This article is part of our Restaurant Business Startup Guide—a curated list of articles to help you plan, start, and grow your restaurant business! Listen to the audio summary:
If you’ve wanted to start a restaurant for years, it might be time to sit down and draw up a plan to open your own business. To help you create a recipe for success, we’ve put together a how-to-get-started guide to make sure you have all the ingredients you need to open your restaurant with confidence.
While starting a restaurant is exciting, it’s also time consuming and one of the toughest businesses to successfully launch. In fact, 60 percent of restaurants fail in the first year.
We’re not telling you this to temper your passion. We’re merely pointing out that if you want a successful restaurant, you’ll need to invest some serious time and money.
Why do many restaurants fail?
What’s the biggest reason for failure? Lack of planning. Before you ever make dinner for a customer, you’ll spend a lot of time figuring out every detail of your restaurant. From kitchen appliances and menus to floors plans and staff selections, the planning stage will make or break your restaurant.
To help you plan, fund, and manage your new restaurant, we’ve asked three owners to share their trade secrets. Kim Strengari owns three successful restaurants in the Philadelphia region, including Stella Blu. Yuen Yung owns fast sushi restaurants called How Do You Roll? which received a million dollar investment from the hit ABC show “Shark Tank,” and now has 10 stores in the U.S. Lambrine Macejewski, is the co-founder of Cocina 214, a contemporary Mexican restaurant in Winter Park, Florida. Below are their tips for success.
Have the right intentions
If you want to make it as a restaurant owner, you have to love what you do, Kim Strengari says. While she knew a restaurant was the right path for her, she had to work nights cleaning office buildings to make ends meet when she first opened her restaurant.
“I wanted the restaurant more then anything else in life, so the sacrifices were endless and I never minded making them,” she says.
To be successful, you’ll invest a lot of time and money—so make sure that starting a restaurant is your passion, not just a business venture you hope will make money.
In these early days, it’s also a good idea to figure out what you want your restaurant to look like. What theme are you going to follow? What furniture are you going to purchase to fit the theme? How will you lay your restaurant out? Trent Furniture, a British furniture company, has a great article on the topic to help you get started.
Have a solid business plan in place
You can’t scratch a business plan out on a cocktail napkin. You need a detailed business plan that charts the course for your success. That said, we suggest beginning with a “lean plan” rather than the cliché long, dry business plan.
Yuen Yung’s plan included a list of everything he would need to buy for the restaurant. “It looked like a novel by the time we were done,” he says. “But it helped us stay on budget and keep track of our capital.”
Your business plan should include market research, a comprehensive look at your competitors, explain your target audience, outline marketing plans, and offer a solid budget projection. To get you started, check out these templates specifically for restaurant planning, or check out LivePlan software that will walk you through the process.
Location, location, location
With a restaurant, location is everything. You need a spot that draws crowds, is easily accessible, and has potential for growth. Of course, you need a location that fits within your budget too. The perfect spot can be hard to find, so take your time, Yuen Yung says.
Whether you rent space or build from scratch, selecting a location is one of the biggest decisions you’ll make as an owner.
Test your menu
You probably have several stellar dishes in mind for your new restaurant, but you’ll want to test them out before you laminate your first menu, Yung says.
“Have a small party and invite people over to try your food before you open. Get honest feedback from people on the taste, the pricing, and the location.”
You might love the taste of a certain dish, but if customers won’t pay for it or aren’t keen on its taste, you won’t make money.
Hire essential help
A restaurant needs a healthy staff to keep it running, but before you start hiring line cooks and hostesses, make sure you bring on at least one other manager, Yung says.
“You can’t do it alone because there are too many details,” he says. Hire someone with passion and experience in the field to help you make key decisions along the way.
Create a marketing plan
You can only rely on word of mouth to bring in so many customers, so you’ll need a marketing plan in place to keep new people streaming through your doors. A few ideas:
- Participate in community events and give out food samples
- Offer discounts to new customers
- Join the local business association
- Utilize social media channels
Generate enough startup capital
As with every business, make sure you know how much money you need to get your restaurant off the ground.
You’ll need three pools of money. The first pool is for one-time costs like equipment and a cash flow system. (Check out this calculator to help you figure out startup costs.) The second pool is to cover the restaurant expenses for at least six months, and the third pool is to cover your personal bills for at least six months.
Plan to lose money for the first six months
Restaurants aren’t profitable overnight. It takes time to market your new place, attract a crowd, and get people to come back for more. Yung says you should plan on losing money for the first six months.
Plan for bumps in the road
Every restaurant goes over budget, so plan accordingly, Yung says. Make sure that you have some additional money to cover the unexpected. If you’re not sure about how to do this, consider a business line of credit.
When you do hit a bump, evaluate the numbers and your processes, Lambrine Macejewski says. For example, when she first opened her restaurant she realized her food costs were too high. She called her vendors and switched from a five day delivery schedule to a two day schedule. She saved the money she needed by investigating the problem and looking for a solution.
Have employee materials
To better manage your staff, make sure you have employee materials ready. Create job descriptions, codes of conduct, and an employee handbook. Create a training guide so employees are well trained in their respective positions. Create recipes for your cooks so every meal is made to perfection. In other words, give your employees all of the necessary tools to succeed, Macejewski says.
Be willing to fill in where needed
As the owner, you can’t have an ego, Strengari says. If your idea of owning a restaurant is walking around in a pretty dress and makeup and asking customers what they think of the food, you’ll be in for a surprise. You have to be willing to do every job. From chopping vegetables to seating customers, you’ll have to fill in from time to time.
Watch your labor costs
A lot of restaurateurs have the urge to hire, hire, hire. While you need to hire some staff to make your restaurant a success, don’t go overboard. Paying employees can be a daunting task, especially in the first few months when you’re not making a lot of money. It’s not always easy to hire the right amount of staff, Macejewski says.
“It’s tough to plan for if you are seasonal or have sporadic business, but you don’t want people on the clock if you don’t have the business” she says. “You can’t afford it.”
Hire the positions that are vital and create a schedule that makes the most out of each employee.
Watch your food cost
You’re in the business of making food, but if your food costs are out of line you’ll end up losing money, Yung say. Make sure you keep track of your inventory, prepare food well, avoid waste, and keep prices competitive.
You can’t depend on repeat customers, so you’ll need to keep your marketing efforts up to make sure your revenue stream doesn’t thin out. Establish a strong social media presence, try an ad in your local paper, participate in the local fair, or host a small non-profit get together at your restaurant to keep marketing your business.
For the right owner, there’s nothing better than running a restaurant. You get to create an atmosphere and cuisine that people will love, but it comes with a lot of hard work. While this guide has outlined many of the major components in starting a restaurant, we welcome other owners to add to this list in the comment section below.
Share your restaurant startup advice with us!
What do you think it takes to start a successful restaurant?
What do the restaurants you love most have in common? How do they stand out?
We’d love to hear from you! Leave a comment below and help other aspiring entrepreneurs get started.