Maybe you’d like to serve your grandmother’s meatballs, or mix cocktails behind a bar. Either way, you’re far from the first person to think about opening a restaurant. In fact, lots of us have thought about it from time to time.
The question is… how?
Download Now: To be a profitable investor you first need to know the rules. Get Jim Cramer’s 25 Rules for Investing Special ReportSpecial Offer: Become a smarter investor with Action Alerts PLUS. Click here to save 57% today A restaurant is one of the hardest small businesses to launch. You will face far more hurdles than an ordinary retail location, with issues of regulation, production and competition unique to this industry. That doesn’t mean you can’t pull it off, but it does mean that you should keep the immortal words of Anthony Bourdain in mind: “If anything is good for pounding humility into you permanently, it’s the restaurant business.” With that in mind, here’s how to get started.
How to Open a Restaurant With No Experience
We’re going to put this right up here. Many, many people who have never worked in the restaurant industry want to try their hand at it because, frankly, it looks like fun from a distance. They want to throw an awesome party every night, but let’s be clear: Even in the best-case scenario, running a restaurant is a lot less “Celebrity Chef” and lot more “Bob’s Burgers.”
You wouldn’t open a law firm without a law degree. You wouldn’t become a math teacher if you have to ask, “what’s this: ÷?” (It’s called an obelus, by the way.) Don’t try to cook for a living until you’ve waited tables at an Applebee’s to understand what you don’t understand.
How to Start a Small Business
Now, there are a number of topics we’ll move through quickly in this article. This is because they are already covered in our companion piece on how to start a small business. We recommend giving it a read, because it complements quite a bit of what we have to say here. In particular, this companion piece goes into detail on how you can raise the money to launch your business.
But there are several issues specific to opening a restaurant. They include the following.
Do Your Market Research
It’s important to notice what we didn’t put first. We didn’t put “assemble your recipes,” “choose a theme” or “love the food” up top. We’re going to focus on market research first and foremost because, above all else, the most essential part of opening a restaurant is killing your own dreams.
Yep, sorry about that. The best way to make your restaurant a success is to ruthlessly hack away at all the parts of this that seem like fun and focus on the parts that seem profitable. Do you want to launch an adorable bakery? Who cares, there are already three in your neighborhood. Have you always dreamed of pan searing noodles in a promo-ready spurt of flames? The last three Thai places in town failed, but sure. Strap on that Go Pro (GPRO – Get Report) and blow your life savings.
So step one is to do market research. What is your competition? Who is your target consumer? What places have succeeded and failed in your area? How much money does your target consumer have, and what are they buying right now?
By the time you’re done, you should have the information you need to make an informed decision as to where you’ll work, who you’ll serve and what the openings are in that market.
Determine Your Restaurant Style
Now you have a sense of where you’re operating and who you want to target. The next step is to decide the structure of your restaurant. Part of this decision will have to do with funding (we’ll get to that in a minute, but for a much more thorough discussion see our piece on small businesses mentioned above). The more money you have, the bigger the restaurant you can afford to open.
But it’s important to consider all of your options. There are a lot of types of restaurants you can open, but the four chief categories to consider are:
Formal Dining Room Style
This is the standard we think about when we think “restaurant.” A big dining room, a substantial kitchen and often a bar. This can mean anything from a fancy five-star joint to the local diner as long as it involves sitting down, getting waited on by staff and eating your food there.
This is the Five Guys and Chipotle (CMG – Get Report) business model. It’s a step up from fast food because the quality of the food is typically better, but has a streamlined and lower-cost business model. It involves no wait staff (customers typically order at a counter) and is generally low-frill.
This is somewhere in between fast casual and formal dining room style. This type of restaurant is smaller than an ordinary restaurant but nicer than a fast-casual. This is the style of the cute local sandwich place; not a fast food joint, but they aren’t hiring a service staff either.
Finally, booming in popularity is the food truck/food cart style. This has grown rapidly because it’s arguably the lowest-cost model out there, and with social media and the increasing quality of mobile kitchens you can do almost anything from one of these. But beware: You might have problems with local laws, because legacy restaurants are still fighting them tooth and nail.
Write a Business Plan
The next step is to decide what kind of product you want to serve and to write the business plan for how you will do so.
Your business plan will cover everything about your new business, from target customer to funding sources to day-to-day operations. Basically, if someone ever has a question about how your restaurant will work, they should be able to look it up in the business plan.
Three key issues to address in your restaurant’s business plan:
Style of Food
Basically, what will your restaurant serve, how and why? If you want to launch a taqueria, what market opening tells you that tacos will sell well in this area? Who will cook those tacos? If it’s you, what makes you good at this?
This is your product. Whether you serve seafood, pasta, coffee or anything else, you should dive into the specifics here. You don’t necessarily need to make your menu, but you do need to get into as many details as it will take to know what you will serve, who will buy it and why you think they will buy it.
Path to Profitability
So. Many. Restaurants. Fail.
Do not underestimate the difficulty of what you’re about to do. When you show this business plan to potential partners, chefs, landlords, etc., one of the first things they’ll want to know is why you think this place will succeed.
The best way to do that is to discuss monetization frankly. What will it cost to run your restaurant? Where do you anticipate your profit centers (for example, will it come from the food or the bar or someplace else)? How much product do you need to sell in order to become profitable? What will you charge? How do you plan on reaching customers and, to the best of your judgment, when do you expect to become profitable?
An essential part of your business plan is understanding how your restaurant will financially succeed. Don’t overlook this.
A restaurant has many levels of staff, from waiters and bartenders to kitchen staff, cooks and managers. Your business plan will need to account for this.
Who will cook your food? Who will oversee the business issues and the management? If you anticipate serving customers at tables, how many waiters do you think you will need? Thoroughly evaluate the style of restaurant you plan to launch, then figure out who you will need to run this place effectively.
Address the Legal Issues
Food service is a heavily regulated field. Failing to account for that can end your business before it starts. A restaurant needs a food service license, a business license, health permits and a liquor license if applicable, and those are just some of the applicable legal issues. For a more thorough accounting of the many licenses that a restaurant needs to account for, see this article.
While expensive, the best option here is simple: Consult an attorney. It will cost money, potentially thousands of dollars, but it is extremely important to do this right. In particular a lawyer can address any quirks of your local jurisdiction.
Every state and city has its own rules and health codes when it comes to operating a restaurant. You can’t count on Googling to get this right, in part because you may well not even know the right questions to ask. Find a lawyer and ask what you need to know.
The alternative is learning from an unhappy health inspector.
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