How to Start a Restaurant

Opening a restaurant is one of the most rewarding—and challenging—business ventures you can undertake. The restaurant industry generates over $1 trillion in annual sales in the United States alone, with over 1 million restaurant locations serving 160 million customers daily.

But the reality check is important: approximately 60% of restaurants fail within the first year, and 80% close within five years. These statistics aren't meant to discourage you—they're meant to emphasize the importance of proper planning and preparation.

What makes restaurants fail?

• Insufficient capital and poor cash flow management
• Wrong location selection
• Lack of a clear concept and target market
• Poor hiring decisions and team management
• Underestimating operational complexity
• Failure to adapt to market changes

What makes restaurants succeed?

• Thorough business planning and market research
• Adequate funding with financial cushion
• Strong, differentiated concept
• Prime location for target demographic
• Excellent team and culture
• Systems and technology for efficiency
• Continuous marketing and customer engagement

This guide will help you join the successful 20% by walking you through every step of the restaurant opening process.

Your restaurant concept is the foundation of everything that follows. It defines your cuisine, atmosphere, service style, price point, and target customer. A strong, differentiated concept is crucial for standing out in a competitive market.

Key elements of a restaurant concept:

Cuisine Type: What food will you serve? This could be a specific cuisine (Italian, Mexican, Japanese), a cooking style (farm-to-table, fusion), or a format (fast-casual, fine dining).

Service Style: Full-service, counter-service, fast-casual, quick-service, or delivery-focused?

Price Point: Budget-friendly, mid-range, upscale, or fine dining? Your price point should match your target market and location.

Atmosphere: Casual and family-friendly, romantic, trendy, sports-focused, or business-casual?

Unique Value Proposition: What makes your restaurant different? This could be a signature dish, unique sourcing, exceptional service, or innovative technology.

A detailed business plan is essential—not just for securing funding, but for clarifying your strategy and anticipating challenges. Investors and lenders will require a professional business plan, and the process of creating one forces you to think through every aspect of your business.

Essential components of a restaurant business plan:

1. Executive Summary (1-2 pages)

   • Business concept overview
   • Mission statement
   • Key financial projections
   • Funding requirements
   • Ownership structure

2. Company Description

   • Restaurant concept and theme
   • Target market
   • Competitive advantages
   • Short and long-term goals

3. Market Analysis

   • Industry overview and trends
   • Target market demographics
   • Competitive landscape
   • Market opportunity

4. Organization & Management

   • Ownership structure
   • Management team bios
   • Organizational chart
   • Advisory board (if applicable)

5. Menu & Service

   • Sample menu with pricing
   • Sourcing strategy
   • Service style description
   • Beverage program

6. Marketing Strategy

   • Brand positioning
   • Pre-opening marketing plan
   • Ongoing marketing tactics
   • Digital presence strategy

7. Operations Plan

   • Location requirements
   • Hours of operation
   • Staffing plan
   • Technology systems

8. Financial Projections

   • Startup costs breakdown
   • First-year monthly projections
   • 3-5 year annual projections
   • Break-even analysis
   • Funding sources and uses

Opening a restaurant requires significant capital. Understanding your funding options and preparing for the fundraising process is crucial.

Typical Restaurant Startup Costs:

| Category | Small/Fast-Casual | Full-Service | Fine Dining | |----------|------------------|--------------|-------------| | Total Investment | $175,000 - $400,000 | $400,000 - $800,000 | $750,000 - $2,000,000+ | | Buildout/Renovation | $50,000 - $150,000 | $150,000 - $400,000 | $300,000 - $1,000,000 | | Equipment | $40,000 - $100,000 | $100,000 - $200,000 | $150,000 - $400,000 | | Initial Inventory | $10,000 - $25,000 | $25,000 - $50,000 | $50,000 - $100,000 | | Licenses/Permits | $5,000 - $15,000 | $10,000 - $30,000 | $15,000 - $50,000 | | Marketing/Launch | $10,000 - $30,000 | $30,000 - $75,000 | $50,000 - $150,000 | | Working Capital | $50,000 - $100,000 | $100,000 - $200,000 | $200,000 - $400,000 |

Funding Sources:

Personal Savings: The foundation of most restaurant funding. Investors expect you to have significant personal investment ("skin in the game").

