Do you want to start a small restaurant from scratch? If YES, here is a detailed guide on how to start a restaurant business with no money and no experience.
Okay, so we have provided you an in-depth sample restaurant business plan template. We also took it further by analyzing and drafting a sample restaurant marketing plan backed up by actionable guerrilla marketing ideas for restaurants.
Table of Content
- 1 Why Start a Restaurant Business?
- 2 What Does It Take to Open a Restaurant Successfully?
- 3 Starting a Restaurant Business – Market Feasibility and Research
- 4 Starting from Scratch vs Buying a Restaurant Franchise
- 5 Possible Threats and Challenges You Will Face When Starting a Restaurant Business
- 6 Writing a Business Plan for your Restaurant Business
- 7 How Much Does It Cost to Start a Restaurant Business?
- 8 Choosing an Ideal Location for Your Restaurant
- 9 The Best Legal Entity to Use for a Restaurant Business
- 10 List of Legal Documents You Need to Run a Restaurant Business
- 11 Technical & Manpower Details for Starting a Restaurant Business
- 12 Starting a Restaurant – The Marketing Plan
- 13 Tips for Running a Restaurant Business Successfully
- 14 Expanding your Restaurant Business
- 15 Does the idea of Selling Your Restaurant Business for Profit Sound Nice to You?
Why Start a Restaurant Business?
One good thing about the restaurant business is that an owner has the sole right to determine the price they want to sell their menu irrespective of what others around them might – especially if they are good with the delicacies they whip up.
There are various kinds of restaurants all over the world. Here are a few examples; we have fast food restaurants, there is the intercontinental restaurants, local restaurants, family style cafeterias, casual dining restaurants, and fast casual restaurants, amongst others. These cafes are designed to meet various needs of different tribes, creeds and races.
In most cases, it is the community where the restaurant is to be situated that certainly determines the style of restaurant service to be offered. For example; if one decides to start a restaurant business around a construction site; choosing an intercontinental style of restaurant or a family style restaurant might just be the best option.
What Does It Take to Open a Restaurant Successfully?
If you are considering starting a restaurant business, all you would need is some capital to purchase or lease / rent a suitable facility, the required equipment, and furniture. You would also need some additional capital to purchase the required ingredients, pay your employees at least for the first 3 months, and also to pay your utility bills. These expenses are called “working capital.”
Over and above, it pays an individual to acquire culinary skills, as well as undertake a thorough and exhaustive feasibility studies before choosing the style of restaurant to start, the location to set up the business and the pricing system to adopt for the business.
How to Start a Restaurant Business With No Money or Experience – A Detailed Guide
- Industry Overview
Statistics shows that within a period of a year that is from the fall of 2011 to the fall of 2012, about 4,500 restaurants opened in the United States of America despite the fact that several restaurant closed shops within the said period and about 9,000 restaurants struggled to make profits.
It is also important to note that about 80% of new restaurants are likely going to fail within their first five years of operation. This is so because when there are economic downturn, purchasing power drops; people will often cut back on their spending for eating out and they will rather prefer to cook more at home.
- Interesting Statistics About the Restaurant Industry
The restaurant industry rakes in over $709.2 billion annually in the United States with about 3.8% sales increase in nominal terms and 1.5% industry sales increase in real (inflation-adjusted) terms. Food and drinks sales of the restaurant industry in the United States reached an all – time high; 659.31 billion U.S. dollars in 2013 – far higher than the 42.8 billion recorded in 1970.
This figure was projected to rise again in 2014 to more than 680 billion. With well over 600 thousand restaurants employing approximately 13 million people in the United States, the industry caters to a variety of customer demands regarding price, food quality, dining experience and menu options, among many other things.
From recent statistics, well over 1 million restaurant locations are in the United States and they generated an estimate of $1.9 billion sales on a typical day. The restaurant industry is a major player in the employment of labor; the industry is responsible for employing over 14 million people per time. As a matter of fact, the restaurant industry is the employer of about 10% of the overall workforce in the United States of America.
Starting a Restaurant Business – Market Feasibility and Research
- Demographics and Psychographics
As far as food is concerned, there are no defined demography that needs it. Every human needs food. It means that everybody i.e. the old, the young, children and teenagers et al, all have need of food and they are all potential customers of the restaurant industry. In essence, the target market for restaurant cum food business cuts across people of all walks of life, since everybody needs food to survive.
Well it is important to note that various restaurants most often design their restaurant business to service specific demography and this reflects in their choice of location and the type of restaurant that they choose to operate. For example, a restaurant can choose to start an intercontinental restaurant and also to locate their restaurant in highbrow area of town.
