How To Set up a Restaurant Business - 12 Step Guide

Bookmark this page and follow along while learning how to start your own restaurant business. From setting up a basic structure for your business to creating your website, this guide contains everything you need to get your restaurant up and running quickly.

• Step 1. Work as an Employee in a Restaurant
• Step 2. Outline Your Concept and Its Viability
• Step 3. Choose Your Restaurant Style
• Step 4. Create Your Menu
• Step 5. Write a Restaurant Business Plan
• Step 6. Choose a Name for Your Restaurant
• Step 7. Form a Legal entity
• Step 8. Get Funding
• Step 9. Open a Bank Account
• Step 10. Obtain Required Business Licenses or Permits
• Step 11. Develop and Define Your Brand
• Step 12. Establish Your Online Presence

Step 1. Work as an Employee in a Restaurant

It might seem like an obvious first step, but it does not go without saying; working in a successful restaurant is the best way to see how it operates. Ideally, you will be working in a restaurant similar to one you hope to eventually open, or at the very least, serving a similar customer base.

Hands-on experience as a restaurant employee gives you the opportunity to observe and understand the day-to-day operations of a restaurant. Whether it's creating employee schedules, handling payroll, or finding suppliers for ingredients, seeing how all the moving pieces come together to create a successful business will be beneficial once you set out on your own.

Working in a restaurant also gives you a better perspective about a day in the life of your own employees, making you a better future boss. Plus, being armed with the knowledge to properly fill any position in your restaurant is key to hiring and training great employees that will help your restaurant flourish.

Step 2. Outline Your Concept and Its Viability

With more than one million restaurants in the United States, it may seem like there is a restaurant on every corner these days.

That's why identifying your niche, the unique aspect of your restaurant that keeps your customers coming back, is so vital.

Remember that you are not competing with restaurants all over the world. Look to your local community. What seems to be missing? What gap are you trying to fill?

Entering an oversaturated market is not ideal when opening a restaurant. Instead, you need to offer something special no one else does, something people will talk about and recommend to others.

Ultimately, the concept you settle on will be a part of almost every future business decision you make, from menu offerings to the atmosphere you will create for your customers.

As a rule of thumb, it is important you answer these three questions before you open your restaurant:

• Who is your target market?
• Who is your competition?
• What is your value proposition?

Identify Your Target Market To Set Up A Restaurant Business

Your target market is defined as the group of potential customers that your restaurant aims to serve. Determine who your restaurant is for and ask if that is population large enough to support a thriving business.

It's important to consider early on what the demand is for the type of restaurant you intend on opening, as well as the area you want to serve. Combining these two metrics can help you make an educated estimate of your potential volume of customers.

For example, you may not want to open a fine dining establishment in an area or town made up of predominantly college students on a budget. Your prices, atmosphere, and menu selections should appeal to the people in the surrounding area.

Identify the Competition

In most cases, you will not be the only restaurant vying for your customer's business. Once you know who your target market is, it's easy to identify competing companies.

Research the market by visiting the websites of your future competition and their social media profiles. Ask yourself what they are doing right. Then, identify what you can do better.

Knowing who you are competing against, and how they are similar or different than your business, is crucial for identifying your value proposition.

Identify Your Value Proposition

A value proposition is the unique value your restaurant promises to deliver to your customers. What makes your business stand out among your competitors? What do you bring to the table that they do not?

Your value proposition could be the cuisine you offer, the service you provide, or the environment you create. It might be a combination of all three! Lean into the details that make your business different as part of your restaurant's overall marketing strategy.

Step 3. Choose Your Restaurant Style

There are many different styles and formats for restaurants. Depending on the results of your market research, some will be more fitting for your needs than others. Most restaurants generally fall into one of the following categories listed below:

1. Fast Food: Quick service restaurants offer a relaxed atmosphere, a limited menu selection to allow for faster food preparation, and affordable pricing.

   Fast food businesses rely on their customers to be self-sufficient, reducing the number of service employees you will need to hire.

