A restaurant is a business establishment where different types of delicacies are prepared and served to customers. Restaurants also sell snacks, alcoholic and non-alcoholic drinks, and of course takeout meals. Food and beverage sales in the restaurant and food service industry are projected to total $789 billion in 2023, up 19.7% from 2020.
As of June 2022, 39 states and the District of Columbia had reopened to 100% indoor dining capacity; 11 states and Puerto Rico are open at varying capacities ranging from 50% to 80%. Available data shows that there are 15.1 million restaurant industry employees in the United States. 1.6 million new restaurant jobs will be created by 2028. The restaurant workforce makes up 10% of the overall U.S. workforce.
Steps on How to Start a Restaurant Business
Table of Content
Conduct Market Research
It is important to note that starting a restaurant business requires reliable market research to be able to maximize profits from the business. Please note that the first step in the market research process for your restaurant business should be to develop market-based research questions in line with your overall business goal and objective.
In this regard, you should source for information that will help you maximize your business, give you reliable data, and a hint of what your potential market will be looking out for from a restaurant business and also help you operate your restaurant business with less stress.
a. Who is the Target Market for Restaurant Business?
- Everyone who resides in and around the location where you have your restaurant
- Tourists and visitors.
b. Is Restaurant a Profitable Business?
Yes, the restaurant business is very profitable. The market size of the Chain Restaurants industry in the US has grown 2.2% per year on average between 2017 and 2022.
c. Are There Existing Niches in the Industry?
There are existing niches in the chains restaurant industry, and here are some of them;
- Fine Dining Restaurants
- Casual Dining Restaurants
- Fast Casual Restaurants
- Premium Casual Restaurants
- Family Style Restaurants.
- Fast Food Restaurants
- Ethnic Restaurants.
Please note that, in some instances, most restaurant classifications are basically of two types: based on the cuisine offered and based on the service practice. In the past, based on food preparation methods, restaurants were classified as burger places, grills, oyster bars, diners, seafood places, coffee houses, and so on.
d. Who are the Major Competitors?
- Alinea, Chicago
- Canlis Restaurant, Seattle
- Bouley, New York City
- Uchi, Austin, Texas
- Victoria & Albert’s, Orlando, Florida
- Halls Chophouse, Charleston, South Carolina
- Restaurant Gary Danko, San Francisco
- Eleven Madison Park, New York City
- Pappas Bros. Steakhouse, Dallas
- Le Bernardin, New York City
- Circa 1886, Charleston, South Carolina
- Mama’s Fish House, Maui, Hawaii
- Lahaina Grill, Maui, Hawaii
- Del Posto, New York City
- Colicchio & Sons, New York City
- Commander’s Palace, New Orleans
- The French Laundry, Yountville, California
- Per Se, New York City
- L’Atelier de Joel Robuchon, Las Vegas
- Chez Panisse, Berkeley, California.
e. Are There County or State Regulations or Zoning Laws for Restaurant Business?
Yes, there are county and state regulations and zoning laws for restaurant businesses in the United States. Please note that the Food and Drug Administration (FDA) sets the federal Food Code but it doesn’t oversee individual restaurant businesses. Instead, the various states use the Food Code as the basis for their food codes. They may adopt its rules, interpret them differently or set their own rules.
Please note that in the United States, you are required to follow your own state’s food service code. Visit the FDA website for a list of food service codes by state. Use this to find the state authority handling restaurants and bars and view the laws that apply in your state.
f. Is There a Franchise for Restaurant Business?
Yes, there are franchise opportunities for restaurants, and here are some of them;
- Tin Drum Asian Kitchen
- The Great Greek Mediterranean Grill
- Wingers Restaurant & Alehouse
- Le Macaron
- Spitz Mediterranean Street Food
- Slim Chickens
- Perkins Restaurant & Bakery
- Tin Drum Asian Kitchen
- Golden Corral Buffet and Grill.
g. What Do You Need to Start a Restaurant Business?
- A Feasibility Report
- Business and Marketing Plans
- Business Licenses and Permits
- A Good Restaurant facility
- EIN (Employer Identification Number)/Federal Tax ID Number.
