The inspiration to open a restaurant usually arises after a poor dining experience, when you notice unprofessional service or were served a lousy meal that you think can easily be perfected in your kitchen. If you are passionate about food and want to open a restaurant, hold that thought.
Starting a restaurant is a lot more than food. As opposed to undermining your enthusiasm, we mean to emphasize that if you want to build a profitable and successful restaurant business, you will need to invest significant capital and time.
Here are some figures to assist you in understanding what it typically costs to open a restaurant:
- Depending on the type of restaurant, the decor, the required permits and licenses, the equipment, etc., the average cost to open a restaurant can vary from $170,000 to $750,000.
- A food truck startup can cost from $75,000 to $250,000.
- Starting a ghost kitchen can cost as little as $5,000 and as much as $50,000 on average.
- Setting up a home-based catering company can cost from $10,000 to $50,000.
This article will cover things to consider when opening a restaurant, factors to keep in mind when developing a restaurant business plan, and working capital restaurant funding options.
Things to Consider When Starting a Restaurant
When you decide to start a restaurant business, you need to consider questions such as the type of food business you want to start, where you intend to establish the restaurant, what your restaurant’s aesthetic will be, the furnishings you require, how you will design your restaurant, the kind of kitchen equipment you’ll need, the food and cuisine(s) you will serve, the number of employees you will hire, and how you will market your restaurant. More importantly, how much capital will you need to open and operate your restaurant business?
There are a few important steps to opening a restaurant, as discussed below.
Restaurant Business Plan
If you are serious about opening a restaurant, the first step is to create a comprehensive restaurant business plan. This can help you have a thorough understanding of your restaurant’s operations, from the food offered and what sets it apart from other establishments to the most crucial factor—finances. Apart from developing a roadmap for your business, a restaurant business plan will help you secure working capital funding from banking institutions and alternative lenders.
Not sure how to start a restaurant business plan? These are a few sections to consider while writing a restaurant business plan:
- Executive Summary: Your business plan is summarized in this section. Your brand, your restaurant concept, the reasons your business will succeed, your operating strategy, investment, and the expected return on investment should all be properly outlined in the executive summary.
- Company Analysis: This section will include the legal structure of your restaurant business, the location, whether it is a leased or owned property, the type of restaurant, operating hours, sample menu, floor plans, management team, etc.
- Industry Analysis: This will include a detailed analysis of industry trends, customer spending habits, and brief analysis of competitors.
- Customer Analysis: This section will contain the kind of customers you intend to serve, and how you have determined that this is the ideal target market for your business.
- Competitor Analysis: In this section, you will talk in detail about the competitor restaurant businesses in your area, their pricing, the menu they offer, and their strengths and weaknesses.
- Marketing Strategy: This section will include how you intend to attract customers, what offline and online channels you will use for marketing, and the kind of programs you will use to retain customers.
- Management Team: This section will include the key players of your restaurant business, the industry knowledge, and the experience they possess. This section also comprises the number of staff you have, and why they are critical for your business. Additionally, you can mention the technology (payroll, inventory management, POS system) used by your business.
- Operations Plan: In this section, you will describe in detail your day-to-day restaurant operations and your short-term and long-term goals.
- Financial Plan: The most important section of a business plan is the financial projections section. Apart from a detailed projection of your start-up costs and industry and revenue forecasts, your financial plan will include an income statement, balance sheet, and cash flow statement. If you’re looking for financial assistance for your business, you can add a funding request in your financial plan section.
Choose the Right Funding Option
Starting a restaurant business is a dream for many entrepreneurs, food connoisseurs, and chefs. But if you don’t have the working capital to pay for the restaurant’s operational costs, this dream can quickly turn into a nightmare. Especially as a new venture, a restaurant’s initial few weeks or months may be very slow. To stay afloat in the market at this period, restaurants must have working capital. There are numerous reasons for restaurant funding, such as expanding the business, renovation, payroll expenses, equipment purchases, debt consolidation, inventory purchases, etc. Make sure to choose the best financing option from those discussed below before taking the first step towards establishing your restaurant business.
Conventional Banking Financing Options
The most sought-after source of funding for restaurants is traditional financial institutions. They offer long-term financing with interest rates ranging from 5% to 10% and repayment terms of up to 25 years. While this attracts restaurateurs, the likelihood of obtaining money from banks is quite slim given their strict credit score eligibility and collateral requirements.
