How to Open a Restaurant: A Step-by-Step Guide

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If you love food and running a small business, opening a restaurant may be a great career choice for you. However, before the fun of becoming a first-time restaurateur actually begins, there is a great deal of planning to do. And while this may sound overwhelming, it doesn’t have to be. The best thing you can do to make your grand opening true success is to prepare for the journey ahead.

Understand the costs

Before embarking on this restaurant industry, it is important to understand all of the required startup costs because the money needed to open a restaurant varies widely.

Every restaurant is different—and the total amount that you spend for a restaurant may vary significantly from what another entrepreneur spends. Many of the costs associated with launching a restaurant are one-time costs, such as purchasing kitchen equipment, tables, chairs, linens, and silverware for the dining room, while others costs, such as the mortgage/rent payments and employee wages — are ongoing.

Your costs may also vary based on the type of service that you offer (full, quick service, bar, or takeout), whether you are a pop-up restaurant, renting a space inside a building or operating a free-standing building, and whether you are embarking on new construction or remodeling an existing space.

Be aware of the stats

Opening a restaurant is one of the most common routes to entrepreneurship in this country. In fact, according to the National Restaurant Association, restaurant workers make up 10 percent of the United States workforce. However, starting a new restaurant means entering into a highly competitive space. Be aware that there are more than 1 million restaurant locations in the United States, and 60 percent of restaurants fail within the first year. In addition, unexpected scenarios, such as the COVID-19 pandemic, can also have a negative impact on restaurants.

Choose a concept

Before opening a restaurant, you should select a style and ambiance. Factors that impact your overall concept include the pricing, the type of menu items you serve, how customers order, and the interior design. Popular service styles for restaurants include fine dining restaurant, fast food, counter service, eatery, family style, buffet, tabletop cooking, and upscale.

Develop a detailed restaurant business plan

A business plan is vital in helping you target customers and seek out funding. These plans not only create the foundation for your business, but they provide direction and can entice investors and potential business partners. A business plan should include the following:

  • Executive summary – a snapshot of your new business
  • Company description – describes what you do
  • Market analysis – research on your industry, market and competitors
  • Organization and management – your business and management structure
  • Service or product – the products or services you offer
  • Marketing and sales – how you will market your business and your sales strategy
  • Business loan request – how much money you will need for next several years
  • Financial projections – information, such as cash flow, credit card statements, balance sheets 
  • Appendix- an optional section that includes credit histories, business licenses, résumés and permits

As part of the business planning process, try to answer the following questions:

*What type of restaurant do you want to open?

*Who is your restaurant geared toward?

*Who are your competitors?

*Where will your restaurant be located?

*What is your value proposition?

*How will customers find your restaurant?

*What resources will your restaurant need in order to succeed?

*How will your restaurant make money?

*How long will it take for your restaurant to turn a profit?

*What is your staffing plan? 

Pay attention to your competition

New business owners must understand what their customers want and need, as well as recognize the competition and what their products and services look like. Always try to learn from the successes and failures of others. By keeping track of your competitors and monitoring their operating tactics, you can gather information on how to improve your own business efforts and learn about opportunities to expand your offerings.

Build a versatile team

Because you can’t run every aspect of the business, it is important to develop a team that can help you. Find restaurant experts who can help you create a strong, sustainable business.

If you plan to use a unique restaurant name, file a “doing business as” (DBA) name with your state’s agency. Next, select a business entity type for your restaurant. This decision impacts how you file state and federal business taxes, as well as the roles of team members. The most common entity types for restaurants include sole proprietorship, partnership, C-Corporation, S-Corporation, and Limited Liability Company (LLC).

Register for a tax identification number

Also known as your employer identification number (EIN for short), this number helps the IRS keep track of your business for tax purposes. To obtain an employer identification number, apply online at the IRS website.

Understand all state and local taxes

In addition to federal business taxes, most U.S. states require you to pay income and employment taxes for your business. Registration, requirements, and filing procedures vary from state to state, so research the business tax information specific to where you live.

Secure restaurant-specific permits, licenses, and insurance

The details of what is required and what is optional varies from state to state. Start by reading your state’s food service code regulations to understand what you need to get up to code in your area.

Grasp the necessity of food service licenses

Every restaurant must acquire food and health code license to remain compliant. These licenses certify that you are safely handling, storing, and serving food. Included in this are the rules associated with serving alcohol.

Secure health department permits

Your own restaurant will need to be inspected for operational safety, as well as food safety. In addition, maximum occupancy, fire hazards, and ventilation are also scrutinized.

Keep in mind the importance of restaurant insurance

It is important to research business insurance requirements for your restaurant. These include property insurance, liquor liability, workers compensation, unemployment insurance, fire insurance, and food contamination.

Invest in useful and helpful administrative tools

Employee schedules, timesheets, payment processing, and payroll administration are all vital in keeping your restaurant running smoothly. Be aware that numerous restaurant accounting software tools can help alleviate the burden of managing these administrative tasks on your own.

Don’t overlook your tax responsibilities

Fulfilling tax requirements is a priority in the financial management of your restaurant. Your main business tax obligations include income taxes, self-employment taxes, and employment taxes. In addition, you must be aware of tax obligations related employees, including social security and Medicare taxes, federal income tax withholdings, and the federal unemployment tax.

Opening a restaurant is full of many triumphs, as well as some disappointments. Consequently, entrepreneurs must learn to celebrate the successes and manage the failures. After all, in the words of American businessman Thomas J. Watson: “Failure is a teacher; a harsh one, but the best.”

Your friends at Inc Authority are here to support you and help you start building your dream business as a successful restaurant owner.

Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.

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