Start a diner by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your diner. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a diner?
Average start-up costs to open up a restaurant are around $275,000 if you rent, and $425,000 if you buy the building. These fees should include everything, such as kitchen appliances and technology for the building.For further context (when you need to replace items), an industrial fryer will cost around $700, and an average table and chair set will run around $250.
You or the landlord of the building will also need to obtain a Certificate of Occupancy, which states the building is up to code. Your employees and customers will need protection against injury, as slips and burns are common in restaurants. You’ll need OSHA compliant workers’ compensation for employees and safety signage for customers.
If you choose to open up a franchise, such as a 5 and Diner (a 50s themed diner), you’ll need $250,000 in liquid assets and $750,000 net worth (e.g., real estate holdings).
What are the ongoing expenses for a diner?
Any diner will have a variety of ongoing expenses:
- Server salaries
- Equipment maintenance and replacement
- Cost of food
- Administrative items (e.g., computers, office supplies)
Who is the target market?
An ideal customer is someone who lives in the area, and one who is likely to establish a good rapport with the serving staff. Once a person has positive associations with the diner, they are more likely to bring their friends and to return again and again. Casual eateries are generally profitable only when they’re able to establish a good foundation of ‘regulars.’
How does a diner make money?
Diners make money by charging people for food with a profit margin. The cost of the food items must cover rent, equipment, staff salaries, and restaurant fixtures. Restaurants have some of the highest overhead of any business, so diners may operate at a deficit for many months before starting to see profit.
How much can you charge customers?
The standard formula for restaurants is to total the cost of the raw ingredients, and then multiply that by at least 3 to determine the listed menu price. However, each business will be influenced on where they are and who their clientele is. You will need to determine a profitable margin based on your rent price, staff wages, and equipment costs. However, you may also want to check out your competitors’ prices in the area before setting the final dollar amount.
How much profit can a diner make?
Profits are dependent on the amount of sales they make in any given day. The profit margins are typically only about 5 to 6% though, so there needs to be a high volume before restaurant owners start seeing major profit. If your restaurant does $500,000 in sales in a year, then your profit would be $27,500.
How can you make your business more profitable?
The best thing an owner can do is determine what people are willing to pay a premium for, whether that’s healthy but delicious food or a trendy new flavor that everyone’s talking about. Even diners can get a little fancy to keep their customers. There’s also the possibility of branching out into merchandising (e.g., T-shirts, hats) or by setting up stands and selling prepared foods at farmer’s markets for further promotion.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your diner is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: You can get $300 when you open a Chase Total Business Checking® account with qualifying activities. Learn More.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Federal Business Licensing Requirements
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a diner. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Since you plan to sell food at your diner, you will need licensing from a local health department. All establishments serving food are required to pass a health inspection. Tips for faring well on a health inspection can be found here.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
Certificate of Occupancy
A diner is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a diner business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your diner will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a diner
Word of mouth is a great way to promote your business, so review sites will be important. You can hold a grand opening with free food to get people interested, or give out free samples to passerbys.
There are more traditional forms of advertisement as well: door flyers, print ads, and even billboards or television. If your diner delivers, door flyers advertising a small discount are highly recommended. You may also want to distinguish and advertise your diner with a given theme, so it stands out to patrons. For example, a 50s diner where waiters dance on counters.
How to keep customers coming back
Attracting and retaining customers will be a matter of perseverance. When up to 60% of restaurants fail in three years, it can make customers hesitant to give new places a fair chance. You must also be ready to adapt to different tastes. Customers in your area may want new and different, or they may want the classics with a twist, They may demand more vegetarian options, or organic ingredients. Regardless of what’s on the menu though, all food needs to be cooked with a certain amount of expertise (even if it’s just bacon and eggs).
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Diner In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Owners should have some experience in the food industry. The more positions a person has held in the restaurant world, the more likely it is they will be able to oversee, delegate and perform the many tasks on a to-do list. Owners may not perform a lot of customer service — they may leave the bulk of this to their staff. However, they will need people skills when handling their employees and for any interactions they may have with customers.
What happens during a typical day at a diner?
Owners may find a general day consisting of the following tasks:
- Hiring and managing employees
- Overseeing the cooking process
- Designating and coordinating shifts for all staff
- Ordering inventory and food supplies
- Performing inspections to ensure quality and cleanliness
- Preparing budgets
- Building and equipment maintenance
- Testing and experimenting with new menu items
What are some skills and experiences that will help you build a successful diner?
The best skills an owner can have is being a good multi-tasker. Most tasks on a to-do list may seem simple, but put all of it together and it’s a time-management puzzle that not everyone can solve. You should also be good at reading people and understanding what they want. When diners have legitimate complaints, listening and negotiating skills will become critical to staying in business.
What is the growth potential for a diner?
Diners aren’t generally known for being large restaurants, though there are exceptions to this rule. A diner may expand in terms of physical space (e.g., buying the building next door and expanding the seating area), or they may become a franchise. Should your diner become extremely popular, with long wait times and enthusiastic prospective customers, then it’s recommended you open another location to accommodate the demand.
You may also wish to start a franchise. For example, popular chains like Denny’s or Ruby’s allow owners to use their name and menu to establish a business. The name recognition and built-in advertising can give owners a leg-up when it comes to getting their first customers.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a diner?
More than anything else, a diner needs to be consistent if it hopes for success. While no business is perfect, uneven service, food quality, or restaurant cleanliness will quickly turn customers off. If people see Yelp reviews that are sometimes good and sometimes bad, they may feel uncomfortable taking a chance. An owner cannot survive in the competitive restaurant world without watching every detail.
You also need to be smart about spending. Look for deals and sales whenever you can. Restaurants that have gone out of business are a good way to pick up perfectly functional equipment at a deep discount. Many owners will overspend before even opening the doors on everything from Facebook ads to redecorating, only to find their sales don’t support the initial enthusiasm.
How and when to build a team
The best time to build a team is at the very beginning, before the diner opens. Once the diner becomes popular, it will be difficult to hire and fire simply due to time constraints. Staff turnover often has a more significant impact on profits than owners think. Between trying to fill in the absent person’s shifts and training new people, there’s a lot of potential for major mistakes. While a certain amount of this is unavoidable in a business like a diner, you should really be looking for people who are willing to stick with the organization to make it a success.