Start a restaurant by following these 10 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 restaurant. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
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 restaurant?
The costs to start a restaurant vary, but generally include:
- Building security deposit: $10,000 to $12,000
- First month’s rent: $10,000 to $15,000
- First month utilities: $2,500
- Customized build out for kitchen: up to $350,000
- Tables and furniture: $40,000 to $50,000
- Tableware, utensils, dishes, kitchen, and bar equipment: $50,000 to $80,000
- Initial overhead, including food and prep materials: $8,000 to $15,000
- POS: $1,500 to $20,000
- Insurance: up to $6,000
- Sign: $10,000 to $20,000
- Menu printouts: $1,500
- Business cards: $70 to $300
- Fliers: $5,000 to $10,000
- Grand opening event: $15,000
- PR for grand opening: up to $5,000
Total cost can run $600,000 or more depending on the type of restaurant you want to run. These costs can be much more expensive, or much cheaper depending on a number of factors including, location, necessary equipment, and vendors through which essentials are purchased.
What are the ongoing expenses for a restaurant?
A restaurant has numerous ongoing expenses, but the major ones include:
- Rent for the building: $10,000 to $12,000 per month, depending on location
- Utilities, which can include phone, internet, T.V., electricity, water, gas: up to $2,500 per month (sometimes more, depending on location)
- Food and supplies: $10,000 to $15,000 per month, or more depending on the menu
- Labor cost: variable, based on staff needs
Who is the target market?
Customers are typically individuals and families who are dining out for the day or evening. Some restaurants also cater to larger functions, like business or government organization events, birthdays, and other large-scale catering events.
How does a restaurant make money?
A restaurant makes money by charging customers money to prepare food and drinks for them. Prices are typically fixed on a menu. Customers may also tip waiters and staff for good or exceptional service. For waitstaff, tipping is customary. These tips are sometimes split amongst the workers in the restaurant, or can contribute to the waitstaff’s pay.
How much can you charge customers?
Menu prices vary considerably based on the type of restaurant and the fare being served. For example, a high-end restaurant serving seafood may charge between $20 and $50 per plate. A small diner may only charge between $4 and $10 per plate.
Customers pay for menu items a la carte or as a meal or plate. Some restaurants also offer bundled specials which include an appetizer, the entree and a dessert for one fixed price. Meals are paid for after customers finish eating and a tip (or an option for a tip) is usually included on the bill.
How much profit can a restaurant make?
The restaurant business has a high degree of failure, but businesses that make it can also be very successful. Even a modest operation can turn over $1 million or more in revenue in a year. Franchise operations may bring in several million per year based on location and the type of restaurant.
How can you make your business more profitable?
A profitable restaurant is one that usually targets a specific demographic or narrows it cuisine to serve a specific type of market. For example, an authentic Mexican restaurant may be able to charge more for its Mexican fare than a generic restaurant that happens to serve Mexican food. Location also matters. Restaurants in wealthy or well-off communities tend to attract individuals with a higher income.
Restaurants in cities, for example, may be able to charge more than restaurants located in very rural areas in economically depressed areas of the country. Some restaurants expand their profits by starting sideline businesses, like catering or food trucks for special events.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Restaurant Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your restaurant is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
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?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
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.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
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: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
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.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a restaurant. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
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.
Restaurants may also wish to look into applying for a resale certificate, which allows retailers to purchase raw ingredients intended for use in meals without paying sales tax.
In addition, certain local licensing or regulatory requirements may apply.
If your restaurant intends to sell alcohol, you will need a liquor license in order to lawfully sell alcohol. You can find a list of laws by state here.
Because restaurants are in the business of selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Here are some tips for faring well on a health inspections.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources
In order to play music in a business setting, as many restaurants do, permission must be acquired from the composer or license holder. Typically, it is possible to obtain a “blanket” license allowing a businesses to play music owned by a large catalog of artists and recording studios. Such licenses can be obtained from Performance Rights Organizations, such as ASCAP or BMI.
Labor safety requirements
It is important to comply with all Occupational Safety and Health Administration requirements.
Restaurants need to post safety signage, make the work environment as safe as possible, and report any work-related injuries.
Certificate of Occupancy
A restaurant is generally run out of a large 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 restaurant.
- 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 restaurant 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.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
How to promote & market a restaurant
Restaurants are marketed primarily through word of mouth. However, some restaurants do find running flyers in the local paper helps create a buzz. Consider offering coupons for first-time guests and during the opening week or month of your restaurant.
How to keep customers coming back
This is a customer service business. Pay extra special attention to service. This is what brings guests back. Likewise, poor service can drive guests away forever and damage your reputation in the community.
Beyond that, you must have some business skill, which can be obtained by taking business courses, or working under a restaurant owner.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start A Restaurant 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?
A restaurant is a fast-paced business and very stressful to run. As such, it's best suited to people with excellent organization skills and entrepreneurs who have a passion for food. Restaurateurs often live a modest and hectic lifestyle. Because of this, it’s not a business for those who are easily stressed out or desire a “hands-off” business.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a restaurant?
The day starts by opening the restaurant and printing up the specials for the day. Restaurant owners also need to check their stock and order any necessary ingredients. Daily cleanliness inspections of the kitchen are a must. After meeting with the chef and prep cooks about the plan for the day, it’s time to inspect the dining room and set up for the first service of the day.
If you serve breakfast, this will usually mean having the dining room open and ready by 6 or 7 am. If you serve a lunch-dinner service, then you can open up at 11 am.
After prepping for each service, the bulk of your day is spent reacting to events as they happen. Customer orders and complaints, peak service, and prep for the second service are all stressful and busy events.
Once service starts, it’s usually non-stop until close.
What are some skills and experiences that will help you build a successful restaurant?
Most successful restaurateurs have experience managing a restaurant or cooking in one. Before opening your own restaurant, consider working for a successful operation, either in a franchise or a family-owned business.
A family-owned business tends to have a different culture than a large corporate or franchised operation so it may help to work in both to experience the difference. In general, family-owned operations tend to view the staff as family. They also tend to view the revenue earned in the business as “family money” and manage their finances accordingly.
A franchise is usually governed by a corporate entity responsible for regulating the operation of the franchise and maintaining a minimum level of quality. Franchise operations also operate on a business model that sets minimum standards for how the business cooks its food, serves it, and controls the menu.
What is the growth potential for a restaurant?
Small restaurants can be run as a diner or a small sandwich shop or even a food truck service. Larger restaurants usually operate in a centralized location, with a large kitchen and dining room area.
Scaling is typically a matter of opening up new locations based on demand, staffing, and financial ability.
For example, a small family-owned restaurant may never outgrow its first location. A franchise, like McDonald’s, Applebee's, or Red Robin, will have many chains across the country and, sometimes, across the world.
TRUiC's YouTube Channel
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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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
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 restaurant?
Starting a restaurant is difficult, requires extensive upfront capital, and has a high rate of failure. Because of this, it’s best to start as cheaply as possible. Successful restaurants focus on a niche or an underserved market. Consider starting a small food truck to get a taste for what running a restaurant might be like. The cost for this will likely be much lower than running a full-scale operation.
How and when to build a team
At minimum, you will need to start the restaurant with a master or head chef, a prep cook, kitchen manager, and wait staff. You’ll also need a front-of-house manager. Most restaurant owners take on this role in the early years of the restaurant.
Read our restaurant hiring guide to learn about the different roles a restaurant typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.