Friends and Family: Common for first-time restaurateurs. Document all investments formally with written agreements.

Bank Loans (SBA): SBA 7(a) loans are popular for restaurants. Require good credit, collateral, and 20-30% down payment.

Alternative Lenders: Online lenders offer faster approval but higher rates. Good for equipment financing or bridge loans.

Investors: Private investors or restaurant groups may invest for equity stake. Expect to give up 20-50% ownership.

Crowdfunding: Platforms like Kickstarter or Indiegogo can work for unique concepts. Better for community engagement than primary funding.

Location can make or break a restaurant. The wrong location is one of the leading causes of restaurant failure, while the right location provides built-in traffic and visibility.

Key Location Factors:

Visibility and Access

• Street visibility and signage opportunities
• Easy parking or public transit access
• Pedestrian foot traffic
• Delivery driver accessibility

Demographics

• Population within 3-5 mile radius
• Income levels matching your price point
• Age demographics matching your concept
• Daytime vs. nighttime population (office workers vs. residents)

Competition

• Proximity to complementary restaurants (can be beneficial)
• Direct competitors nearby
• Restaurant density (too many = oversaturated)

Physical Space

• Square footage matching your concept (typically 15-20 sq ft per seat)
• Kitchen to dining room ratio (usually 40% kitchen, 60% dining)
• Condition of existing infrastructure
• Expansion possibilities

Lease Terms

• Base rent and CAM charges
• Lease length (5-10 years typical, with options)
• Tenant improvement allowance
• Personal guarantee requirements
• Exclusivity clauses

Navigating permits and licenses is one of the most complex parts of opening a restaurant. Requirements vary significantly by location, but here's what you'll typically need:

Business Formation

• Business entity formation (LLC recommended)
• Employer Identification Number (EIN)
• State business registration
• DBA ("Doing Business As") registration if applicable

Food Service Licenses

• Food service establishment license
• Health department permit
• Food handler certifications for staff
• Food manager certification (ServSafe or equivalent)

Alcohol Licenses (if serving alcohol)

• Beer and wine license OR
• Full liquor license
• Varies dramatically by state/locality
• Can cost $300-$400,000+ depending on location
• Plan 3-6 months for approval

Building and Safety

• Building permit for renovations
• Certificate of occupancy
• Fire department permit
• Sign permit
• ADA compliance certification

Other Requirements

• Music licensing (ASCAP, BMI, SESAC)
• Dumpster permit
• Grease trap permit
• Outdoor seating permit (if applicable)
• Catering license (if offering catering)

Your restaurant's design impacts guest experience, operational efficiency, and brand perception. Invest in thoughtful design while managing costs.

Design Priorities:

Kitchen Design

• Workflow efficiency (raw storage → prep → cooking → plating → service)
• Equipment placement based on menu requirements
• Adequate ventilation and fire suppression
• Walk-in cooler and dry storage sizing
• Dishwashing area and flow

Dining Room Design

• Seating capacity matching concept (fine dining: more space per seat)
• Table mix (2-tops, 4-tops, larger tables)
• Traffic flow for servers and guests
• Lighting design for ambiance and function
• Acoustics (sound absorption is often overlooked)

Brand Experience

• Interior design reflecting concept
• Color palette and materials
• Signage and wayfinding
• Restroom experience
• Entry and waiting area

Compliance Requirements

• ADA accessibility throughout
• Fire egress and capacity limits
• Ventilation and hood systems
• Grease trap sizing
• Handwashing stations

Your team is the heart of your restaurant. Great food means nothing without great service, and great service comes from well-hired, well-trained, and well-managed staff.