- A Corporate Bank Account
- Suppliers of food ingredients and drinks
- Startup Capital
Choose a Memorable Business Name
When looking to start a business, before you can begin to file the necessary documents with the constituted authorities or start your website, it is necessary that you come up with a name that you will be recognized with. It is essential that the name you come up with can easily be pronounced, is unique and easily memorable.
Some of the catchy business name ideas suitable for a restaurant business are;
Creative Restaurant Business Name ideas
- Maggie Foods© Restaurants, Inc.
- Dan Ricketts® Restaurants, LLC
- Good Foods© Restaurants, Inc.
- Food Nest® Restaurants, Inc.
- Prowess™ Restaurants, Inc.
- Good Times™ Restaurants, LLC.
- Dame Pauline© Restaurants, LLC
- Food Court® Restaurants, Inc.
- Search Light© Restaurants, Inc.
- Tessie Bee© Restaurants, Inc.
- Food Buff® Restaurants, LLC
- Republic Chickens™ Restaurants, LLC
- Peter Pan© Restaurants, Inc.
- Food Topia® Restaurants, Inc.
- Hunger Go™ Restaurants, Inc.
- Madam Adora™ Restaurants, Inc.
- The Food Queen© Restaurants, Inc.
- Chef Nations® Restaurants, LLC
- Fun Foods© Restaurants, Inc.
- Kingfisher© Restaurants, Inc.
Register Your Business
a. What Type of Business Structure is Best for Restaurant?
In reality, there are several options when it comes to the business structure for a restaurant, but the one that most players in this line of business consider is an LLC. It is common to consider an LLC because providers want to protect themselves from lawsuits. Please note that an LLC will need an EIN if it has employees or if it will be required to file any of the excise tax forms listed below.
b. Steps to Form an LLC
- Choose a Name for Your LLC.
- File Articles of Organization.
- Choose a registered agent.
- Decide on member vs. manager management.
- Create an LLC operating agreement.
- Comply with other tax and regulatory requirements.
- File annual reports.
c. What Type of License is Needed to Open a Restaurant Business?
- General Business License
- Health and Safety Permit
- Food Handler’s License
- Liquor license
- Health and trade license
- Lift clearance license
- Zonal Permits
- Signage Permit
- Operational State Facility Inspections
- A music license if you want to play recorded, or streaming music in your restaurant
- A dumpster placement permit that specifies where you can put your dumpster outside your restaurant
- A valet parking permit if you plan to offer valet parking for customers
- Sidewalk permits if you plan to offer outside seating
d. What Type of Certification is Needed to Open a Restaurant Business?
These are some of the certifications you can work towards achieving if you want to run your own restaurant company;
- Clean Health Certificate
- Food handler Certification
- Catering Training Certificate
e. What Documents are Needed to Open a Restaurant Business?
- Business and liability insurance
- Federal Tax Payer’s ID
- State Permit and Building Approval
- Certificate of Incorporation
- Business License
- Business Plan
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Contract Document
- Company Bylaws
- Memorandum of Understanding (MoU)
f. Do You Need a Trademark, Copyright, or Patent?
If you are considering opening a restaurant business, usually you may not have any need to file for intellectual property protection or trademark. This is so because the nature of the business makes it possible for you to successfully run it without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
Cost Analysis and Budgeting
a. How Much Does It Cost to Start a Restaurant Business?
There is no clear-cut startup cost for a restaurant, but available data shows that the cost for a small to medium restaurant can range from $450,000 to over $1 million.
b. What are the Costs Involved in Starting a Restaurant?
- Business Registration Fees – $750.
- Legal expenses for obtaining licenses and permits – $3,300.
- Marketing, Branding and Promotions – $2,000.
- Business Consultant Fee – $2,500.
- Insurance – $8,400.
- Rent/Lease – $200,000.
- Other start-up expenses like phone and utility deposits ($1,800).
- Operational Cost (salaries of employees, payments of bills et al) – $70,000
- Start-up Inventory – $35,000
- Store Equipment (cash register, security, ventilation, signage) – $1,750
- Furnishing and Equipping the Restaurant – $150,000
- Website: $600
- Opening party: $3,000
- Miscellaneous: $2,000
c. What Factors Determine the Cost of Opening a Restaurant Business?