   Because of the expectation for lower prices, a fast food restaurant aims to serve a greater number of customers to make up for reduced profit margins. Speed and efficiency are the keys to success in the fast food industry.

2. Fast Casual: This is a hybrid fast food type service with the freshly prepared foods you would expect at a casual dining restaurant. While still aiming to be affordable, fast-casual food is usually more expensive than its fast food cousins. If you are food-oriented, but not necessarily service-oriented, a fast-casual restaurant might be the right fit for you.

3. Café: Cafés specialize in atmosphere. They may be a place to meet up, stop by for a quick bite, or a space to relax after a long day. In most cases, a café serves breakfast and lunch items like coffee, muffins, pastries, small plates and appetizers, and sandwiches at an affordable value.

   Starting a café is a great choice for service-oriented individuals who enjoy creating an inviting environment for guests.

4. Buffet: These eateries offer a modest selection of foods for a fixed price per person, with a casual dining experience. Customers generally serve themselves from a large variety of premade options. Buffets lend themselves well to specialty foods, allowing customers to be more experimental about their food choices.

5. Casual Dining:These establishments provide a comfortable, eat-in experience for their customers and a relaxing environment. Offering full-service means guests generally expect to spend a bit more and stay longer. Comfort, quality services, and delicious food are the most important aspects of a casual dining restaurant.

6. Gastropubs: Generally, a gastropub combines the experience of a full-service restaurant and a high-end bar, often pairing upscale pub foods with craft beers and mixed drinks. Gastropubs have the unique advantage of bringing in customers from both of the categories. A gastropub offers high quality food at a reasonable price, often subsidized by the higher profit margins of alcohol.

7. Family Style Restaurants: These spaces offer a casual, family friendly dining experience to one and all. Food is served on large platters meant for sharing, rather than individual plates.

   In most cases, family style restaurants offer full-service accommodations. Guests commonly serve themselves from the food platters, just like you might at home.

8. Fine Dining: These restaurants provide a unique upscale experience where high-quality food and top-notch service are paramount for success. Customers expect higher prices, but also come to your restaurant with higher expectations.

   A fine dining restaurant is perfect for an owner who wants to create an extravagant dining experience from start to finish, at an increased cost per customer.

Step 4. Create Your Menu

Once you have decided on a style for your new restaurant, it's time to develop a basic menu. Menus tend to change frequently, so do not feel obligated to include everything you will eventually offer from the outset. In fact, a smaller menu allows you to focus on quality, and simplifies your operations.

Unless you are opening a diner style restaurant, you will probably be serving food from a single category. Choose a type of food that you are passionate about. Invest in a good chef who understands how to properly cook and prepare this food for guests.

It is also important to properly market your food. Invest in high quality printed restaurant menus. Entice customers with high resolution images and compelling descriptions of the dishes that emphasize the quality of these offerings.

Step 5. Write a Restaurant Business Plan

Once you identify the type of restaurant you want to set up, the real work begins. A carefully crafted business plan not only helps you outline the long-term goals of your restaurant, but it also serves as the proof of concept for your success.

Just like any good recipe, each ingredient is added with careful thought and a purpose. The same goes for your business plan.

What Should Be Included in a Restaurant Business Plan?

A business plan is your blueprint for profitability. In some cases, it may help you uncover any gaps or blind spots in your plans. A business plan for a restaurant should contain the following:

• The structure/management of your business
• A clear description of your restaurant's concept
• Description of your target market
• Marketing strategy
• Estimated startup costs and capital
• Employee hiring and retention plans
• Financial projections (profits you intend to make year one, year five, etc.)

Be especially thorough when drafting your business plan. This document will be reviewed carefully if you intend on applying for any small business loans

Step 6. Choose a Name for Your Restaurant

Choosing a name is an important step when opening your new restaurant. Potential customers should be able to easily read and remember your business name. They should also understand what kind of service and cuisine to expect simply by reading the name of the restaurant. People generally do not like surprises when it comes to food, so choose a name that properly represents your offerings.

How Do I Know If the Business Name I Want is Available?

