Opening a restaurant can be a real challenge because competition is high, but restaurants are making a comeback while other industries have narrowing profits. If you want to open your own restaurant, we can show you how!
We talked with the owner of one of the oldest restaurants in the U.S. James Louie owns 50% of Huber’s Cafe and the 150-year-old restaurant makes more than $180K per month. The 1999 Restaurateur of the Year shares the secrets to their longevity.
He’ll share insights into:
- Creating a successful restaurant concept
- Funding your business
- The importance of the restaurant menu
- Choosing a commercial space
- And other keys for restaurant endurance
Follow this easy 9-step process to get your restaurant started (click on any of the links to jump to that section):
Step 1. Learn About Restaurants
You need to have a variety of skills before opening a restaurant. You’ll need to understand:
- Customer Service
- Financial Management
- Time Management
- People Management
While you can go to culinary school or get a business degree, there’s no better way to learn than working in a restaurant. In fact, many successful entrepreneurs, like Michael Dell, started their careers in restaurants.
James told us:
Check out our interview with him below:
We’ve got more steps for opening a restaurant. Keep reading!
Step 2. Ideas for Your Own Restaurant Concept
Small business owners have a ton of restaurant concepts to ponder when they decide to open a restaurant.
Review each business model carefully to decide which is best for you. Consider the following restaurant styles:
- Quick Service Restaurants
- Food Truck Business
- Fast Food Restaurants
- Casual Dining
- Delivery Service
- Fine Dining
- Bar and Grill
- Restaurant Franchises
- Restaurants Focused on Specific Foods
For example, Huber’s Cafe is focused on turkey. James told us:
Despite all the restaurant styles, James told us:
What Is the Restaurant Industry Outlook?
According to IBIS World, the food service industry makes over $1.12 trillion across over 1 million businesses. There are 135 reports that come up covering restaurants from pizza places to italian, franchise, fast food, or single-location full-service restaurants.
For the purpose of this article, we’ll use report 72211b: Single Location Full-Service Restaurants in the US. I strongly advise you review their full list of restaurant reports to see if there is one that is more relevant to you.
This group of restaurants includes:
“single-location, independent or family-operated restaurants that provide food services to patrons who order and are served while seated (i.e. waiter and waitress service) and pay after eating. These businesses may sell alcohol and other beverages in addition to providing food services to guests.”
These single-location restaurants make up nearly 16% of the 1 million restaurants, 18.6% of the food service revenue, but only 4% of the industry profit. This makes it a lower profit than chains, bars, and fast food restaurants.
Such revenue is expected to grow from $208.9 billion to 211.2 billion between 2023 and 2028. Those in the fine dining field are seeing the most success because high-income earners are less impacted by price changes. I would describe Huber’s pricing as being on the low end of the fine dining spectrum.
Adam told us:
He went on to describe the current environment.
He also warned about the challenges of restaurant startup costs.
Who Are the Major Players in the Restaurant Industry?
The major players in the restaurant business all have multiple locations. Some of the major players in restaurants include:
- Darden: The parent company of Olive Garden and Longhorn Steakhouse makes nearly $9 billion per year and nearly 10% profit margin. Figure out how to open a restaurant that emulates their business strategy and you’ll be a happy restaurant owner.
- Chipotle: The leader in the fast food industry has made a lot of gains over the years. It has surpassed both McDonald’s and Chick-Fil-A to have 2.2% market share. Chipotle makes around $7 billion and keeps growing, but their profit margin slightly lags the fast food industry.
- Hakkasan Group: A nightclub and bar operator that owns multiple Vegas hotspots earns more than $360 million dollars but has a lousy 2.4% profit margin.
Smaller players can still make a great living in the restaurant setting. James told us:
Keep reading to learn about identifying the target market before opening restaurants.
Step 3. Identify Your Ideal Target Market
In this step to open a restaurant, you’ll want to identify your target customers. Try to understand what kind of prospective customers visit the style restaurant you are opening. Some of the information you’ll want includes:
- Generation: Understanding which generations are more likely to eat at a restaurant can be helpful. For instance, getting younger generations to try new cuisines might be easy, while asking them to spend $200 on fine dining might not be.