- The size and type of the restaurant
- The choice of location
- The required licenses and permits
- The type of facility
- The type of food and related products retailed in the restaurant
- The cost of hiring and paying a business consultant and attorney
- The cost for branding, promotion, and marketing of the restaurant business
- The cost for furnishing and equipping the restaurant business
- The cost of insurance
- The cost for registering the business
- Source of your food ingredients, supplies, and ongoing expenses
- Cost of recruiting and training your staff
- The cost for the purchase and customizing of uniforms
- The cost for the grand opening of the restaurant business
d. Do You Need to Build a Facility? If YES, How Much Will It Cost?
In reality, it is not compulsory to build a new facility for your restaurant business, but if you have the required finance, it will pay you to build your own facility. The truth is that building or reconstructing a facility will help you come up with a facility that will perfectly fit into your overall business goals and vision.
e. What are the Ongoing Expenses of a Restaurant Business?
- Supplies (inventory expenses)
- Utility bills (internet subscriptions, phone bills, signage and software renewal fees et al)
- Salaries of employees
f. What is the Average Salary of your Staff?
- Chief Executive Officer (Owner) – $65,000 Per Year
- Human Resources and Amin Manager – $43,000 Per Year
- Restaurant Manager – $40,000 Per Year
- Accountants/Cashiers – $33,000 Per Year
- Chefs (Cooks) – $30,000 Per Year
- Waiters/Waitress – $26,000 Per Year
- Cleaners – $25,000 Per Year
- Security Guard -$24,000 Per Year
g. How Do You Get Funding to Start a Restaurant Business?
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell shares to interested investors
- Applying for a loan from your bank/banks
- Source for soft loans from your family members and friends.
Write a Business Plan
a. Executive Summary
Madam Adora® Restaurant, Inc. is a registered restaurant business that will be located in East Rutherford, New Jersey. We have been able to lease a facility along a major road that is big enough for the kind of classy intercontinental restaurant that we intend launching and the facility is located in a corner–piece property.
b. Products and Service
- American food sales
- Intercontinental food sales
- Assorted wines
- Beverage sales
c. Mission Statement
Our mission is to establish a restaurant business that will make available varieties of well–prepared Local and intercontinental delicacies and drinks at affordable prices to the residents of East Rutherford, New Jersey.
Our vision is to become the leading restaurant brand in East Rutherford, New Jersey, and to establish a one-stop restaurant in East Rutherford, New Jersey, and in other cities in the United States of America.
d. Goals and Objectives
The goals and objectives of the restaurant business are to provide an outlet where people can buy and eat foods and drinks.
e. Organizational Structure
- Chief Executive Officer (Owner)
- Human Resources and Admin Manager
- Restaurant Manager
- Chefs (Cooks)
- Security Guard
a. SWOT Analysis
- Ideal location for a restaurant business
- Highly experienced and qualified employees and management
- Access to finance from business partners
- Availability of different types of delicacies
- Moderately priced menu
- Availability of table service and counter service
- Full bar, usually separate from the dining room
- Reliable and efficient inventory management system.
- Financial constraints may restrict the publicity and branding of the business
- A new business that will be competing with well-established restaurants and other restaurants in the city.
- Inability to retain our highly experienced and qualified employees longer than we want during the teething stage of the business.
- A rise in the number of people who would want to eat out within our market space
- Online market, new services, new technology, and of course the opening of new markets.
- The arrival of a new restaurant within our market space
- Economic uncertainty
- Liability problems
- The U.S. Food and Drug Administration (FDA) could change its regulatory status and decide to enforce strict regulations that can strangulate new businesses like ours.
b. How Do Restaurants Make Money?
Restaurants make money by selling the following products;
- American food sales
- Intercontinental food sales
- Assorted wines
- Beverage sales
c. Payment Options
- Payment with cash
- Payment via credit cards
- Payment via online bank transfer
- Payment via check
- Payment via mobile money transfer
d. Sales & Advertising Strategies
- Introduce your restaurant by sending introductory letters alongside your brochure to clubs, corporate organizations, households, and other key stakeholders throughout the city where your restaurant is located.
- Advertise on the internet on blogs and forums, and also on social media like Twitter, Facebook, LinkedIn to get your message across
- Create a basic website for your business to give your business an online presence
- Directly market your restaurant.