A quick online search for similarly named businesses is an easy way to find out if the name you want is already taken. However, this type of search is not very reliable. You can also conduct a domain name search to see if your restaurant name and its URL is already taken. Again, while this method can be helpful in a pinch, it's certainly not foolproof.

The only reliable way to find out if your business name is available is to conduct a business name search. MyCorporation can conduct a full name search on your behalf. Not only will we search for any potential name conflicts, we can also ensure that your intended name adheres to any business name rules your state may have.

Step 7. Form a Legal Entity (Choose a Business Structure)

Now that you have planned out the type of restaurant you want to open, it's time to choose a legal entity. One of the most impactful steps to opening a restaurant, the legal structure of a restaurant is the foundation on which you will grow your business.

Whether you form an LLC or a corporation, a business entity provides restaurant owners with limited liability protection and legal separation from the business. This protection prevents you from being held personally liable if, for example, your business is sued or accrues its own debt.

This is especially key when opening a restaurant. . As the owner, there are many circumstances where you may become vulnerable. For instance, someone may slip and fall in your restaurant, while someone else spills a hot cup of coffee on their lap. While these situations and the resulting litigation are rare, it's best to protect yourself and your business for the peace of mind.

When you run a business as a sole proprietorship (no entity), you open up your personal property as collateral to pay your restaurant's debts. That means your home, car, or any other high value item could be identified as collateral be used to pay business debts. That is why business formation is a critically important step.

Restaurant, LLC or Corporation?

In most cases, it's best to seek the advice of an accountant you trust to help you navigate the potential tax implications of each entity, while helping you find the ideal situation for your restaurant. Depending on how you plan on funding your business in the future, some structures have additional advantages when it comes to outside investment options.

Keep in mind, it is possible to change your business's entity type as your needs grow and change.

Below are a few entity formations that are popular among restaurant owners, and the differences between the structures for basic guidance.

Step 8. Get Funding

Several factors come into play when the time comes to fund your restaurant. How much money will you be investing? How much more will you need? Where will you get additional funds?

And, of course, how will you repay what you borrow?

Estimating the funding you will need in advance can be difficult, and will require you to consider many variables, including:

• Your upfront equipment costs
• Payroll and employee salaries
• Marketing/advertising costs
• Facilities (rent/commercial lease)
• Inventory and ingredients
• Utilities and recurring payments
• Licenses and administration costs

It's usually recommended that you estimate the budget of your first full year in business to figure out how much you will need to keep your restaurant functioning on a day-to-day basis.

How Much Does It Cost to Open a Restaurant?

The initial investment required to open a restaurant depends on the type of restaurant you plan on opening. To determine your startup costs, consider the following for a medium-sized, casual dining restaurant:

1. Equipment - You will need to make a significant investment in professional equipment and supplies. High quality cooking equipment like ovens, smokers, grills, and deep fryers is not cheap. Additionally, you'll need to support your cooking efforts with a walk-in fridge, dishwashers, ice machines, heat lamps, and more.

   You'll also need supplies to serve your customers including dishes like plates, cups, silverware, napkins, and more. Remember to factor in comfortable furniture like tables and chairs, booths, or stalls.

   Estimated Costs: $20,000 - $110,000

2. Licenses – You will need specific business licenses to operate your restaurant. These costs vary depending on your state and county (more on this later). Check with your Secretary of State for regulations governing restaurants to determine associated costs.

   Estimated Costs: $100 - $1,000

3. Insurance – You will need insurance to protect you and your employees, as well as general liability insurance. That includes product liability in case of equipment failure resulting in injury, a worker's compensation policy, and liquor liability if you plan on serving alcohol. Arrange a meeting with an insurance agent who can help you understand the coverage required for your restaurant.

   Estimated Costs: $5,000 - $7,000 per year

4. Technology – You may choose to invest in technologies which can help your restaurant succeed, including a point of sale (POS) system. A POS system can save you both time and money by automating your inventory management and tracking sales. It's worthy of investment in lieu of hiring additional employees to handle these tasks. Remember to purchase bookkeeping software to track your finances which is often integrated into your POS system.

