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How to Start a Restaurant

As we’ve mentioned previously, we write many business plans for restaurant entrepreneurs. And, of course, we’ve published several blog posts on the subject. In 2014, we explained that the operational side of a restaurant is just as important as the menu, location, and quality of customer service. A year later, we argued why successful restaurant entrepreneurs opening a new location should stick with their current concept and brand rather than launching a new concept. While those posts were warmly received, we realized that we had never written an article for an entrepreneur who had never opened a restaurant. So, let’s do that.

How to Start a Restaurant

Restaurant Business Realities

Before we start, let’s cover a handful of cold, hard facts:

  • Operating a successful restaurant will almost surely be the most difficult thing you ever do. It will be bone-crushing work 6 or 7 days a week.
  • You must delight customers with every visit. According to an Andrew Thomas article in Inc., dissatisfied customers typically tell nine to 15 other people about their experience, while good customer experiences lead 42% of consumers to purchase again.
  • If you don’t personally have experience working in a restaurant, you must recruit someone who does, and stay very close to that individual at least for the first year.
  • Do not take shortcuts. Determine (do not guess) how much capital will be required to launch the restaurant, and be sure to include working capital in addition to the startup investment in tenant improvements and equipment.
  • Remember that, as with any business, it’s not about the concept, it’s about the execution.

Seven Steps to Starting a Restaurant Business

In starting a restaurant business, there isn’t a single consideration that is more important than another – everything is important. Let us begin:

  1. Learn as much as you can about the restaurant business. There are hundreds of books you can start with.
  2. Develop your concept in detail. You must put what is in your head down on paper and ensure that each of your stakeholders understands the concept. Hamburger restaurants are hot right now, but “hamburger” is not a specific concept. Hamburger and beer in a high-energy, sports bar environment that stays open late, is in a safe location, with plenty of parking, and with a huge traffic count is a concrete concept.
  3. Menu development is a good second step. Will your menu be large, or will it be limited? The menu must tie neatly into the concept. Remember that large menus often require large, well-equipped, heavily-staffed kitchens. Usually, just the opposite is true for limited menus. Your recipes should be yours (or your chef’s) and should be unique. No one can prepare and serve your Mother’s secret lasagna recipe from the old country except you.
  4. Once you have developed your concept and your menu, you should have a pretty good idea of the size of the space required to execute the concept properly. And, once you know the size of the space, you can begin looking at tenancies in the neighborhood or neighborhoods that you have selected. Working with a commercial real estate agent who specializes in retail space will save you time. If you happen to find the ideal space that fits your location, size requirements, and budget, see if the landlord will accept a Letter of Intent conditioned on your receiving a financing commitment within a certain period of time. Don’t forget to ask for several months of free rent.
  5. This is the perfect time to stop, take a deep breath, and prepare the business plan and financial forecast that will accomplish all of the following:
    • Complete your market research to confirm that you have selected the ideal neighborhood and location.
    • A competitive analysis will give you a good feel for the competitive landscape. Remember, in the restaurant business competition can be a good thing because it is evidence of demand. In evaluating your competitors, see if you can determine what competitive advantages you might bring to your business that will benefit both you and your patrons.
    • Include a marketing plan and a marketing budget in your business plan. Given your concept, menu, and location, who is your target customer? This will determine your marketing strategy. How will you create awareness for the restaurant before and after it opens? How can you take advantage of social media?
    • Prepare a financial forecast that will include at least a revenue model based on your assumptions of the number of customers per day, average ticket, cost of goods sold, operating expenses, debt service (if any), startup costs, and staffing costs. Again, don’t guess. Know your numbers.
    • Communicate the business and/or investment benefits that would accrue to an investor or lender.
  6. Once you have completed your restaurant’s business plan and financial forecast, you will know how much funding will be required. Now is an excellent time to determine where the funds will come from. Perhaps you have saved for this business and have the necessary capital to launch the business. Unfortunately, most entrepreneurs do not. If the money is not in your savings account, where will it come from: friends and family, a bank loan, credit cards, investors? We recommend that you consult the Entrepreneur & Startup Resources page on our website. It includes tools such as the Capital Comparison Table that might help you decide the most appropriate form of capital for your situation.
  7. It’s time to get your architect or interior designer started, especially if there is a great deal of work to do on the interior and you have the budget to create something unique. By the way, not every new restaurant concept requires hundreds of thousands of dollars in tenant improvements and equipment. Remember that there is a huge used furniture and kitchen equipment market where you might be able to find just the right FF&E for your space.

There are many other details to attend to in starting a restaurant. Just a few might include hiring and training staff, getting permits and licenses, creating a logo, menu design, signage design, finding the best POS system, buying insurance, and so many other details. You’ll figure it out.

If you want someone to talk to before embarking on this journey, please feel free to contact us by completing our contact form. Good luck!

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Jimmy's background includes over 40 years in international, commercial, and investment banking, and nearly a decade as the principal shareholder and CEO of a rapidly growing manufacturing and distribution business in California. Today, Jimmy spends his time advising and consulting with entrepreneurs on matters related to business planning, as well as capital markets and funding strategies. Jimmy works with clients throughout the world in industries that include financial services, real estate, manufacturing and hospitality. View details.

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