- Gender: Women tend to be more likely to view food-based social media and blogs. If you can get them interested, you have a good chance of getting their significant other to try your food.
- Location: Do people tend to travel to eat at a restaurant or do they want something closer to their house? Depending on the location and type of restaurant, the answer varies.
- Wealth: If you’re trying to sell a premium experience, you’ll need to be in a premium neighborhood and market your restaurant opening to those that can afford it.
- Buying Preferences: You’ll want data like frequency of eating out, preferred means of payment, time of day more likely to eat, and what social media influencers they follow.
RestoHub has a great article on demographics for restaurants. Another great site for market research is OpenTable’s Diner Survey. Make sure to check out both before starting a restaurant, and save the Diner Survey in your browser favorites because they release new reports quarterly.
Why Do Restaurants Fail?
The most common reason restaurants fail is because the business owner runs out of money. You’ll want to think about everything that can go wrong and how to overcome it before you open a new restaurant.
That means you’ll need to gather as much data about your restaurant type as possible and include it in your restaurant business plan, which we’ll discuss next.
Step 4. Opening a Restaurant Business Plan
One thing to consider when opening a restaurant is a business plan. Your restaurant business plan should help guide the decision-making of your new restaurant. You’ll want to include:
- An Executive Summary
- Restaurant Type
- Startup Costs
- Operating Costs for 5+ Years
- Marketing Plan
- Organizational Chart
- Funding Needs
Check out our interview with Mike Andes about how to write a business plan:
The Small Business Administration is the go-to resource for all small business planning. Check out the SBA business planning guide.
In addition to the SBA resources, check out these free business plan templates!
Steps to Opening a Restaurant Checklist
We’ve created a checklist to help you with your restaurant opening. Download it below.
Step 5. Fund Your Restaurant Business
Budgeting, then funding your budget properly is essential to a restaurant’s success. We’ll look at information to include in your restaurant business plan and budget.
How Much Does It Cost to Open a Restaurant?
According to RestaurantOwner.com, 350 restaurants gave their input on their startup costs. You can expect to spend:
Startup Costs: $175,500 to $750,500, which includes:
- Construction Costs: $70,000 to $472,500
- Kitchen and Bar Equipment Costs: $40,000 to $196,250
- Pre-Opening Costs: $10,000 to $50,000
In addition, you should expect the following costs associated with owning a restaurant.
|$500K Annual Revenue||$1 Million Annual Revenue||$5 Million Annual Revenue||$10 Million Annual Revenue|
|1 Year Operational Expenses||$348,929.07||$811,524.10||$4,043,071.67||$8,019,237.71|
|3 Year Operational Expenses||$1,040,611.82||$2,447,915.44||$12,146,020.61||$24,109,178.93|
|5 Year Operational Expenses||$1,729,846.22||$4,147,119.35||$20,264,029.56||$40,237,087.15|
|10 Year Operational Expenses:||$3,514,456.46||$8,660,214.90||$40,309,500.69||$84,729,936.20|
Based on the startup costs plus ongoing costs, your restaurant planning should include how you will achieve funding of $1,088,500 to make it through the first year. Achieving this value of funding should give you enough runway to establish restaurant business profitability assuming you manage your restaurant to industry benchmarks.
Many business owners opt to open a food truck over opening a new restaurant because of the cost of opening a restaurant. Find out how Carlos started with a food truck before his restaurant opening:
How Much Do Restaurant Owners Make?
Restaurant owners make any salary they provide themselves, tips (if they are the server), and the profit from the company. Based on the survey cited above, you might not earn any money for 12 months if you rely on profit. The table below is a breakdown of how much a small business restaurant might make.
|Bottom 25% ($550,000 Revenue, 0% Profit, No Salary, Tips only)||Median ($1,125,000 Revenue, 5.5% Profit, Salary-Median, No Tips)||Top 25% ($1,880,000 Revenue, 15% Profit, Salary-High, No tips)|
Similar to budgeting in your personal life, creating and maintaining a professional budget is a vital component of starting a successful business. The budget should include:
- Costs associated with business licensing
- Costs of the space, equipment, utilities, and food
- Costs of liability insurance to protect your business if something goes wrong
- Employee costs
- Cost of accepting credit cards
- Software for running the business
- Fees to delivery apps
- Paying yourself
Here are a couple of budgeting resources you can use:
- A complete guide to creating your business budget and managing expenses
- A breakdown of the necessary restaurant costs
How to Get Restaurant Funding
Here are a few ways you can get the funds for restaurant equipment, your business location, menu items, and other startup costs. Some of the most common for small businesses include:
- Personal funds: Almost every owner will invest some of their own money when starting a restaurant. Bootstrapping is the most common way of starting a business.