   Estimated Costs: $1,200 initially, then $1000 per year

5. Marketing – One advantage that restaurant owners have is that much of your marketing can be done on a budget, or even for free through social media marketing.

   Instagram, Facebook, and Twitter are social media tools that can help you drive awareness to your restaurant. However, in a more competitive market, you may find that a social media presence isn't enough. In those cases, business owners often turn to other online advertising tactics, such as Google Ads.

   You may need also to advertise your restaurant to potential customers with a basic website, business cards, signage, and other marketing materials.

   Estimated Costs: $1,000 - $8000 per year

Even on the lower end of this estimate, startup costs are still around $40,000 assuming everything goes off without a hitch. There are certain ways to reduce your costs further, such as buying used equipment. Be creative when it comes to saving on startup costs, but don't cut too many corners.

Where can I get money to start a restaurant business?

Most food service startups require some form of outside assistance when it comes to funding startup costs. There are many options available to new business owners when it comes to raising capital for a business. Some options include:

• Raising money by asking friends and family for loans
• Venture capitalists
• Launch a crowdfunding campaign
• Angel investors
• Get a loan from the bank

Each method of raising money for your startup costs has its pros and cons. Weigh out each option to decide what is best for your business.

If you are planning on working with multiple investors, you will most likely want to set up your restaurant as a corporation. Your investors will each receive stocks, a representation of their ownership in your business, in exchange for their investment.

If you will be relying on a loan from the bank, make sure you put extra time and care into your business plan, and be prepared to discuss the reasons you think your business will be profitable. Carefully compare loan options like interest rates and repayment terms.

What are the Ongoing Costs of Operating a Restaurant?

Building a successful restaurant can take time, with most of your early earnings being reinvested in the business. Your operating costs will change over time depending on several factors, so it is prudent to keep some extra money stashed away for emergencies.

The primary ongoing costs you will need to consider when operating a restaurant are:

• Labor Costs: You'll need chefs, waitstaff, hostesses, bartenders, dishwashers, and management. Consider the reoccurring costs associated with having your own employees, including salaries and benefits.

  Depending on how many employees you'll have, this cost can vary greatly. Be sure to hire few employees as you need to provide the service level you intend on offering. Expect to spend $40,000 to $100,000 per year.

• Food Costs: You'll need a steady flow of fresh ingredients to make the items on your menu.

  The more items you have on the menu, the higher your food expenses will be. More product also means more waste, and greater losses.

  This is a great reason to start out with a limited menu. Not only are your operations leaner, but they are simpler. In general, a profitable restaurant will spend 28% – 35% of sales on ingredients.

• Equipment and Maintenance: It's not uncommon to face sudden equipment failure. Set aside $10,000 per year for unexpected maintenance costs.

• Rent and Building Fees: Only 16% of restaurant owners own the building where they operate. Most restaurants owners rent their space. The cost per square foot varies greatly depending on the size, location, and concept

  In general, expect to pay roughly $180 per square foot. The average cost for a midsize restaurant in the US is $5,000 per month, with high traffic areas seeing higher rents.

Step 9. Open a Bank Account for Your Restaurant

Don't accept your first payment from a customer until you open a dedicated business bank account. Keeping your personal and business finances secures the liability protection gained by forming a legal entity. Opening a bank account for your business allows you to:

1. Accept payments under the name of the business: It could be a bit jarring for customers using your company's services to make a payment to an individual/personal account as opposed to a business account.

   Setting up a bank account for your business allows you to accept checks and payment under the business name. This conveys a high level of professionalism and credibility. It also helps separate your finances, making it easier to assess profits and losses.

2. Protect your personal assets: When you combine your personal and business assets, you blur the line of separation between you and your business. This is known as piercing the corporate veil. Keeping your finances separate also reduces your chance of audit and makes filing your taxes easier.

3. Establish credit Build a credit history for your restaurant which can be useful when seeking demonstrating buying power for your business. This is especially important for restaurants who may need to purchase expensive kitchen equipment on credit.