In order to stay focused on the kind of business brand they intend building, most restaurant would usually define certain groups of people as their target demography and it could fall under any of the category listed below;
- Working class
- International Tourists
- Top Executives
- The Diplomatic Community
- Corporate Organizations
List of Niche Ideas within the Restaurant Industry
It depends on how you want to look at it; there are different criteria you can use to classify restaurants. These are some of the niche ideas you should consider if you want to start your own restaurant business;
- Fast food restaurants
- Casual dining restaurants
- Family dining restaurants
- Fine dining restaurants
- Fast – casual restaurants
- Intercontinental restaurants
- Local / Ethnic restaurants
- Cafeteria style restaurants
- Vegetarian restaurants
- Buffet restaurants
The Level of Competition in the Restaurant Industry
You can hardly drive through a street without finding a handful of restaurants or more. This goes to show that there are loads of players in the restaurant industry. The reason for this cannot be far – fetched; food business is indeed serious business.
Gaining a competitive edge requires a detailed analysis of the demographics of the surrounding area and the nature of existing competitors. And even if you are successful at first, new competitors could enter your market at any time to steal your clients. Don’t hesitate to adopt successful strategies from your competitors, but understand that directly competing with an entrenched rival is a bad idea for a beginning restaurateur.
The restaurant industry is highly competitive with respect to price, value and promotions, service, location, and food quality. There are a substantial number of restaurant operations that compete with us for customer traffic, some of which have significantly greater resources to aggressively market to consumers, which could result in our concepts losing market share
Consumers are highly focused on value and if other restaurants are able to promote and deliver a higher degree of value, our guest traffic levels may suffer, impacting revenues. In addition, with improving product offerings at quick-service restaurants and grocery stores, coupled with the present state of the economy, consumers may choose to trade down to these alternatives, which could also negatively affect revenues.
Investors should also know that running an independent restaurant is different from managing or operating a restaurant chain, which invites additional complications like incentive alignment, bureaucracies, growth strategy, and operational guidelines.
List of Well – known Restaurant Brands in the United States of America
- French Laundry in Yountville, California
- Le Bernardin in New York
- Joel Robuchon at the Mansion in Las Vegas
- Saison in San Francisco
- The Willows Inn in Lummi Island, Washington
- Urasawa in Beverly Hills, California
- Blue Hill at Stone Barns
- Minibar in Washington, D.C.
- é by José Andrés in Las Vegas
- Manresa in Los Gatos, California
- Restaurant Nicholas
- Restaurant August
- Frasca Food and Wine
- Restaurant Guy Savoy
- La Belle Vie
- Yum! Brands
- Chipotle Mexican Grill
When starting a restaurant business, you just have to get your economic analysis right if your intention of building the business is to generate profits, grow the business and perhaps expand the business beyond one location to other locations within the United States and other cities in the world.
When conducting economic analysis for your restaurant business, you just have to critically examine these key factors; place, product, pricing, and promotion. As a matter of fact, you would have to continue to review these key factors at regular interval while running your restaurant business. As a restaurant owner, you just have to have a proper grasp of you competitive landscape.
Restaurant owners should also know that running their own single restaurant (an independent restaurant) is different from managing or operating a restaurant chain or franchise. Managing or operating a restaurant chain or franchise attracts additional impediments like incentive alliance, bureaucracies, growth strategy, and operational guidelines et al.
It is important to note that food cost is one of the most important factors contributing to the overall cost of a restaurant business and should be considered as a major factor when carrying out your economic analysis.
Starting from Scratch vs Buying a Restaurant Franchise
It is common to see some of the leading global restaurant brand is different countries of the world. This was achieved because some of the leading restaurants decided to venture into selling their franchise and at the same time operating a chain of restaurants. No doubt, the franchise model has indeed help restaurants to successfully expand both locally and globally at a very fast pace.
If you are considering starting a restaurant business, then you have the options of either buying a restaurant franchise from an existing restaurant brand or starting your own restaurant from the scratch. All you need to do is to look at what is available before you and then you will be able to make a good business decision as regard choosing whether to start your own restaurant from the scratch or buy an existing restaurant franchise.
Knowing the right questions to ask when buying any restaurant that is put up for sale is the key to a successful purchase, and it will help you discover the right information about the business. As a matter of fact, when you ask the right questions you will be able to buy a successful restaurant business that in no distance time will start yielding profits for you.
