need:
- Employee identification number
- Certificate of occupancy
- Sign permit
- Food service license
Licenses take time and money to acquire. If you're serious about opening a restaurant, get a jump start on procuring them early on in the process.
7. Hire Top-Notch Restaurant Staff
Your employees are true extensions of your restaurant and its brand, making them one of the most important aspects in your restaurant’s success. From the servers to the chefs, there are dozens of restaurant positions you can hire for.
You have a few options for acquiring new restaurant employees, including referrals, job boards, and career sites. According to the Bureau of Labor Statistics, the employee turnover rate for restaurants prior to COVID-19 was 73%. As a result of the pandemic, many restaurant staff were laid-off or furloughed, and many restaurants have found that when they were in a position to bring staff back on, their former employees wouldn't bite. That's because for many, working in a restaurant isn't a gainful employment opportunity. In order to attract and retain staff, you need to make your restaurant a great place to work. Here are some resources from Toast to help you attract, hire, and retain restaurant employees:
- How to Be a Boss at Restaurant Recruiting
- How to Write Restaurant Job Descriptions Around Values
- How to Ask Great Restaurant Industry Interview Questions
- The Elements of a Restaurant Employment Agreement
- How to Onboard a New Restaurant Employee
- How to Train New Restaurant Employees
- How to Reduce Restaurant Employee Turnover
For access to free job posting templates, interview questionnaires, and offer letter templates, complete the Hiring the Modern Restaurant Workforce Course.
8. Invest in Equipment and Restaurant Technology
Jotting down customers’ orders using a pen and paper will get old — and inefficient — really fast.
Restaurant guests are expecting technology in their dining experience, and according to Toast’s Restaurant Technology Report, 95% of restaurateurs agree that technology improves business efficiency.
As we've learned from the pandemic, restaurant guests don't always want to – and won't always be able to – eat at your restaurant. That's why you need to invest in restaurant equipment and technology that facilitates an off-premise dining experience thats equally as enjoyable as your in-house dining experience. New restaurants should strongly consider investing in the following:
- A cloud-based restaurant point of sale system
- Kitchen display screens
- An online-ordering system for restaurants
- Restaurant reporting and analytics
- Restaurant inventory management software
- Restaurant accounting software
- A restaurant payroll solution
- A restaurant loyalty or rewards solution
- Contactless payment options and order-and-pay at the table technology that makes guests feel comfortable
With this restaurant technology powering your business, your ability to grow revenue and establish yourself as a successful restaurant brand will be much easier.
Learn how a better point of sale system can help you run your restaurant.
9. Create a Restaurant Marketing Plan
Opening a restaurant requires a detailed restaurant marketing plan and budget that entices and engages your target customers. Everything from opening day incentives and weekly specials to your restaurant’s social media and email marketing plans should be covered in your restaurant marketing plan.
A restaurant marketing plans out your marketing activities on a daily and weekly basis across all available channels, including social media, radio, print advertising, and more.
There’s no such thing as one-size-fits-all when it comes to marketing a restaurant. Your marketing plan should prioritize the channels where you have the greatest likelihood of engaging with your target or ideal customer. Download our customizable restaurant marketing plan below to get started.
First thing on your restaurant marketing plan? Promotion of your new restaurant's soft and grand openings.
Restaurant Marketing Plan
Create a marketing plan that'll entice and engage the customers you want with this customizable marketing plan template and interactive calendar from Toast.
10. Host a Soft-Opening and Grand-Opening
Once your space and menu are ready to unveil to the public, you're going to want to host both a soft opening and grand opening to introduce your restaurant to the world.
A soft-opening is a casual first night for new restaurants where friends of the business – friends and family of the owner, friends and family of the staff, neighbors to the business, representatives from your distributors and vendors – are invited in for your "unofficial" first shift. A soft-opening is where new restaurants go through meal service live for the first time and work out any big kinks in the process. It's the first time, outside of training, that restaurant staff will work together as though it were a real shift, so be prepared to give feedback and make adjustments in the moment. Restaurants typically invite friends and family to a soft opening because they tend to be more forgiving when mistakes happen and understand you're still learning what works.
You do not market your restaurant's soft-opening to the public; it's traditionally a closed guest list. You do market your restaurant's grand opening to the public in order to build momentum and excitement around your brand.
A restaurant grand-opening marks your official opening to the public, the first shift – either breakfast, lunch, or dinner – where members of your community can come in for a bite or a drink. It is completely normal for there to still be kinks to work out or mistakes that happen on the fly. Very rarely does a restaurant work out all of their problem areas during a soft-opening. In this business, it's incredibly rare for a shift to go off without a hitch.
Make sure to take pictures of the event for social media (and for memories sake). Don't forget to save and frame your first dollar!
Opening a restaurant is exciting, and for many, their lifetime dream come true. As you get into the day to day of running a restaurant, be sure to monitor your performance with a profit and loss statement, solicit guest feedback, and find opportunities mid-shift to stand back and take it all it. You're now officially part of the most exciting industry there is to work in. Cheers.