How to Start a Restaurant in 12 Steps

Starting a restaurant is a huge undertaking, even if you have the skills to make it work. But if you’re passionate about providing great food and customer service, you shouldn’t let the startup process deter you. We’ll break down the process of how to start a restaurant into 12 steps.

1. Pick a restaurant concept and niche

Choosing a restaurant niche informs the entire process of starting a restaurant. It will impact your market analysis, restaurant location and equipment needs, not to mention the menu and prices. Make sure your restaurant concept and niche work well with your goals.

For example, if you want to open in a neighborhood filled with busy professionals, a fast casual lunch restaurant may be your best bet. If you want to launch a short-term and creative experience, a pop-up restaurant could work for you. You should also consider your knowledge and experience — if you already know what makes the perfect pizza, you might be most successful opening a pizza shop.

2. Write a restaurant business plan

A business plan provides the foundation for your business, ensures your idea is viable and serves as a guide for running your restaurant. A good business plan should include at least the following:

• Executive summary: Write an overview of your business, including your mission statement and plans for growth.
• Company description: Explain the needs your restaurant will fulfill, the customers it will serve, the advantages of your restaurant concept and the expertise of your team.
• Market analysis: Include research on your competitors and your target market.
• Organization and management: Describe the roles of your team members and your business structure.
• Marketing and sales: Outline your marketing strategy for attracting customers.
• Financial projections: Forecast your cash flow with graphs and charts.

3. Choose a restaurant business structure

Your legal business structure will impact your personal liability and how your business is taxed. You can choose among the following:

4. Get a tax ID for your restaurant

If you plan to hire employees, or if you structure your business as a corporation or partnership, you’ll need a federal tax ID, also known as an employer identification number (EIN). This number identifies your business in the same way your Social Security number identifies you personally.

You can apply online and usually get your EIN in a few minutes. You’ll need it when you pay business taxes, including:

• Income tax: The structure of your business will determine how you pay income tax and which returns you must file. You may be required to make quarterly estimated payments if you do not pay your income tax through withholding.
• Self-employment tax: Self-employed individuals must pay Social Security and Medicare tax. In general, sole proprietors don’t have to have an EIN — they can just use their Social Security number.
• Employment taxes: If you have employees, you’ll have payroll expenses, including Social Security and Medicare tax for your employees, federal income tax withholding and unemployment tax.
• Sales tax: Restaurants in most states need to collect sales tax from customers and remit it to state or local governments in accordance with local regulations.

5. Decide on a location

Location is one of the most important factors in determining the success of your business. Make sure you consider your target market when choosing a space. For example, you might pick a spot near the largest office buildings to capitalize on lunch-hour foot traffic. If you’re opening a fine-dining establishment, you’ll likely want to be close to high-income neighborhoods and near luxury or designer stores.

If you’re planning on purchasing property, consider a commercial real estate loan. You can use the money to pay for the land or building, upgrade your restaurant and cover the cost of any necessary construction.

6. Secure necessary permits, licenses and insurance to open your restaurant

To operate your restaurant legally, you’ll need certain permits and licenses. You’ll also need insurance to protect your business finances. Before your grand opening, make sure you have the following:

• Health department permits: You’ll need a food service license from your local health department to run a restaurant. You may also need other permits specific to your type of restaurant and location.
• Use and occupancy permit: Even if you’re taking over an existing space, you’ll need a permit from your local zoning or building office that shows it’s up to code. If you’re planning to construct or renovate a restaurant, you might need to file more paperwork or complete additional inspections.
• Food manager certification: In many cities and counties, you’ll need a trained and certified food manager supervising your restaurant when it’s open, which helps prevent foodborne illnesses. It’s typically necessary to pass an exam to get the certification.
• Liquor license: If you serve alcohol at your restaurant, you’ll need a liquor license from the Alcohol and Tobacco Tax and Trade Bureau, and another license from your local alcohol beverage control board.
• Business insurance: Most restaurants should have commercial general liability insurance, which protects against “slip-and-fall” lawsuits and other risks, along with property insurance, which works like homeowners insurance for your restaurant. If you have a certain number of employees, you’ll also be legally required to have workers’ compensation coverage. You may need other insurance coverages as well.
• Business license: You’ll need a business license to operate in most cities and counties, and you may need to show proof of insurance to get one.

7. Obtain restaurant equipment

Restaurant equipment can put a dent in your business funding. You may need commercial refrigerators, freezers, ovens, dishwashers and more. These costs can set you back between $30,000 and $100,000, depending on your needs.

If you’re short on cash or plan to upgrade the equipment regularly, equipment leasing may be a good option. With an equipment lease, you’ll pay monthly fees to use the equipment without building equity, but you’ll have fewer upfront and maintenance costs.

