The restaurant industry is dynamic and is prone to constant trend changes. This makes it difficult for new restaurateurs to cope with the changes and stay successful.
Great food alone is not sufficient these days to bring in customers. While there are consistent obstacles and newer challenges emerging in the restaurant industry, there are some essential elements that will always stay in vogue for starting a new restaurant business.
Several new restaurants fail during their very first year primarily because of a lack of planning and foresight. But, this need not petrify new restaurant owners or make them believe that running a restaurant is an extremely complex operation. All that a restaurateur must do is streamline the restaurant operations to increase the chances of success. It is also essential to build your own restaurant website to carry out operations simultaneously in the virtual space as well.
This blog is to guide new restaurateurs who wish to start their own food businesses.
Why Is A Restaurant Business Plan Important?
Since the process of putting together a well-thought-out restaurant business plan is difficult and time-consuming, many new restaurant owners shy away from it. But, they fail to realize that without a proper restaurant business plan, they are only shooting in the dark without any aim.
In the absence of a restaurant business plan, restaurateurs also cannot find an investor to fund their dream venture. And even if funding is received, it is likely to be spent irrationally due to a lack of proper planning, regulations, and forecasts – ultimately leading to the failure of the restaurant.
A restaurant business plan is a map that:
- Indicates how a restaurateur plans to churn profits from his new business
- Shows where the restaurant fits into the saturated market
- Tells how the restaurateur plans to beat the competition and stay unique
Spending a little time and effort on drafting the restaurant business plan is necessary to enjoy the benefits of a successful restaurant in the long run.
How To Open A Restaurant?
Here are a few things to consider while opening a restaurant:
Choose The Legal Structure For Your Restaurant
Every restaurant must not only choose a legal structure for itself but also register it along with the business name with the Secretary of State in the respective state where it is going to operate. The most common legal structures are sole proprietorship, partnerships, Limited Liability Companies (LLC), C Corporations, and S Corporations.
Register The Restaurant With The IRS
The next step is to register the restaurant with the Internal Revenue Service (IRS). Once done, the IRS will issue an Employer Identification Number (EIN) to the restaurant. This EIN is important as most banks require it to open an account. Also, in order to hire employees, a restaurant will need an EIN as the IRS keeps track of payroll tax payments using this number. Restaurants that are managed by a sole proprietor would not require an EIN. They would instead need a social security number that performs the role of a taxpayer identification number.
Open A Business Bank Account
To open a bank account, one must:
- Select the bank in which they wish to have an account and contact it
- Accumulate the required documents and present it to the bank. This usually includes the company’s Articles of Incorporation, driving license, passport, and proof of address.
- Fill in the bank’s application form and provide all the information asked for.
- Ask for a meeting with the banker during which you need to discuss your business needs and also establish a relationship with them.
Get The Restaurant Business Insured
Every business is secure once it is insured. Insurance protects the business in the event of any accident or any other mishap. The different types of insurance are property insurance, liability insurance, product liability insurance, and business interruption insurance. Such business insurance can be obtained through an official agent or broker. A restaurant owner must contact different people and compare rates before choosing a particular insurance.
Buy Or Lease The Right Restaurant Equipment
The restaurant may be of any kind. But, it requires the right equipment for smooth operations. This includes commercial kitchen appliances, furniture for the dining spaces, and other small wares. Such equipment can either be purchased or leased. While buying equipment is expensive upfront, it proves to be cheaper in the long run whereas leasing equipment might seem less expensive upfront but it is expensive in the long run.
Purchase And Set Up The Software Required For The Restaurant
Restaurants require various kinds of software to accomplish various tasks like accounting, Point Of Sale (POS), customer management, order management, etc. Most restaurants use software like QuickBooks, Microsoft Office, Square Register, OpenTable, etc.
Hire And Train Restaurant Staff And Managers
Once the necessary supplies and equipment are in place, a restaurant owner must hire and train the human resources required to run the operations. This includes the restaurant wait staff and managers. During the hiring process, restaurateurs must hire people with friendly, outgoing personalities. Candidates having a prior experience in customer service can be given first preference. A thorough background check of all the candidates and potential employees is essential to avoid future complications. After the staff is onboarded, they must be provided orientation and training on topics like food safety, customer service, and restaurant POS system.