- Join local restaurant business associations for industry trends and tips
- Provide discount days for your customers
- Advertise our business in community-based newspapers, local TV and radio stations
- List your business on yellow pages ads (local directories)
- Encourage the use of word-of-mouth marketing (referrals)
a. How Much Should You Charge for your Product/Service?
The price for a meal in a restaurant will depend on the size and type of meal and other add-ons, but on average, a plate of meal in a restaurant starts from $15.
b. How Much Profit Do Restaurant Owners Make a Year?
It depends, but the available report shows that on average, restaurant owners make anywhere from $31,000 a year to $155,000. They also estimate that the national average is around $65,000 a year. Chron.com estimates a similar range, between $29,000 and $153,000 per year.
c. What Factors Determine the Amount of Profit to Be Made?
- The capacity of the restaurant
- The types of food, snacks, and drinks retailed in the shop
- The location of the restaurant
- The management style of the restaurant
- The business approach of the restaurant
- The advertising and marketing strategies adopted by the restaurant.
- The number of years the restaurant is in business
d. What is the Profit Margin of a Restaurant?
In the restaurant industry, a general rule of thumb is to keep food cost percentages around 28-32%. However, this is more of a guideline and less of a universal rule. Average food cost percentage differs between quick-service restaurant concepts and fine dining as well as different cities.
e. What is the Sales Forecast?
Below is the sales forecast for a restaurant. It is based on the location of the business and other factors as it relates to such startups in the United States;
- First Fiscal Year: $350,000
- Second Fiscal Year: $520,000
- Third Fiscal Year: $1.2 million
Set Up your Office
a. How Do You Choose a Perfect Location for Restaurant?
- The demography of the location especially as it relates to people that eat out
- The purchasing power of the residents of the location
- Accessibility of the location and the road network
- The number of restaurants in the location
- The local laws and regulations in the community/state
- Traffic, parking and security et al
b. What State and City are Best to Open a Restaurant?
- New York City, New York
- Las Vegas, Nevada
- Los Angeles, California
- San Francisco, California
- Dallas-Fort Worth, Texas
- Atlanta, Georgia
- Boston, Massachusetts
- Palm Beach, Florida
- Washington, D.C.
- Scottsdale, Arizona
- Portland, Oregon
- Asheville, North Carolina
- Washington DC
- Chicago, Illinois
c. What Equipment is Needed to Operate a Restaurant?
Before you can open a restaurant, you should budget and buy chairs and dining tables, POS and receipt issuing machines, storage hardware (bins, rack, shelves, food case), counter area equipment (countertop, sink, ice machine, etc.), (Flat Screen TVs, sound system, DVD players, gas cookers, deep freezers, fridge, blenders, store equipment (cash register, security, ventilation, signage), serving utensils (plates, ashtrays, glasses, flatware), fancy lightening amongst others.
When it comes to hiring employees for a standard restaurant, you should make plans to hire a competent chief executive officer, human resource and admin manager, restaurant manager, chef (cook), waiters and waitresses, cleaners, and security guard.
Launch the Business Proper
In recent times, no restaurant opens its door for business without first organizing an opening party to officially launch the business. You can choose to do a soft opening if you are operating on a low budget or you can go for a grand opening party.
The bottom line is that with a proper launching of the restaurant, you will be able to officially inform people in your city that your restaurant is open for business.
a. What Makes a Restaurant Business Successful?
- Choose a good location and shop facility to launch the business
- Make sure you offer a wide variety of foods and drinks (give your customers options)
- Be deliberate with your marketing sales approach
- Encourage the use of word of mouth to promote your restaurant business
- Leverage on all available online and offline platforms to promote your restaurant business
b. What Happens During a Typical Day at a Restaurant?
- The restaurant is open for the day’s work
- The kitchen staff prepares the food and snacks
- The serving areas, serving wares, chairs, and tables are properly arranged
- Customers are attended to
- Stocks are taken and reports are written and submitted to superior officers
- The business is closed for the day.
c. What Skills and Experience Do You Need to Build a Restaurant Business?
- Excellent culinary skills
- Excellent customer services skills
- Interpersonal skill
- Accounting and bookkeeping skills
- Business management skills
- Bargaining skill
- Work experience in a restaurant environment or niche restaurant
- Experience in managing people
- Experience in business administration
- Experience in preparing a wide variety of delicacies.