How to Start a Restaurant. An 8-Step Process

Even if running a restaurant involves tough hours and substantial risks, owning one can be one of the most rewarding experiences of your life. If you have a lifelong dream of owning a restaurant, you’ve come to the right place. In this guide, we will outline the steps of how to start a restaurant. So, let’s begin.

How Do I  Start a Restaurant?

Before we start, we need to understand that the food industry is ever-changing and there are always new trends coming up. From weekend brunches to food trucks, there are always new trends on the rise. Also, amid the COVID-19 Pandemic, while some people were accustomed to ordering in, others wanted an outdoor dining experience. That being the case, providing an excellent dining experience should be on the top of the priority list of any restaurant. Therefore, the first step in starting your restaurant business is deciding which restaurant style you want to get into so that you can design the best dining experience for your customers.

Step 1: Determining Your Restaurant’s Service Style

If you understand each of the different types of restaurants, you will be able to further comprehend the competitive landscape and corresponding strategies better. Restaurants can be broken down into these segments:

• Fast food restaurants - These types of restaurants specialize in fast preparation and casual service. Seating in a fast food restaurant is limited as most customers order and take their food to go.

• Fast-casual establishments - These types of restaurants are similar to fast-food restaurants, but a sit-down service is not often provided. Fast-casuals offer freshly prepared food and therefore, their prices are a bit higher than fast-food restaurants. 

• Casual dining - Such restaurants offer a full-service, sit-down experience at an affordable price. They have a great ambiance where customers can come in, sit down, and enjoy a meal. 

• Family dining - This type of restaurant follows the same concept of casual dining. However, a few restaurants don’t serve alcohol. Family dining restaurants often offer breakfast, lunch, and dinner, resulting in more operating hours. 

• Fine dining - Fine dining restaurants offer an upscale and elegant dining experience. These restaurants have higher price points, but they offer high-quality food and the best service a restaurant can provide. 

Step 2: Writing a Business Plan

Once you’ve figured out which restaurant service style suits you, you are ready to jot down your business plan (the most important step in starting a restaurant). Now, this is the step where attention to detail is required, making it time-consuming. But, it will be a worthwhile effort.  

When you are writing a business plan, take a pen and paper and figure out:

• A clear description of your concept

• A clear description of your target market

• Your menu and pricing

• In-depth analysis of your finances such as startup capital data (amount and sources) 

• Long term income and expense forecasts

• A marketing plan

• Hiring employees 

• Training and retention programs 

• A detailed plan on changes and challenges that you might face

• Include an exit plan as well

Step 3: Securing Funds and Managing Your Cash Flow

The amount of money required to start relies on the restaurant style you choose, the facility you select, the equipment you need (buying new or used), inventory, marketing, and required operating capital (money required on hand before the restaurant starts making money). 

No matter how much money you need, some amount of cash to start your restaurant is a must. Here are some suggestions to raise some capital: 

• Your own resources - Outline all of your assets such as savings accounts, equity in real estate, retirement accounts, vehicles, recreation equipment, and other investments. You might have more assets than you realize. Now, you can sell some of these assets for cash or use them as collateral for a loan. 

• Family and friends - The next logical step would be to approach your family and friends for funds. Even though you are close with the person you are approaching, present yourself professionally, present everything in writing, and ensure that the person you are approaching can take the risk of investing in your restaurant. 

• Partners - Use the “strength in numbers” approach as well. Find like-minded people who want to team up in your venture and choose people with ample financial resources and the will to work side by side with you in your endeavor. Also, you can find a silent partner who invests the money but doesn’t partake in daily operations. Make sure you create a written partnership agreement that defines the roles, responsibilities, and obligations clearly. 

• Government programs - If there are local, state, and federal programs in the area that support small businesses, take advantage of that as well. Women, veterans, and minorities should take a look at special financing programs tailored to help them start their businesses. Your local library’s business section is a good place to start your research.     

These were some of the ways you could secure some funding. There are always loans that you could go for, including those that will be offered by Ghost Financial, but bootstrapping is also a good option. Now, let’s look at some tips related to funding. 

• Be ready to lose money for the first six months: As with any other business, restaurants cannot be profitable overnight. Attracting the crowd, marketing the new place, and building a loyal customer base take some time. For this reason, you should be ready to use your operating capital for the first six months. 

• Plan for a bumpy road: Always be ready for minor ups and downs in your restaurant operating journey. If you are going over budget when you are starting out, ensure that you have some extra dough on the side to take care of things. Otherwise, you can also rely on a business line of credit. 

• Watch your food cost:  When you are in the business of making food, and the food-making expenses start to get out of line, you can lose your money really quickly. The majority of restaurants use cash when they are procuring inventories from their food suppliers. This is one of the quickest ways to redline your balance sheet. When possible, use cash back cards, like the ones offered by Ghost Financial to help you get 1% cash back.  With this card, you can change the way you look by refreshing your inventory. It is the first-ever credit card for ghost kitchens and restaurants. When you buy supplies for your kitchen using the cash back card, you can receive up to 1 percent cash back. This cash back can help you bump up your margins by several percent.   

Step 4: Selecting a Great Location

When starting a restaurant business, location is everything. A location must attract crowds, should be easily accessible, and should have the potential for growth. And of course, it must fit in your budget as well. 