- Government programs: Check the SBA site to see if there are grants for opening a restaurant. Then apply to see if you qualify.
- Small business loans: You might qualify for a small business loan especially if you are a franchise. Try our preferred lender, National Business Capital.
- Home equity loan: A home equity loan is a great way to get enough funds to start your restaurant, but many restaurants fail. If yours fails, you lose your home.
- Business partner: Many amazing chefs open their first restaurant because they were approached by a business partner.
- Friends and family: People who trust you and believe in your mission may be willing to help you get started.
- Crowdfunding: See if you can get retail investors to fund your company.
- Credit cards: You might use credit cards to fund part of a small restaurant, but most people don’t have a half a million credit line on their card. You’ll probably need other ways to fund your new restaurant in addition to a credit card.
Learn about business loans or keep reading for the rest of the steps to open a restaurant.
How to Open a Restaurant with No Money?
There are many new restaurant owners that have started cooking food at home and earned the money as they went. In fact, we talked to Carlos who started with a cart he pushed around. He grew until he could buy a food truck, then started a restaurant. Find out how:
You can also try to find investors or get a small business loan.
How to Open a Restaurant with No Experience
You can invest in a restaurant without experience, but it will be really challenging. Restaurants are one of the fastest paced businesses in the world. During busy hours restaurants can reach maximum capacity and stay there for several hours at a time. If you’ve never worked in a restaurant, I strongly suggest finding a business partner or restaurant consultant to help you.
Step 6. Consider Restaurant Names
Restaurants choose their names in different ways. Some popular methods include:
- Using a family name: Huber’s Cafe is named after the original owner.
- Creating a pun: Many Asian restaurants use this strategy. I once went to a Pho restaurant named Pho King Pho Nomenal.
- Include the name of the food: This is common when someone considers opening a BBQ restaurant.
- Evoke emotions: Raising Cane’s is named after the owner’s dog Cane.
- Get Creative: You don’t have to stick with conventional names.
Check out our restaurant name generator.
Don’t Forget to Register a Domain
When registering a domain name for your business, always go for a .com.
Our name generator connects you directly to Name Cheap, but you can always get domains from GoDaddy or your website provider. Once you’ve chosen your restaurant name and bought the domain, it’s time to register it with the government. The SBA provides a useful guide for how to do this.
Step 7. What Do You Need to Open Restaurant?
You need to meet the following legal requirements when opening a restaurant:
- Create a business entity.
- Get an Employer Identification Number (EIN).
- Get restaurant licensing.
- Buy a liquor license (if applicable).
- Get a food permit.
- Get a sales tax permit.
- Set up unemployment insurance.
- Buy business insurance.
We’ll discuss each of these in more detail.
Create a Business Entity
You can create a legal structure on your own, but we recommend working with an:
- Tax specialist
Restaurants will want to be formed as a corporation or LLC to protect the business owners because both employees and customers will be at your restaurant and could get hurt. Our partners at Better Legal can help you set up your business legal structure.
Establishing a corporation provides personal liability protection and tax benefits. However, corporations are more heavily regulated than LLCs. They also incur double taxation, meaning you’ll have to pay income tax and corporate tax on profits.
Limited Liability Company
A Limited Liability Company (LLC) is a legal business entity that also offers personal liability protection for the business owner while without double taxation. You can have one or multiple owners as an LLC. You can even opt to file taxes as an S-Corp to get some of the corporate benefits without double taxation. Find out the differences between an LLC and an S-Corp.
LLCs will typically need to have an operating agreement, especially if the business is a multi-owner LLC.
A new restaurant should get an LLC, at a minimum, to protect against personal responsibility against:
- Worker injuries
- Guests getting food poisoning
- Serving a drunk driver
Learn more about business entities.