Create A Menu
The menu forms the core of a restaurant business. It should reflect the cuisine, core concept, and brand identity. A menu is also a marketing tool that convinces people to give your restaurant a try. The menu descriptions should be concise and appeal to the audience at the same time.
Permits And Licenses Required To Open A Restaurant
The permits and licenses that a restaurant needs depend on the nature of the restaurant and also its location. But most restaurants would require the following permits and licenses.
State Business License
- State Specialty Licenses (if the restaurant is selling liquor, cigarette/tobacco, lottery, or gambling)
- Construction permits – meant for interior alterations, remodeling, new construction, etc.
- Trade Permits – For electrical, mechanical, refrigeration, plumbing, gas, and backflow
- Sprinklers and fire alarms
- Right-of-way permits if there is going to be outdoor seating and also street use permits
How Much Does It Cost To Start A Restaurant?
The major cost involves purchasing or leasing a space for the restaurant. Whether the space is going to be purchased or leased, it would cost anything between $ 250,000 to $ 2 million per year. Even if you are buying an already operational restaurant, it would cost between $ 10,000 to $ 1 million on renovating the space to suit your needs.
Restaurateurs must conduct thorough research for the new business and find the best facility that is ideal for the restaurant concept. Committing a mistake in finding the ideal place will impact the restaurant’s success negatively. The cost to start a restaurant varies greatly. The restaurant’s operations will also determine the cost.
5 Ways To Open A Restaurant With No Money
A restaurant can be opened without spending any money as well. Here’s how.
Find Some Potential Investors
A quick way to generate money for starting a restaurant is to find someone who is interested in the business and is also willing to spare the capital needed to kickstart the operations. Such an investor can be a family member, a friend, a colleague, or any acquaintance. While asking known people for money, it is essential to make them understand the risks involved in the investment. Otherwise, it could strain your personal relationship with them. In case there is no one within your circle to fund you, you could try peer-to-peer investment networks as they connect people looking to make investments with business owners seeking investors.
Get A Bank Loan
This is a traditional but slower process of securing funds for opening a restaurant. Qualifying for a bank loan for a small business loan can be difficult. A restaurant owner must prove to the bank that the business is worth an investment and that you possess the repaying capacity. To successfully get a bank loan, the restaurateur must have a good credit score and a robust business plan. Unless the restaurant business plan is drafted meticulously with loads of details, the banks are unlikely to be convinced. One must also read through the terms of the bank, interest rates, collateral, etc. during this process. This will save you from getting trapped in a debt that you cannot repay, ultimately losing your restaurant.
Digitization has made crowdfunding the easiest and most popular way to raise money for a variety of causes – from charity to unique projects to personal expenses. It is a great way for aspiring restaurant owners without money to raise funds. GoFundMe, EquityNet, etc. are some crowdfunding sites to choose from. Unless donors are given something in return, they would not be motivated to contribute. A restaurant can offer them a free meal or a discounted meal on the inauguration day or the first week. Share news about your crowdfunding campaign through Twitter, Facebook, or Reddit and encourage people to spread the word.
Get A Government Loan Or Grant
At the federal level, the U.S. Small Business Administration offers loan programs to fund small businesses that require financial assistance. They also run a lender match program that acts as a liaison between businesses and private lenders, bringing them together. Restaurant owners must conduct thorough research and check if their respective state offers any loan or grant options that can be of help to them. Visiting the grants.gov database can be of help to restaurateurs seeking funding.
Look For Angel Investors
Angel investors are wealthy individuals who are interested in lending money for a startup business in exchange for equity (think tank). If you have a great idea, reach out to such angel investors. Keep a stunning sales pitch ready before meeting such an angel investor. Since the food business involves high risk, it would be difficult to sell the proposal. Restaurant owners can visit sites like ClearAngel or Angel Investment Network to get in touch with angel investors.