Part of the factors that can influence your decision when it comes to choosing between start your own restaurants from the scratch or buying a franchise is the type of restaurant business model that you want to build, your business goal and vision, your finance, the competition available within the location your intending starting your restaurant business, and available market et al.
Possible Threats and Challenges You Will Face When Starting a Restaurant Business
The major threat and challenge that is going to confront your restaurant is the fact that they compete with already established restaurants and also other restaurant that are likely going to be launched in same location. You would have to go all out to compete for the available market in the location you choose to set – up your own restaurant.
Other threats and challenges are economic downturn which usually affect purchasing powers and also unfavorable government policies. This is especially when it comes to the importation of our raw ingredients that can’t be found / cultivated in the United States. If the government of the United States of America places embargo on importation of major food ingredients, it would definitely affect the restaurant business.
Writing a Business Plan for your Restaurant Business
So if you want to start your own restaurant business, you are required to write a detailed restaurant business plan that can pass reality test when subjected to it; you should work with the facts, figures and other indices in the industry as it applies to the location you intend starting your restaurant.
The whole idea of writing a business plan is not just for the sake of having a business document in place; but a detail guide on how to effectively run your business from the scratch. Your business plan should outline and cover strategies on how you intend to manage your restaurant business. The rule of thumb in writing a business plan is to try as much as possible to be realistic and never to over project when putting figures on income and profits et al.
These are the key areas that should be covered in your business plan; Executive summary and Company’s descriptions: you are expected to write about the concept of your business, descriptions of your company, your company’s vision statement, mission statement and where your company will be located.
Other key components that should not be missing in your restaurant business plan are product offering, restaurant SWOT analysis, competitive analysis, marketing and sales analysis / strategies, pricing, costing and financial projection, publicity and advertising strategy, expansion and growth strategies, budget and start – up capital generation et al.
How Much Does It Cost to Start a Restaurant Business?
These are the key expenses you are expected to make when starting a medium scale but standard restaurant business in the United States of America;
- The total fee for registering the business in the United States of America – $750.
- Legal expenses for obtaining licenses and permits (Health department license and business license)and permits (Fire department permit, Commercial Kitchen permit, Air and water pollution control permit, Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
- Marketing promotion expenses for the grand opening of the restaurant in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
- The cost for hiring business consultant (including writing business plan) – $2,500.
- The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – $30,400.
- The cost for leasing a standard facility in a good and centralized location – $200,000.
- The cost for remodeling the facility and construction of a commercial kitchen – $100,000.
- Other start-up expenses including stationery ($500), phone and utility (gas, sewer, water and electric) deposits ($6,500).
- The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $60,000.
- The cost for start-up inventory, restaurant furniture and gadgets (Tableware, Utensils, Dishes, Bar and Kitchen equipment, Fridges, TVs, microwave oven, Sound System, Tables and Chairs, Work Tables, Sinks, Slicers, Scales, Ingredient Bins, Filing Cabinets, Noticeboard and Staff Uniform et al) – $100,000.
- The Cost for supply of raw food, ingredients, drinks and beverages for a month – $5,000.
- The cost for store equipment (cash register, security, ventilation, signage) – $13,750.
- The cost of purchase and installation of CCTVs – $5,000.
- The cost for building and hosting a website – $600.
- The cost for opening party – $8,000.
- Miscellaneous – $5,000.
You will need an estimate of seven hundred and fifty thousand dollars ($750,000) to successfully set up a medium scale but standard restaurant business with a government approved kitchen in the United States of America. Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Starting a small scale but standard restaurant business without a commercial kitchen facility within the restaurant facility in the United States of America will cost from fifty thousand dollars to one hundred and fifty thousand dollars ($50,000 to $150,000). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
When it comes to starting a standard and large scale restaurant business with several outlets in key cities in the United States of America, a restaurant business with the intention of selling franchise, then you should look towards budgeting well over two million dollars ($2 million). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Choosing an Ideal Location for Your Restaurant
The fact that there are different types of restaurant scattered across the United States does not mean that restaurant business can thrive in every location. Before choosing a location for your restaurant, ensure that you conduct a thorough feasibility study.
There is possibility of you coming across a restaurant that just closed shop in the location you want to start your restaurant can’t be ruled out. This is why it is very important to gather as much facts and figures before choosing a location to set – up your restaurant. These are some of the factors that you should consider before choosing a location for your restaurant:
- The demography of the location
- The purchasing power of the residence of the location
- Accessibility of the location
- The numbers of restaurant in the location
- The local laws and regulations in the community / state
- Traffic, parking and security et al
The Best Legal Entity to Use for a Restaurant Business
It depends on what you want and the type of business model that you intend building; you have the options of either choosing a limited liability company which is commonly called an LLC, or a sole proprietorship. Ordinarily, sole proprietorship should have been the ideal business structure for a restaurant business especially if just starting out with a moderate capital. But people prefer limited liability Company for obvious reasons.