Every Restaurant Needs an EIN
Your restaurant will need an Employee Identification Number (EIN) to hire employees and pay payroll taxes. An EIN is similar to a social security number for your business. You’ll need it to:
- Open a business bank account.
- File tax returns.
- Apply for business licenses.
Get your EIN from the IRS or call 800-829-4933 for more information.
Get Your Restaurant License
You’ll need to find out what restaurant licenses your location requires before opening restaurant operations. The SBA tool will help you when it comes to applying for a business license or permit. Remember to pay special attention to the regulations involving liquor, which we’ll discuss next.
Buy Your Liquor License
If you want to serve alcohol, you’ll need a liquor license. Go to the Alcohol and Tobacco tax and Trade Bureau (TTB) website to get a federal retail liquor dealer permit and find your local liquor board. Liquor sales are some of the highest profit menu items, so you’ll want to make sure to get this.
Apply for a Food Permit
A restaurant requires a health inspection in many locations because they want to make sure you follow food safety regulations. These may also come with other requirements like a training course for the food handlers card in Las Vegas.
Get a Sales Tax Permit
Most states have sales tax requirements that must be followed. Each state is different, so make sure to check with your Secretary of State office to establish what the local requirements are. Avalara has a guide on sales taxes. Check it out.
Set Up Unemployment Insurance
Unemployment insurance protects employees if they are laid off. While we hope your restaurant business will not have to lay off employees, recessions occur. The U.S. Chamber of Commerce has a ton of information on unemployment and also offers links to each state agency that handles state unemployment.
You’ll have to pay around $420 per employee on a federal level plus any state UI.
Buy Business Insurance and Liability Insurance
Business insurance is necessary to protect a restaurant when accidents occur. The primary types of business insurance include:
- Business General Liability Insurance: For when costly damage occurs to a person or their property.
- Professional Liability Insurance: Protect the business in case something happens that causes injury or death.
- Cybersecurity insurance: Protects the restaurant should credit card information get stolen.
Apply for business insurance from Simply Business to find the best insurance quote for your restaurant. Keep reading for more tips on opening a restaurant.
Step 8. How to Open a Restaurant
Here’s the deal: You will have many things to consider when starting a restaurant, but don’t worry. We’ll show you how to start a restaurant by following these steps:
- Create a menu.
- Find a location.
- Purchase equipment.
- Establish a pricing structure.
- Implement the business systems.
- Hire employees.
- Control the cost of food.
- Follow safety and ethical business practices.
Keep reading to learn how to create a menu for a restaurant.
Create a Menu
When you start a restaurant, it’s easy to get lured into creating a massive menu, but don’t be fooled. James told us the secret to a successful menu comes down to two things:
OpenTable agrees! They suggest the following strategy for creating a menu:
- Build your menu around your masterpieces.
- Add appetizers that compliment the meal.
- Then add desserts and drinks.
- Don’t forget soups and salads.
- Add the items that every restaurant in your category is expected to have. You don’t need more than 15 entrees.
- Limit each category to less than 10 items.
- Use the menu within your marketing plan to help drive the dining experience to your unique selling point.
Learn more about building a menu that enhances the dining experience. Then go check out Huber’s menu.
Huber’s Cafe Menu
Huber’s Cafe menu is a high-end cafe that differentiates itself from its competitors based on how they cook their turkeys. James told us:
Unlike many upscale restaurants, Huber’s includes pictures in their menu, which I love! (It is so difficult to choose a meal when I can’t picture the presentation.) They picture all their turkey meals, which shows adherence to OpenTable’s first suggestion. They cover all the bases expected with fine dining and 10 items per category. They even make wine suggestions to go with each meal.
The most interesting point on their menu is how prominently they feature their best selling drink.
Best Selling Drink: Spanish Coffee
Every restaurant should sell liquor and create a signature drink. Even breakfast restaurants do bottomless mimosas!
Huber’s Cafe has nailed theirs! Anyone starting a restaurant hopes to get such a successful drink. James told us:
He went on to explain:
He even gave us a tip about how to start a restaurant that can save you a lot of money.
Check out the famous Spanish Coffee below:
Keep reading for more information on starting a restaurant business.