While you are looking for the right spot, do some research and try to discover startup incubator spaces with mentorship opportunities and also keep the initial costs down. It is important to decide if you will be renting a space or building one from scratch, but regardless, the space doesn’t have to be huge. You can start small and expand later. 

Step 5: Understanding Restaurant Safety and Food Handling 

After choosing a great location, it’s important that you understand the restaurant's food safety and handling protocols in and out. The restaurant industry is heavily regulated by the city, state, and federal authorities to keep the customers safe. These are the three federal agencies that play a crucial role in the restaurant industry: 

• The Centers for Disease Control and Prevention (CDC)

• The Food and Drug Administration (FDA)

• Food Safety and Inspection Services (FSIS)

Different states have different regulations. So, if you are planning to open restaurants at several locations, each restaurant has to comply with a different set of obligations. Ensure that you check out restaurant state guidelines before you start. 

If you familiarize yourself with regulations, you can easily obtain specific industry-related licenses. And by adhering to basic food safety procedures, you can keep your reputation intact.

Step 6: Hiring Essential Help

Wondering how to start a restaurant efficiently? You hire people that are essential for the business. There are a few questions that must be answered before you start hiring such as:

• How many people do we need to get started?

• Do we need servers?

• Do we need a dishwasher? 

If you are still confused about your hiring needs, do a soft opening to see how things go with just a few people. You can hire more people afterward. 

Train Your Employees

To run your restaurant like a well-oiled machine, you need to train your employees regularly. While hiring people, create appropriate job descriptions, create codes of conduct, and a handbook for every team member to follow. Also, create a training guide so the employees are prepared for their respective positions. Every dish must be made based on a documented recipe so that it is made to perfection every time. 

Fill in Where Needed

An owner of a restaurant must not have an ego. Owning a restaurant doesn’t mean you dress up and ask customers about the food. You should be ready to do everything from chopping vegetables to seating customers. You should be flexible enough to fill in for other positions from time to time. 

Step 7: Receiving Payments from Customers

You’ve created a business plan, chosen a location, and hired essential people. Now you should focus on taking payments from customers. When your first customer pays you, it is an exciting milestone. So, you have to ensure that it is a seamless experience for the first time and every time after that. To make it an easy experience, you need a point-of-sale (POS) software and a payments processor. You need to choose a payment processor that handles both debit and credit card transactions from all major card companies. It must also have a consistent rate without any hidden fees and quick deposit times. 

A POS system allows you to take payments quickly. It not only allows accepting payments of all types such as EMV chip, magstripe, and NFC (mobile payments) but also assists you in running the entire operation more effectively. 

An intuitive POS system does this for you:

• Tracks inventory for better ingredients and supplies forecast

• In-built tipping to increase the tip flow

• Automatic tip settlement

• Menu adjustments 

• Tracks employee hours 

• Makes better decisions with data analytics

• Immediate customer feedback and insights 

• Customizable floor plans

• Courses on effective communication between chefs and servers

An outdated and slow POS system can hurt your business. Therefore, you should invest in a capable and quick POS, which is easy to use for your employees. 

Step 8: Building a Brand for Your Restaurant

Wondering how to start a restaurant that can compete with more established restaurants? The answer is simple; by building a brand. Building a brand is important as it can play a major role in the expansion and growth of your restaurant. Your brand makes you stand out from the crowd and distinguishes you from the competition. Here’s how you build a brand: 

Start with Positioning

Assess your restaurant’s placement, products, promotion, and price to find out where your restaurant stands in the market. This will also help you determine your USP. 

Craft a Mission Statement

Your mission statement defines who you are, what you do, and why you’re doing it. The mission statement should be your guiding star and it should align with everything you do. 

Be Consistent in the Details

Sometimes businesses don’t realize that they communicate through their brand. This is why, in order to create a memorable brand, you should pay attention to every detail for consistency. You should look at the visual elements of your restaurants such as your logo, name, decor, menus, uniforms, etc. You should also ensure that your brand voice on your website and social media marketing channels supports your mission. 

The Takeaway

Starting a restaurant can be a challenging endeavor and it requires dedication and commitment. However, it can also be a rewarding experience. With this in-depth eight-step guide, we hope we’ve answered your question about how to start a restaurant. 

FAQs : How to Start a Restaurant

1. How to start a restaurant business for the first time.

Starting your first restaurant is an intricate process. It requires a lot of planning and researching. Here are a few steps on how to start a restaurant business:

• Step 1: Determining Your Restaurant’s Service Style
• Step 2: Writing a Business Plan
• Step 3: Securing funds and Managing Your Cash Flow
• Step 4: Selecting a Great Location
• Step 5: Understanding Restaurant Safety and Food handling
• Step 6: Hiring Essential Help
• Step 7: Receiving Payments from Customers
• Step 8: Building a Brand for Your Restaurant

2. What are the monthly expenses for a restaurant?

A restaurant is like a big machine with lots of moving parts. Here are a few expenses of a restaurant:

• Occupancy cost

• Liquor cost

• Food cost

• Inventory variance and shrinkage

• Labor cost

• POS system cost

• Kitchen equipment cost

• Marketing and advertising cost

3. Is it hard to open a restaurant?

Opening a restaurant can be a difficult and stressful process even for the most grounded and organized individuals. However, once the restaurant’s doors are open, it can all be a worthwhile effort. 

Refer to the blog post above to know how to start a restaurant in just 8 simple steps!