For example; setting up an LLC protects you from personal liability. If a customer that patronized your restaurant suffers an allergy attack from your food, his lawyers can’t go after your property or properties. It is only the money that you invested into the limited liability company that will be at risk.
It is not so for sole proprietorships and partnerships. Limited liability companies simpler and more flexible to operate and you don’t need a board of directors, shareholder meetings and other managerial formalities.
List of Legal Documents You Need to Run a Restaurant Business
The legal requirements for restaurant business varies slightly from country to country, states to states and even from cities to cities. So, it is important to contact your local authority to know the legal requirements that you would need in order to start your own restaurant in your country.
These are some of the basic restaurant licenses, permits and requirements needed before you can successfully start and run your own restaurant business;
- Business and liability insurance
- Food handler certificate
- Health inspection Certificate
- Proof of district-issued food manager identification card
- Food purchase record storage and record keeping
- Depot, commissary or service support facility meets vending unit operation needs
- Copy of license for the service support facility and/or a recent inspection report
- Tax Payer’s ID
- Fire certificate
- Kitchen insurance
- Certificate of Incorporation
- Business License
- Business Plan
- Non – disclosure Agreement
- Employment Agreement (offer letters)
- Employee’s Handbook
- Operating Agreement for LLCs
- Building License
- Liquor License
- Cabaret License
- Music License
- Franchise or Trademark License
Choosing a Business Name for your Restaurant – The name you choose to give your restaurant will create the first impression in the mind of your patrons. They will judge your name even without seeing your kitchen and equipment’s and before tasting your food. Because of this, is it pertinent to choose a name that is easy to spell and pronounce, likable, memorable and of course catchy.
Technical & Manpower Details for Starting a Restaurant Business
When it comes to operating a restaurant, it is important to ensure that you acquire brand new equipment. As a matter of fact, kitchen utensils and equipment are affordable. Some of the kitchen utensils and equipment that you would need to launch your restaurant are;
- Gas Cooker
- Microwave Oven
- Deep Freezer
- Bread Toaster
- Steam Cooker
- Pots, Pans
- restaurant furniture
- sound system
- flat screen TVs
- POS machines, and bar equipment (optional).
- You would also need accounting software, CRM software, payroll software et al.
If you have the required finance, it is to your advantage to acquire a property or lease a facility to be used for you restaurant; it usually gives you the freedom to design the facility the way you want to it to be. But if you are low on cash, then you don’t have any option other than to rent a facility for your restaurant.
As regard employees, there are certain roles that must be occupied before you can effectively and successfully run a restaurant business. You would need to employ a Chef / Cook, Restaurant Manager, Sales and Marketing Officer, Waiter and Waitress, Cashiers, Security Officers, and Cleaners. On the average, you would need a minimum of 10 – 15 employees.
- The Production Process Involved With Running a Restaurant Business
Usually in a restaurant, raw foods and cooking ingredients are purchased; they are cooked / prepared in the kitchen (different delicacies) and then served / sold to customers as requested. It is a simple process it is all about cooking and serving.
Starting a Restaurant – The Marketing Plan
i. 42 Best ideas on How to Plan a Grand Opening for a Restaurant – To some restaurant business operators, a restaurant opening day might be nothing more than a fun-filled party, but you should know that how your opening day turns out can be the deciding factor of the success or failure of your business.
ii. 15 ideas on How to Entertain Customers in your Restaurant – If you own a restaurant business and you want to continue welcoming new and old customers, then you must be highly creative and part of what you need to do is to ensure that you keep entertaining your customers.