Find a Location for Your Restaurant
Your restaurant location can make or break a restaurant. You’ll want to choose a spot with:
- Lots of foot traffic
- Good parking
- A good fit for your service style (Service style can vary from buffets, pickup, dine-in, delivery, drive through, full-service, and more.)
We discussed the importance of the location and how the dining room pays homage to the building’s history and adds to the restaurant’s success. Huber’s was founded in 1879 so the building has a charming mystique.
James told us the restaurant was originally much smaller. He explained:
Then in 1997, the dining room space was bought when an adjacent business closed.
The additional space led to what James describes as “Dynamic.” The space includes skylights and the original mahogany walls.
The iconic restaurant has also been included in movies. When we asked him about it, James told us:
Find out more about choosing business locations.
Purchase Restaurant Equipment and Furniture
Each location will need different equipment and restaurant furniture. Some of the items you’ll need to get for any restaurant include:
- Tables and chairs
- Bar stools
- Hostess podium
- Drink machines
- Dishwashing machines
- Ice machines
- Prep tables
- Kitchen equipment (varies based on restaurant type)
- Vent hoods (remove heat)
- Dishes, cups, and utensils
Get new equipment at Culinary Depot or look for deals on used equipment in local marketplaces.
At Huber’s, some of the items they use to cook includes:
- Combi-oven (steamer + convection oven)
- Double stacking convection ovens
- Groin pot (with soup stock and gravy)
How to Calculate Food Pricing
There are three main ways that restaurants price food:
- Use the cost of goods (COGS) sold divided by industry benchmarks.
- Developing pricing similar to other restaurants.
- Use the cost of food divided by industry benchmarks.
Let’s look at each way of how to run a restaurant.
Calculate Menu Prices with Cost of Goods Sold
Calculating the cost of goods sold involves adding the cost of the ingredients and the labor costs that are incurred making and serving each item. This method can be fairly difficult especially, since restaurants have fluctuating business throughout the day.
Let’s assume it takes:
- All employees make $10 per hour
- 5 minutes of prep time
- 10 minutes of cooking time
- 5 minutes of serving time
- The cost of the plate is $5
That means your cost to make and serve a single plate is $8.33. Next, you’d divide it by the ratio of COGS/Revenue, which was .574 in 2022. That would make the plate $14.51.
Price Similar to Other Restaurants
Another pricing strategy is to price your food comparable to successful restaurants in your area.
You’ll want to check competitor pricing online to make sure that the market will pay the price you want to charge. If they are selling a similar dish for $29.99, you probably want to go with their pricing compared to the other ways, which come out to far less.
Use Ingredient Costs to Calculate Menu Pricing
This method works similarly to the COGS pricing method, but only uses the cost of food from the food supplier and the industry benchmark for purchases and revenue.
We’ll use the same $5 food item as in the other examples. You’d want to divide the $5 plate by the industry benchmark for food, which was .263 in 2022. Using this method, the plate would cost $19.01. We’ll round up to $19.99 because it looks better on the menu.
Note About External Delivery Services
If you use an external delivery service, they normally charge the restaurants a fee.
UberEats charges up to 30%. If that comes out of the $19.99 in the previous step, you’ll lose money. Just divide by .7 to get a price of $28.56, which we’ll round up to $28.99.
That’s why restaurant pricing has increased for customers. Some restaurants open a second business for delivery services so they can charge less in store than they do on apps because it is often illegal to charge different customers different prices for the same item.
Implement Restaurant Systems
Before you start operations, you’ll need systems to run it. You’ll need a:
- Sales System: Huber’s uses Aloha from NCR.
- Inventory System: Huber uses FoodTrak.
- Payroll System: ADP is Huber’s preferred payroll provider, but you can check out other payroll providers, too.
- Accounting System: James told us they have a bookkeeper and an accountant but are looking at Quickbooks or PeachTree.
James also mentioned you need to do a weekly manual alcohol inventory.
Most restaurants will need employees because one person can’t manage the restaurant, host, serve, bartend, and be a head chef. We discussed hiring with James in our interview about running restaurants. He told us:
He also explained what he looks for when hiring the front of the house staff.