You will also need to obtain an employer identification number (EIN) for your business before you can create a bank account. An EIN, also referred to as a tax ID, is a nine-digit number that is issued by the IRS. Think of an EIN as a social security number (SSN) for your business only slightly less private.

An EIN will also be required by the IRS if you plan on hiring employees.

MyCorporation can help you complete the necessary paperwork to file for an EIN. The process is simple and only takes only a few minutes to complete.

Step 10. Obtain Required Business Licenses or Permits

Most restaurants are required to obtain some form of licenses or permits to operate. Those requirements vary depending on the city and state where your restaurant operates. Research the requirements with your local Secretary of State to determine the licensing you will need before you serve your first dish.

Some common business licenses you may need to operate your restaurant include the following:

• General Business License: This gives you authority to operate your business in a particular jurisdiction.

• Food Service License: Required by all restaurants, this usually requires a visit by a health department official to ensure that your restaurant meets food preparation and storage standards. In some cases, employee training programs will be necessary for certification.

• Liquor License: If you are serving liquor, you will need to apply for a liquor license, and adhere to state and local laws. In some cases, restaurant owners may opt for a beer and wine license instead, which is often less expensive. It can take up to a year for a liquor license to be issued, so apply early. Generally, this license needs to be renewed every year.

• Music License: If you are looking to create an ambience in your restaurant, chances are you are expecting to play music. Your best option is to sign up for a restaurant music streaming service like Soundtrack Your Brand

Failing to obtain the required business licenses can lead to severe consequences such as fees or fines, and even involuntary dissolution of your business.

You may also purchase MyCorporation's business license compliance package. This helps simplify the process of meeting your business license requirements while eliminating the chance of missing any requirements. We conduct research on your behalf, considering your business type and location, and provide you with the necessary paperwork to get the required licenses.

Step 11. Develop and Define Your Brand

Creating a strong brand helps distinguish your restaurant from your competitors. It is also a representation of what your business stands for, your value proposition, and the kind of service and food you will provide. There are a few components of any strong brand:

• Your restaurant logo is not only an important part of your restaurant's advertising and marketing efforts, but also often your first impression to potential customers. Conduct basic research of similar restaurants to get a baseline that resonates in your niche.

  Tip: You can save money by using one of the many available free online logo maker tools, which can help you design your own logo with no previous design experience. This is a great option when starting out, saving you from hiring an expensive graphic designer right off the bat.

  Even if you do plan on hiring a logo design team, using a free logo maker first is a great way to create a placeholder you can show to a professional designer, which will lower development costs.

• Promote your restaurant: People need to know your restaurant exists! You’ll want to put some extra effort into making sure people in your community know you’re there. There are a few tools you can use to help build buzz around your new restaurant:

  Ordering custom signs can help your business stand out from the crowd, especially on busy streets. Not only should your sign be visible at a distance, the design should grab the attention of any passersby who otherwise may not have noticed your restaurant was there. Custom signage is also a simple way to promote specials, share discount offers, and more.

  Email marketing is a simple but effective way to provide a huge return on a small budget. Offering coupons or in-restaurant promotions is a great way to collect emails and grow your email marketing list. Send emails to your subscribers about lunch specials, new menu items, and more. Keeping them engaged will keep your restaurant top of mind the next time they think about dining out.

• Get out into the community and actively participate. This is a great way to build a rapport with potential new customers. Consider sponsoring a local sports team or hosting an event. These upfront costs are usually offset by increased awareness and a more positive standing in the neighborhood.

Step 12. Establish Your Online Presence

Many new restaurant owners are often overwhelmed when it comes to managing a restaurant’s online reputation. While it may seem daunting, this presence can be one of the best tools in your toolbox for growing your business effectively and affordably.

A professional website is an incredibly valuable asset for any restaurant owner. Most of your potential customers will search online before they make their decision about where to eat. Without a website, it will be much more difficult to find and go to your business.

You can use one of many website builder tools that provide you everything you need to build a website out of the box with no coding skills necessary. This can be a great starting point from which you can build out a fully functional website.