Interestingly, aside from the good delicacies on your menu list, one of the major reasons that can get people coming back to your restaurant is the entertainment they enjoy.
iii. 10 Powerful Marketing ideas & Strategies for Local Restaurants – Now it is a known fact that most restaurateurs are usually so preoccupied with their products and services that they forget about the marketing aspect. While it’s important to constantly think of ways to improve the quality of your offers, even more important is marketing because it’s the only strategy that will help you attract customers to those offers.
iv. Writing a Marketing Plan for a Restaurant – Writing a marketing plan for your restaurant business might seem intimidating at first. But the process is really manageable and can even be inspiring, as it will help you visualize your goals, identify your limitations, and capitalize on your strengths.
v. 20 Strategies to Boost Restaurant Sales Without Advertising – Due to the influx of entrepreneurs into this industry, it might be really challenging to stay ahead of the competition and continue to increase sales when you are running a restaurant business. However, these few tips would help you increase sales in your restaurant.
vi. 50 Creative Restaurant Marketing ideas & Strategies – It is important to clearly state that in this dispensation, customers use the Internet to find restaurants, to read reviews, to view menus, and of course to reserve tables online; loads of processes have gone digital. This is why most restaurants are increasingly adopting technology and the internet for marketing and advertising their restaurants.
Statistics has it that restaurant chains in the U.S. spend about 3% of their revenues on marketing and publicity. They engage mainstream marketing channels like radio, TV, and print media.
In recent time, most business including the restaurant industry relies on the internet and social media platforms to increase sales, promote their corporate identity and increase their brand awareness as well. If you have the money, you can as well sponsor events it will definitely boost your brand awareness.
For example, McDonald’s was part of the sponsors of the 2012 Olympics and that singular act gave them leverage in the industry; little wonder they are still the leading brand in the restaurant industry. It might not come cheap, but the truth remains that advertising keeps a brand name fresh in the minds of the public (existing customers and potential customers as well).
Restaurant business just like any other business in the food industry requires media hype to get people to buy into the brand.
Tips for Running a Restaurant Business Successfully
If your restaurant is owned solely by you, and you work under your own name and social security number (rather than a business name), you need a business credit card to keep your expenses separate and protect your own credit profile and assets.
Running a restaurant business involves itemizing the menus and drinks you want to sell for the day, purchase raw food and food ingredients, prepare the foods, package the foods and snacks, arrange your restaurant and then welcome your customers. After the day’s sales, the books will be balanced, the restaurant facility, plates, pots, and pans and every other stuffs will be washed and kept in the appropriate place.
It is important to state that the success of any business lies in the commitment and dedication of the employees. So if you intend running a successful restaurant, then you must ensure that you carry every member of your team along. You should create time for meetings; a time where goals, processes and issues will be reviewed et al.
i. 20 Sure Tips on How to Lower Food Cost in your Restaurant – Being in business means making profits and in order to make profits, you must be willing to do all that you can to cut cost. No business will continue to make marginal profits if they are not deliberate in ensuring that their operational cost is reduced to the barest minimum.
ii. 20 Unique ideas on How to Automate your Restaurant Business – Automation has been a strong presence in the restaurant industry, and its presence started getting felt in the industry in 2015. Today, technology-driven automation in restaurants is becoming more and more commonplace as restaurants are finding creative ways to get robots to handle tasks in the restaurant in order to simplify service delivery.
iii. 20 Best Effective Security Tips for Restaurants and Bars – If you own a restaurant or bar and you want to continue to have your repeat customers throng your place of business, then you may consider following some hard and solid security tips that can help assure you and your customers of security.
iv. 50 Best Management Tips & Tricks for Restaurant Managers & Owners – The restaurant manager is most times the difference between the success and failure of a restaurant. With the demanding nature of restaurant management, a restaurant manager requires a compendium of skills to be able to stand out
v. 50 Best Restaurant Inventory Management Tips & Tricks – With your slim margins, controlling cost is the key to success and ultimately more profit. As food and labor are typically your largest expense, it is imperative to have a restaurant inventory management process and policy for your business.
Expanding your Restaurant Business
A lot of people think that franchising a restaurant is a very difficult process. This is however not true. Granted, like any other business expansion project, it will not happen overnight, but that does not mean that it is a very difficult process.
Does the idea of Selling Your Restaurant Business for Profit Sound Nice to You?
i. 5 Smart Ways to Quickly Value a Restaurant Business for Sale – Valuing a restaurant business involves understanding and finding a crucial balance between the needs of the owner and seller based on the restaurant’s assets and track record.
ii. Best Places to Sell Used Restaurant Equipment – Selling off old restaurant equipment can help put money back into your pocket or business, and if you are planning to put your old stock in the market, here are ways and avenues you can use to sell off your old restaurant equipment, and the tips that would help you make your sales quickly enough.
iii. 20 Tips on How to Sell your Restaurant Business Successfully – The restaurant business isn’t an easy business to run, and a lot of people who have tried their hands at it may want out after some time. Whatever your reason for selling off your restaurant business, here are a few tips that can help you do it the right way.