Huber’s has more than 40 employees and has had multiple employees who have stayed with them for more than 40 years!
James gave two pieces of advice for managing employees.
Pay the Employees
Employee compensation will be your biggest expense. You should expect to spend 25% to 40% of your revenue on employees depending on your state. Many states allow tips to count toward minimum wage, but you may find it difficult to find employees if you pay the minimum wage for tipped employees. Find an updated table of minimum wages by state on Minimum-Wage.org.
According to the BLS the median wage for various restaurant jobs is:
- Cooks: $14.43 per hour or $ 30,010 annually
- Restaurant Managers: $28.58 per hour or $59,440 annually
- Bartenders: $12.67 per hour or $26,350 annually
Most employees prefer weekly paychecks. Find out why you should pay weekly instead of biweekly.
Follow Tax Laws
Your restaurant will need to follow state and federal payroll tax laws including requirements to keep a record of employment taxes for at least four years. The IRS tax filing guide is the best source of information for a new business.
Follow Federal Employment and Labor Laws
You’ll need to display posters with labor laws for employees in your restaurant. Follow the employer guide regarding how to display them.
- The Federal Unemployment Tax Act (FUTA) requires any business with employees to pay a payroll tax.
- Employment Eligibility Verification (Form I-9) allows business owners to verify the identity and employment clearance of every person they hire.
- Meeting Occupational Health and Safety Administration (OSHA) standards define workplace safety requirements and are necessary for any business (and highly relevant in an industry as physical as a restaurant).
- Worker’s Compensation Insurance is a must for restaurants, as it helps businesses avoid the cost of an employee’s medical bills and lost wages following a workplace injury.
Follow Safety Regulations for Restaurants
Safety is critical to think about when learning how to start restaurant business operations. Restaurants have safety concerns:
- Food poisoning
- Food allergies
- Serving intoxicated customers
- Injuries from slipping or falling
Don’t worry! Here are some best practices you should put into place as a restaurant owner:
- Develop and implement written safety and emergency response procedures.
- Provide worker orientation and training on safety procedures.
- Follow a process to identify, control, and mitigate workplace safety hazards.
- Regularly inspect your workplace to help identify any potential hazards.
- Investigate and document accidents (or close calls) to prevent a future occurrence.
- Hold safety and health refreshers regularly.
- Keep records of workplace health and safety for review during internal or external investigations.
- Keep a first aid kit available and well-stocked in your restaurant.
OSHA provides a restaurant safety worksheet with lots of useful tips.
Step 9. How to Advertise a Restaurant
Restaurants have lots of options to help people discover their business. You’ll want to:
- Create a Website: Learn how to build a website. Make sure to include your menu and a way to order.
- Start Social Media Profiles: Creating social media channels creates easy backlinks to your website and makes it easy for your customers to share pictures of your food.
- Create a Google Business Profile: Get found on Google Search and Google Maps by creating a profile and keeping it up to date on Google Business Profile.
- Partner with Other Businesses: James told us: “God sent UpFlip here to help us promote our business.”
- Start a Rewards Program: James uses the “Birthday Club” to build a mailing list and provides a free meal on your birthday.
- Consider a Soft Opening: We’ll discuss this more below.
- Advertise Your Grand Opening: We’ll also discuss this more below.
What Is a Soft Opening for a Restaurant?
A soft opening is a method of preparing the restaurant for the grand opening. Invite family and friends to try the sample menu during a fun evening together. The soft opening will help the restaurant:
- Work out kinks before serving the general public.
- Get good pictures for marketing.
- Help identify top performing employees.
- Get feedback on menu items early.
After you have a soft opening, you’ll want to advertise the grand opening.
How Should I Advertise My Grand Opening?
Your grand opening is when you introduce yourself to the general public. The goal is to drive attention to your new establishment. You’ll want to contact local media and food influencers to invite them to try your menu. You might also want to post ads on social media and search engines. The goal of the grand opening is to drive attention to your new establishment.
Are You Ready for the Restaurant Industry?
We’ve shared everything you need to prepare to open your own food service business. The hardest part is gathering the resources, the determination, and the team to accomplish your goals. You can achieve them—you just have to keep working toward it each day.
What kind of restaurant would you open?