Key Positions to Hire:

Management

• General Manager: Operations oversight, P&L responsibility
• Kitchen Manager/Executive Chef: Kitchen operations, menu execution
• Front of House Manager: Service, guest experience
• Bar Manager: Beverage program (if applicable)

Back of House

• Line Cooks: Station-specific cooking
• Prep Cooks: Ingredient preparation
• Dishwashers: Warewashing, kitchen support

Front of House

• Servers: Guest service, order taking, upselling
• Hosts: Seating, reservations, guest flow
• Bartenders: Beverage service
• Bussers/Food Runners: Table support

Staffing Ratios (Full-Service):

• 1 server per 15-20 seats
• 1 busser per 30-40 seats
• 1 host per 75-100 seats
• Kitchen staff depends on menu complexity

Modern restaurants run on technology. The right systems increase efficiency, reduce errors, improve guest experience, and provide valuable data for decision-making.

Essential Restaurant Technology:

Point of Sale (POS) System

• Order taking and payment processing
• Menu management
• Reporting and analytics
• Integration with other systems
• Popular options: Toast, Square, Clover, Revel

Online Ordering System

• Direct ordering through your website
• Mobile app ordering
• Integration with POS
• Commission-free vs. third-party options
• RestauNax provides commission-free online ordering with custom websites

Kitchen Display System (KDS)

• Digital ticket management
• Order timing and tracking
• Station routing
• Integration with POS

Reservation System

• Online booking
• Table management
• Guest database
• Popular options: Resy, OpenTable, Yelp Reservations

Additional Technology:

• Inventory management software
• Employee scheduling software
• Accounting integration (QuickBooks)
• Customer relationship management (CRM)
• Marketing automation
• Delivery management

Your menu is the core of your restaurant—it defines your identity, determines your costs, and drives your revenue. Menu engineering is both an art and a science.

Menu Development Principles:

Keep It Focused

• Quality over quantity
• 20-30 items for most concepts
• Easier execution and inventory management
• Allows specialization and excellence

Price Strategically

• Food cost target: 28-35% of menu price
• Factor in labor for complex dishes
• Use psychological pricing (9.95 vs 10.00)
• Anchor high to make mid-range items attractive

Design for Profitability

• Stars: High popularity, high profit (promote these)
• Plowhorses: High popularity, low profit (increase price or reduce cost)
• Puzzles: Low popularity, high profit (promote or reposition)
• Dogs: Low popularity, low profit (remove from menu)

Consider Operations

• Equipment requirements
• Prep time and complexity
• Station balance during service
• Cross-utilization of ingredients

A strong marketing strategy builds anticipation before opening and drives traffic after launch. Your marketing should start months before you open.

Pre-Opening Marketing Timeline:

3-6 Months Before Opening:

• Secure social media handles
• Create coming soon website
• Begin posting construction progress
• Build email list (signup for opening updates)
• Connect with local food media/influencers

1-2 Months Before Opening:

• Announce opening date
• Share menu previews
• Host hard hat tours for VIPs
• Finalize grand opening plans
• Send press releases to media

2-3 Weeks Before Opening:

• Friends and family soft opening events
• Final staff training
• Invite food critics and influencers
• Generate pre-opening buzz

Opening Week:

• Grand opening event
• Social media push
• Press coverage
• Special opening promotions

Opening day is just the beginning. Success comes from consistent execution and continuous improvement in daily operations.

First Week Operations:

Expect Challenges

• Systems won't work perfectly
• Staff will make mistakes
• You'll discover operational gaps
• Guest feedback will reveal blind spots

Management Presence

• Owners/managers present all shifts
• Hands-on problem solving
• Real-time training opportunities
• Guest interaction and feedback

Adjust and Adapt

• Daily team debriefs
• Immediate menu/process adjustments
• Address guest feedback quickly
• Celebrate wins with the team

Ongoing Operational Excellence:

Daily

• Pre-shift meetings
• Inventory checks
• Sales and labor monitoring
• Guest feedback review

Weekly

• Schedule creation
• Vendor ordering
• Marketing planning
• P&L review

Monthly

• Full inventory count
• Financial analysis
• Staff performance reviews
• Menu evaluation

Quarterly

• Strategic planning
• Menu updates
• Marketing campaign evaluation
• Equipment maintenance