If your restaurant will rely on your website to generate sales, we highly recommended that you work with a team of web design experts. You will need to hire a professional web in order to create a more functional website with online ordering capabilities.

You’ll also want to pay close attention to review sites like Yelp. It is a great way so see what is resonating with your customer, and what is not. Its also recommended that you respond to every review you receive, adding an additional interaction with your customer, and addressing any issues that arise.

Summary

From choosing a theme and creating your menu, to marketing your business, opening a restaurant is one of the most rewarding accomplishments you will make.

As you continue to build your client base, focus on additional services you can offer. Invest in equipment, tools, and expanding your staff. Over time, you may even make revisions to your business plan once you’ve hit certain goals and milestones.

Frequently Asked Questions

What are the tips to set up a restaurant business?

Starting a restaurant business can be fulfilling but requires careful planning and preparation to ensure success. First off, make sure to create a business plan.

Conducting thorough market research to identify your target audience and local food trends is also essential. Finding a suitable location with easy access and high traffic is critical. Hiring an experienced and reliable team, including chefs, servers, and managers, is also necessary.

Additionally, obtaining the necessary licenses and permits, including health permits, liquor licenses, and business registrations, is vital.

Finally, form a Limited Liability Company (LLC). This will protect your non-business assets and minimize liability if you should be sued.

What equipment and supplies are required for a restaurant business?

A restaurant needs cooking appliances such as ovens, stovetops, grills, and fryers. It also needs refrigeration, such as walk-in coolers, freezers, and refrigerators.

Other required supplies include food preparation tools, dishwashing equipment, service equipment, dining room furniture, POS systems, smallwares, storage and shelving units, and safety equipment.

Researching and making a comprehensive list of necessary equipment and supplies is essential. Consider the restaurant type, cuisine, menu, cost, quality, and durability to ensure each tool is a worthwhile investment for your business.

Finally, investing in high-quality equipment and supplies can help increase efficiency and productivity while saving money or repairs.

How to find and lease the perfect restaurant space?

Begin by defining your target market and identifying the ideal location based on demographic and traffic patterns.

Research potential spaces in the preferred location and assess the building's infrastructure, including electrical, plumbing, and HVAC systems.

Consider the size and layout of the space, as well as zoning laws and parking availability. Negotiate lease terms that suit your business needs, including rent, lease length, and maintenance responsibilities.

Finally, have a qualified attorney review the lease agreement before signing it to ensure it aligns with your business goals and provides adequate protection.

What insurance do I need for a restaurant business?

The right insurance coverage is crucial to protect your restaurant business from unexpected incidents and liabilities. General liability insurance is a must-have policy that covers property damage, bodily injury, and advertising injury claims.

Workers' compensation insurance covers your employee's injuries and illnesses.

Property insurance protects your building, equipment, and inventory. The damage or loss can be due to fire, theft, or other perils.

Liquor liability insurance is necessary if you serve alcohol in your establishment, as it covers any injuries or damages caused by intoxicated patrons.

What marketing strategies can help promote a new restaurant business?

Marketing is critical to promote a new restaurant business and attract customers. First, establish an online presence through a website, social media, and online ordering platforms.

Offer discounts and coupons to first-time customers or create loyalty programs to incentivize repeat business.

Contact and collaborate with local influencers or food bloggers to showcase your menu and create buzz. Host events or tastings to introduce your brand and menu to the community.

Expand by offering delivery and partnering with services like Uber Eats or GrubHub.

Finally, collect customer feedback to improve your menu, service, and overall customer experience.

How to manage finances and create a budget for a restaurant business?

First, you should estimate your start-up costs, including equipment, supplies, rent, and insurance, and create a cash flow projection to forecast monthly expenses and revenues.

Monitor your cash flow regularly and adjust your budget as needed. Keep track of your daily sales and expenses, and create a system for managing payroll, vendor invoices, and taxes.

Implement cost-saving measures, such as buying in bulk or negotiating with suppliers. Utilize accounting software to streamline financial management and generate financial reports.

Finally, seek advice from a financial advisor or accountant to ensure your finances are in order and help you make informed decisions.