Those with entrepreneurial dreams often set their sights on the restaurant business.
However, while there is always a demand for great food at interesting locales, the restaurant business is particularly challenging for up-and-coming restaurateurs to enter — whether due to economic unpredictability, local competition, or a host of other factors.
While the current economic and social climate may not always remain consistent, possibilities still abound for those who want to own a restaurant. In fact, now is a great time to start preparing and learning how to open a restaurant.
According to Johnson & Wales professor and online instructor Patricia Bowman, this might even be the moment for entrepreneurs to get creative with new restaurant concepts. “One of the best concepts in the industry to open right now would be one where they customize meals that people can then take home and make themselves,” she explained. “Another great concept would be one that only offers take-out and delivery.” Regardless of your concept, our guide, which includes an opening-a-restaurant checklist, will help you get started.
Facts and Figures: What You Need to Know About Opening a Restaurant
Before you go renting a space and designing a menu, you should analyze important data from the restaurant and food service industry. The reality is, a lot of restaurants — particularly new, independent restaurants — have a long road ahead of them before they are profitable. And many do fail. By understanding these important facts and figures, you can create a realistic business plan for your restaurant and set yourself up for success.
These are a few important statistics to note:
- Based on data from the Bureau of Labor Statistics (BLS), further research from 2014 showed that about 17% of startup restaurants fail within their first year. According to that study, “Survival analysis of 1.9 million longitudinal microdata for 81,000 full-service restaurants in a 20-year U.S. Bureau of Labor Statistics non-public census of business establishments in the western U.S. shows that only 17 percent of independently owned full-service restaurant startups failed in their first year, compared with 19 percent for all other service-providing startups.”
- The above study also estimated that 4.5 years is the median lifespan of a new restaurant, noting that restaurants with more than five employees have a better chance of succeeding for the long term.
- In 2023, Americans spent nearly $4,000 per year on food from restaurants — an increase of about 8% from the previous year. According to a detailed consumer expenditure report from the BLS, “With the impacts of the COVID-19 pandemic subsiding, it is likely that most spending gains were driven by further price increases and menu cost adjustments passed along to the consumer.”
While aspiring restaurateurs have challenges that lie ahead, with the proper education and preparation, new restaurants can certainly be a success.
How Much Does It Cost to Open a Restaurant?
Any entrepreneur recognizes that there are startup and operating costs associated with their next venture. Those who want to open a restaurant should understand the costs involved.
Data has highlighted the fact that startup costs can vary significantly for a restaurant depending on a variety of factors. Startup costs could fall anywhere between the vast range of $95,000 and $2 million, with other sources offering a narrower range of $175,000 to $750,000 for those starting from scratch. The factors that may influence the financial projections of your new restaurant include:
- Cost of commercial space.
- Cost of licenses and business permits.
- Renovation costs to update the commercial space.
- Equipment costs to prepare the kitchen.
- Technology costs to allow for virtual queues, digital menus and more.
- Marketing costs to promote the restaurant.
Opening-a-Restaurant Checklist: 12 Steps You Need to Take
Once you have evaluated the data and analyzed the startup restaurant costs, you will want to know more about how to open a restaurant. This checklist will guide you through the process:
1. Determine your restaurant concept.
It’s important to create a restaurant concept that takes advantage of current trends while also looking toward the long-term preferences of customers and their dining experience. For instance, this concept plan may entail a theme, business structure, designs for the space and branding elements, and the type of food and customers based on market research.
2. Create an engaging and effective business plan.
You will need a specific restaurant business plan that highlights what you will do to make your establishment succeed in order to sway investors to provide you with much-needed capital. This is the time to nail down your unique selling proposition that sets your restaurant and business model apart from competitors.
3. Begin generating capital for your new restaurant.
Take your concept plan and business plan to interested investors, friends, or family in order to raise money for the startup costs you need to launch your restaurant. Detail your intentions with the business’s trajectory, and showcase your passion for your entrepreneurial endeavor. Many new small business owners must also borrow a business loan to get off the ground. Consider, too, starting a crowdfunding campaign to which people can donate.
4. Choose a location for your restaurant.
A successful restaurant is all about finding the right location. Many restaurant owners find that downtown spots that attract walk-in diners are a great option, while others prefer busy intersections off of nearby highways. Whatever space you settle into, it will ideally be accessible and visible to patrons as well as cater to the local demographics. Additionally, consider whether you would buy or lease a building, and account for any construction that might need to be done.
5. Investigate the local competition.
Evaluate the other restaurants in your local community. Is your concept similar to theirs? What are they doing that works? What are they doing that does not work? Use their successes and failures to guide your own opening, and make a point to differentiate yourself in some way.
6. Acquire all of the licenses and permits that you will need.
Once you have generated the capital you need and firmed up your restaurant’s location, start applying for the business licenses and permits (such as a liquor license) that you will need to operate. This may require passing an inspection by your local health department before you can become licensed to open your new establishment. Research the regulations in your specific state and city for the most accurate information.
7. Hire a chef, and write your menu.
Your chef can help you create a menu that suits your concept and will appeal to your target market. “The menu is the one most important document that the operation will develop, it will drive all future business decisions, including what equipment is needed,” Bowman explained. Thus, knowing what to look for when hiring a chef is crucial, along with how to curate your job postings and interview process to find the best candidates.
8. Begin hiring staff members, and focus on the quality of your staff.
All successful restaurants have one thing in common: an excellent team of staff members. You will need to hire loyal and reliable service and kitchen staff who can deliver exceptional customer service. These positions range from servers to dishwashers to kitchen managers and everything in between. Of course, be sure your business plan accounts for the labor costs involved.
9. Invest in equipment and technology for your restaurant.
State-of-the-art restaurant equipment and technology (like a point of sale system) are needed in order to have a smooth restaurant opening. But according to Bowman, you should let the menu you’ve chosen guide this step. “When buying a piece of equipment it is important to know exactly what you are going to be using it for,” she said. “This may sound easy but it all starts with knowing exactly what menu items you plan to serve before you buy the equipment.”
10. Create and implement a marketing strategy to promote your new restaurant.
A dynamic marketing plan will use a combination of traditional and digital marketing materials — backed by insights from market research — to get the word out. Social media is also a powerful force when launching a new restaurant. While modern marketing strategies have become largely digital-first, restaurants are still selling tangible, in-person experiences to people who may be out and about — so don’t underestimate the power of physical advertising methods like signs, banners, billboards, and displays on public transportation.
11. Begin to network with other local businesses.
Fellow local business owners can help promote your business and offer advice as you establish yourself in the community. Don’t be afraid to approach these individuals to ask for help and support their businesses so that they can do the same for yours.
12. Plan a grand opening celebration for your restaurant.
A grand opening will generate buzz in the community and provide you with an exciting moment to introduce your new business to the public. This may entail details from selecting an ideal date and alerting local media to preparing signage and ensuring your menu is published on your (finished) website.
Although opening a new restaurant can feel like a daunting task, Bowman thinks that at the end of the day, if done correctly, it can be a huge payoff. “We, in the restaurant industry and all of hospitality, invest our heart and soul into this business not only because we love it but because we love what it means to our guests,” she said. “The silver lining is our guests love to eat, they love to go out and experience what we offer and we feed off of their energy.”
If you want to open your own restaurant, make sure you have the necessary education to make your venture a success by earning your degree in Food & Beverage Entrepreneurship at Johnson & Wales University College of Professional Studies. To learn more, complete the Request Info form, call 855-JWU-1881, or email [email protected].