If you plan to use your kitchen equipment for the duration of its lifespan, you might be better off purchasing the equipment with an equipment loan. These loans are secured by the equipment you purchase, so credit requirements may be more lenient than with other types of financing. Equipment loans typically have the following features:

• Large down payment requirements
• Fast funding
• Low interest rates
• Fixed monthly payments

8. Get restaurant funding

Many small-restaurant entrepreneurs don’t have the money to get their restaurant up and running. If you need financial help starting or operating a restaurant, you have several options, including:

• SBA loans: Backed by the U.S. Small Business Administration, SBA loans can be used for a range of purposes and come with competitive business loan interest rates. You may be able to borrow up to $5.5 million, depending on the loan type you choose, but the time to funding can be relatively lengthy.
• Term loans: Small business term loans are available from banks, credit unions and online lenders. They provide a lump sum and are repaid in fixed monthly installments with terms up to 10 years. Online lenders often have lower borrowing caps but offer quicker funding.
• Business line of credit: Once your business is operating, you may need quick cash to fund payroll, smooth out cash flow issues or other short-term costs. A business line of credit is ideal in this situation. You’ll have access to a revolving line of credit, typically up to $250,000, and you only pay interest on the amount you borrow.
• Working capital loans: A working capital loan refers to any type of short-term loan used to cover operating expenses. Features vary depending on the loan product you choose.
• Startup business loans: A startup business loan refers to alternative financing with more lenient eligibility requirements. Some lenders may offer startup loans to new businesses, while others may require your business to be operational for at least six months .
• Crowdfunding: It can be difficult to get a loan. You can use a crowdfunding platform like GoFundMe for business to get donations from friends, family and potential customers while generating hype for your restaurant. It’s a great option for restaurant owners with an innovative idea.

9. Create a menu

Planning the enticing menu items your restaurant will offer is the fun part, but it should reflect the market research you did when choosing your restaurant niche and concept. For example, if you’re running a food truck or fast casual restaurant, make sure people can easily eat your food on the go. See what your competitors are making and try to make a better version.

Also, pay attention to food costs and profit margins when planning your menu. Aim for three to seven menu items per category, and try to limit your total ingredients to reduce waste and supply costs.

10. Invest in accounting systems

When you open your restaurant, you’ll need software to help you track your business expenses and prepare invoices and financial reports. You should pay attention to the following when selecting the best accounting software for your restaurant:

• Make sure the software fits your budget.
• Assess whether the software is easy to use.
• Check if the software includes mobile access or cloud storage.
• Make sure the software integrates with other essential platforms.
• Consider whether you can add more features as your business grows.
• Ask your accountant what they prefer.

11. Hire employees

You can’t cook and serve all the food yourself, so you’ll need to hire help. Put together a team large enough for your restaurant concept, so no one is overwhelmed by their role. You’ll typically need between 10 and 40 employees for a full-service restaurant. Consider filling the following positions:

• General manager
• Floor managers
• Executive chef
• Sous chef
• Line cooks
• Prep cooks
• Dishwashers
• Servers
• Bartenders
• Host

Not every restaurant will need a full team. For example, a food truck or small cafe may only need a couple of employees: one person to handle preparing the food and beverages, and one person to handle the transactions.

12. Host a soft opening

Before you create buzz around your grand opening, you may want to host a soft opening to give your team a dry run of your restaurant operations. A soft opening typically features a limited menu and a guest list of your friends, family and business associates. You can use the experience to generate revenue in the future by handing out coupons for future visits.

By this time, you’ll need a point-of-sale (POS) system, which will allow you to collect payments from diners and track your revenue.

You’ll also want to think about using the event to market your restaurant. Personal recommendations and online reviews are customers’ preferred method of finding new restaurant options. Encourage your guests to leave a review and pass along a coupon to a friend, and you’ll be off to a great start.

How much does it cost to start a restaurant business?

The cost of starting a restaurant can vary widely according to your concept, location, equipment and hiring needs. Obviously, a large, fine-dining restaurant with 40 employees is likely to cost much more to run than a food truck.

When estimating your restaurant startup costs, it may help to think about each category of expenses. In general, you can expect to pay for the following:

Keep in mind that profit margins for the average restaurant sit between just 3% and 5%. If you want to beat the average, you’ll need to keep a lean budget and take measures to increase sales.

While this starts with high-quality food and customer service, which allow you to attract and retain customers, you can also use other innovative strategies, like providing experiences, offering delivery, and sending targeted emails to customers. If you stick to a budget and put in the effort to boost sales, you may be able to own a profitable restaurant one day.