How to Start a Restaurant

Part 1 - How to start a Restaurant business - Background

This type of business serves prepared food and drinks and caters to consumers who don’t want to cook or who want the experience of dining out. Some restaurants specialize in one type of cuisine, like Italian or Mexican, while other restaurants serve general “American” fare, like diners. The market depends entirely on the type of restaurant, restaurant concept, and the average price per menu item.

Our guide is in 3 parts:

• Part 1 - How to start a Restaurant business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a restaurant?

The costs to start a restaurant vary, but generally include:

• Building security deposit: $10,000 to $12,000

• First month’s rent: $10,000 to $15,000

• First month utilities: $2,500

• Customized build out for kitchen: up to $350,000

• Tables and furniture: $40,000 to $50,000

• Tableware, utensils, dishes, kitchen, and bar equipment: $50,000 to $80,000

• Initial overhead, including food and prep materials: $8,000 to $15,000

• POS: $1,500 to $20,000

• Insurance: up to $6,000

• Sign: $10,000 to $20,000

• Menu printouts: $1,500

• Business cards: $70 to $300

• Fliers: $5,000 to $10,000

• Grand opening event: $15,000

• PR for grand opening: up to $5,000

Total cost can run $600,000 or more depending on the type of restaurant you want to run. These costs can be much more expensive, or much cheaper depending on a number of factors including, location, necessary equipment, and vendors through which essentials are purchased.

What are the ongoing expenses for a restaurant?

A restaurant has numerous ongoing expenses, but the major ones include:

• Rent for the building: $10,000 to $12,000 per month, depending on location

• Utilities, which can include phone, internet, T.V., electricity, water, gas: up to $2,500 per month (sometimes more, depending on location)

• Food and supplies: $10,000 to $15,000 per month, or more depending on the menu

• Labor cost: variable, based on staff needs

Who is the target market?

Customers are typically individuals and families who are dining out for the day or evening. Some restaurants also cater to larger functions, like business or government organization events, birthdays, and other large-scale catering events.

How does a restaurant make money?

A restaurant makes money by charging customers money to prepare food and drinks for them. Prices are typically fixed on a menu. Customers may also tip waiters and staff for good or exceptional service. For waitstaff, tipping is customary. These tips are sometimes split amongst the workers in the restaurant, or can contribute to the waitstaff’s pay.

How much can you charge customers?

Menu prices vary considerably based on the type of restaurant and the fare being served. For example, a high-end restaurant serving seafood may charge between $20 and $50 per plate. A small diner may only charge between $4 and $10 per plate.

Customers pay for menu items a la carte or as a meal or plate. Some restaurants also offer bundled specials which include an appetizer, the entree and a dessert for one fixed price. Meals are paid for after customers finish eating and a tip (or an option for a tip) is usually included on the bill.

How much profit can a restaurant make?

The restaurant business has a high degree of failure, but businesses that make it can also be very successful. Even a modest operation can turn over $1 million or more in revenue in a year. Franchise operations may bring in several million per year based on location and the type of restaurant.

How can you make your business more profitable?

A profitable restaurant is one that usually targets a specific demographic or narrows it cuisine to serve a specific type of market. For example, an authentic Mexican restaurant may be able to charge more for its Mexican fare than a generic restaurant that happens to serve Mexican food. Location also matters. Restaurants in wealthy or well-off communities tend to attract individuals with a higher income.

Restaurants in cities, for example, may be able to charge more than restaurants located in very rural areas in economically depressed areas of the country. Some restaurants expand their profits by starting sideline businesses, like catering or food trucks for special events.

Day-to-Day and Growth

What happens during a typical day at a restaurant?

The day starts by opening the restaurant and printing up the specials for the day. Restaurant owners also need to check their stock and order any necessary ingredients. Daily cleanliness inspections of the kitchen are a must. After meeting with the chef and prep cooks about the plan for the day, it’s time to inspect the dining room and set up for the first service of the day.

If you serve breakfast, this will usually mean having the dining room open and ready by 6 or 7 am. If you serve a lunch-dinner service, then you can open up at 11 am.

After prepping for each service, the bulk of your day is spent reacting to events as they happen. Customer orders and complaints, peak service, and prep for the second service are all stressful and busy events.

Once service starts, it’s usually non-stop until close.

What are some skills and experiences that will help you build a successful restaurant?

Most successful restaurateurs have experience managing a restaurant or cooking in one. Before opening your own restaurant, consider working for a successful operation, either in a franchise or a family-owned business.

A family-owned business tends to have a different culture than a large corporate or franchised operation so it may help to work in both to experience the difference. In general, family-owned operations tend to view the staff as family. They also tend to view the revenue earned in the business as “family money” and manage their finances accordingly.

A franchise is usually governed by a corporate entity responsible for regulating the operation of the franchise and maintaining a minimum level of quality. Franchise operations also operate on a business model that sets minimum standards for how the business cooks its food, serves it, and controls the menu.

What is the growth potential for a restaurant?

Small restaurants can be run as a diner or a small sandwich shop or even a food truck service. Larger restaurants usually operate in a centralized location, with a large kitchen and dining room area.

Scaling is typically a matter of opening up new locations based on demand, staffing, and financial ability.

For example, a small family-owned restaurant may never outgrow its first location. A franchise, like McDonald’s, Applebee’s, or Red Robin, will have many chains across the country and, sometimes, across the world.

What are some insider tips for jump starting a restaurant?

Starting a restaurant is difficult, requires extensive upfront capital, and has a high rate of failure. Because of this, it’s best to start as cheaply as possible. Successful restaurants focus on a niche or an underserved market. Consider starting a small food truck to get a taste for what running a restaurant might be like. The cost for this will likely be much lower than running a full-scale operation.

How and when to build a team

At minimum, you will need to start the restaurant with a master or head chef, a prep cook, kitchen manager, and wait staff. You’ll also need a front-of-house manager. Most restaurant owners take on this role in the early years of the restaurant.

Read our restaurant hiring guide to learn about the different roles a restaurant typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.

Part 2 - Is a Restaurant business the right fit for you?

Part 3 - Action plan to launch your Restaurant business in 90 days