SBA Financing Options
SBA Financing offers some of the lowest interest rates and extended repayment terms, making it ideal for restaurant businesses. These funds may be utilized for inventory acquisitions, equipment purchases, and hotel renovations. But to qualify for SBA funding, you must adhere to tight qualifications requirements, including having a high credit score, providing residential or commercial property as collateral, and paying 10% to 30% of the amount borrowed as a down payment. Receiving SBA restaurant finance can be very challenging for startup restaurants due to its eligibility requirements.
Alternative Financing Options
Alternative financing options are flexible working capital financing options that can be utilized in various areas of your restaurant business. This working capital investment can assist you in managing operational costs, settling debts, expanding or renovating your restaurant, purchasing inventory and equipment, and even maintaining cash flow in the event of unforeseen expenses. Alternative financing options, in contrast to banking institutions, are unconcerned with your credit history or collateral. If you have a great restaurant business model and a solid financial statement, these lenders will finance up to $10,000,000.
Choose the Right Location
Location is one of the most important aspects of a restaurant. If you choose a remote location that is not accessible to your target market, it can shut your business down. Be sure to choose the right location that can attract the right customers.
Your restaurant’s expenses will vary considerably depending on its size, location, and property value. Due to the high costs involved in buying property, most physical restaurant owners choose to lease instead. Leasing property will require a security deposit and monthly rent.
While food trucks are normally owned entirely, some of these businesses will rent a small area for their food prep or seating needs, depending on the volume of sales. While catering services and ghost kitchens don’t need a large space, they also lease their commercial kitchen facilities.
One thing we overlook while choosing the location is business taxes. Your company’s financial performance may be greatly impacted by the amount of business taxes you pay annually. Be sure to do in-depth research on the best states for business taxes when you choose your restaurant location.
Get the Needed Licenses
Although it requires a lot of documentation and effort, registering for and securing restaurant licenses and permits is crucial. To prevent any expensive fines in the future, you need to obtain the following basic licenses and permits before starting a restaurant:
- Business License
- Liquor License
- Employee Identification Number (EIN)
- Sign Permit
- Food Service License
- Employee Health Permit
- Sales Tax License
- Dumpster Placement Permit
- Building Health Permit
- Resale Permit
Not having appropriate licenses and permits for your restaurant business can attract high penalties, probation time, and even jail time.
Hire the Right Employees
There are various ways to find the right employee for your restaurant business, including newspapers, social media platforms, referrals, working with a hiring agency, and online recruitment websites. Hiring employees is not an easy job. There are low and high seasons during job recruitment processes. Find the best time to hire your employees so you can recruit the right candidate for your business. Chefs, restaurant and bar managers, servers, and cleaning staff are some of the kinds of employees you will require to successfully run your restaurant. When hiring staff, be sure to provide a detailed job description as well as competitive wages and benefits. This will not only draw in highly qualified candidates but will help them understand their responsibilities and what you require of them. If you are limited by restaurant budgeting, you can always look into working capital financing options to help you hire the best employees.
Invest in Restaurant Marketing
According to a 2021 survey, there are 749,404 restaurants in the United States, as of 2023. If you want to stay on your customers’ radar, you need to invest in marketing. Having an online presence is the first and crucial step for your restaurant because 75% of smartphone users get restaurant details when they are on the move. Take advantage of online media’s urgency, enormous exposure, and visual appeal. There are a few things you can do to boost your marketing game:
- Depending on where your target market is, establish a unique brand image on social media platforms like Instagram, TikTok, Snapchat, Facebook, and Twitter.
- Boost customer loyalty by providing exclusive offers available through e-mail newsletters, referral programs, etc.
- Be involved in reviewing websites such as Yelp, Google Business, and Facebook. Respond to any feedback your customers make, whether they are favorable or critical.
An effective marketing strategy will help you establish credibility, grow your brand, and draw in more customers to your business.
Conclusion
You may have a challenging time getting all the ingredients of your dream restaurant venture in place. Although it can consume all of your time and resources and cause you anxiety, we assure you that the experience will be rewarding. Having a solid business plan is the first step in opening a successful restaurant. With this business plan in your possession, you can get licenses, hire the best employees, have a well-executed marketing plan, and secure restaurant funding even if you have no prior experience in the restaurant industry. Good luck!
