Want to open a restaurant? Smart planning is as important as a good concept.

Many dream of owning and operating their own businesses. If you’re someone who dreams of opening a restaurant rather than a bookstore, dry cleaner, art gallery or some other small business, you’re not alone. Countless new restaurants open every year, despite a relatively high barrier to entry. Equipment, rent, labor costs, taxes and regulations can put a strain on finances from the start.

While a study of Bureau of Labor Statistics data in the western U.S. shows that only 17 percent of independently owned full-service restaurant startups failed in their first year (far from the 90 percent many sources claim), the median lifespan of restaurants is about 4.5 years. Successful restaurant owners are usually those with the most well-thought-out plans and adequate initial capitalization.

In this guide, we’ll explore the key steps in opening a restaurant and what to consider as you move forward, including:

Restaurant Concept Development

You need to do a lot of homework before you start putting together a business plan. Whether you know what kind of restaurant you want to open or not, the first step is a market analysis to see what’s already available, what consumers need or want, and whether you can fill a niche.

Franchises offer a relatively simple way to get into the business. Restaurant companies provide a proven product, restaurant equipment and decor packages to build out a space or designs for new construction, operations manuals and procedures, and training and marketing support. You typically need a minimum investment and pay a franchise fee.

If you want to be more creative and independent, then you need to consider:

Type

What sort of restaurant is right for me? Full service or takeout? Fast food, casual dining or fine dining? What kind of food? American or ethnic? Pizza or donuts? Clearly define not only the concept behind your restaurant idea, but your brand identity. What’s the value proposition of the food and dining experience you plan to offer? What differentiates your concept from other restaurants in the market?

Target

What type of demand exists in your area? Identify your primary customers. Be as specific as you can. Who do you want to attract to your restaurant and when? Restaurants can’t be all things to all people. You don’t go to a fast food restaurant expecting to eat a steak by candlelight. Narrow your focus to those most likely to enjoy your concept. The better you understand who your target customer is, the better your odds of success and the more likely you are to get tangential customers.

Theme

The dining experience often is as important as the quality of food. The type of restaurant will generally dictate the theme and ambiance, but not always. For example, you can serve a fast-casual menu on a service line or offer table service. You can create a fun, boisterous atmosphere or a quieter, more formal dining experience through the service your staff provides and the design and decor of your restaurant.

Ultimately, you need to have a vision of the food and service you want to deliver to customers and the experience you want them to have before you can turn your idea into reality.

Read also: The 8 Steps to Designing a Restaurant Concept

Seeking Expert Advice

Down the road you’ll have to hire professionals for many tasks, especially if you’re a first-time restaurant owner. That includes attorneys to draw up your legal entity, accountants to audit your books, realtors to help you find locations, architects and contractors if you’re building from scratch, foodservice consultants or designers and so forth. But as you develop your concept, it’s never too early to talk to experts, many of whom will offer advice for free.

Network with other operators to learn about their experiences in both opening and operating their restaurants. Ask them about the pitfalls they encountered and what to watch for. As you develop your menu, talk to an equipment dealer like Central Restaurant Products to explore equipment options in the kitchen and their costs. Interview food purveyors about what they carry to get an idea of what your food costs will be. The same goes for cleaning supply and paper goods distributors.

There also are a host of online and other resources available to small businesses and restaurants in particular (see the “Resources” list at the end of this guide). Some websites have operator forums where you can get answers to specific questions.

Good to know:

The National Restaurant Association is a great resource on everything from networking and research to advocacy and business tools for restaurant ownership. You’ll also find a list of local restaurant associations on the website, as well. For entrepreneurs interested in franchising, check out the opportunities and information available from the International Franchise Association.

Writing a Restaurant Business Plan

“An operator may have a terrific idea for a restaurant, but I can’t stress enough how important it is that they develop a business plan,” says Steve Starr, president, starrdesign, a restaurant design and consulting firm in Charlotte, N.C.

With what you’ve learned from doing your homework, you can write a business plan that will help you secure funding and serve as a guide to your own success. The plan should not only be clear and concise, but written in a way that will get potential investors interested and excited.

Securing Funding

Unless you have deep pockets, you’ll have to get a loan or investment for capital and initial operating expenses. You can go to traditional or alternative sources for funding. Some options include:

1. Small Business Loans

  • Term loans, such as fixed or adjustable rate second mortgages
  • Small Business Administration (SBA) loans, which also typically require collateral
  • Equipment financing, which uses the equipment as collateral
  • Short-term loans—for businesses with smaller and immediate financing needs, these can be a lifesaver; they’re similar to traditional term loans but cover amounts in the $2,500 to $250,000 range with terms of between three and 18 months
  • Line of credit—often investors will make a line of credit available through their bank to make their investment gradually

2. Business Funding Alternatives

  • Angel investors, interested in helping startups get off the ground
  • Venture capital firms, which may provide funding in exchange for an equity stake
  • Friends and family
  • Crowdfunding, through websites such as GoFundMe, IndieGoGo and Kickstarter

“A big problem in starting a restaurant is undercapitalization,” Starr says. “People really don’t understand how much money it takes to open and operate until the restaurant generates a steady revenue stream.”

Make sure your budget includes both hard and soft costs of getting the restaurant designed, built and opened as well as at least a 10 percent construction contingency reserve and three months of operating expenses.

Says foodservice consultant Karen Malody, FCSI, principal, Culinary Options, Seattle, “As a rule of thumb, whatever you think it will cost, add 30 percent; however long you think it will take, add 30 days.”

Site Selection, Design, and Construction

There are pros and cons to both leasing and owning restaurant space, but one way to save money and time is to look for existing restaurant locations. Use a realtor experienced in the food service business to help you find and negotiate purchase or lease terms.

Use professional architects, foodservice consultants and equipment specialists such as manufacturers reps, an equipment dealer and installers to help you nail down your construction budget. The more detailed the information provided by these sources, the better equipped you’ll be to select and negotiate with a general contractor.

Even if you’re not building from scratch, you’ll need to create schematic and mechanical drawings for your interior; especially the kitchen and dining areas. The more accurate they are, the less likely you’ll run into problems or need to make costly adjustments or additions during construction.

These experts also can help you cut through red tape to get permits issued and walk you through the process of getting licenses and meeting with local building and health code regulations.

Your foodservice consultant or kitchen designer also can help you spec equipment, or talk to experts like the product consultants at Central Restaurant Products about your needs. Specifying the right equipment for your particular operation (with the correct dimensions, utility hookups, power and performance parameters, etc.) is paramount to your success. Cutting corners or trying to get the technical specs right yourself can have disastrous results.

Staffing Up

While your design and construction team is readying the facility, you also need to nail down policies and procedures for how you want your restaurant to operate. Now’s the time to start recipe development and testing, particularly for production of things you’ll want on hand at all times, such as dressings and sauces.

You’ll need to write a policies and procedures manual for general operation of the restaurant, a service manual for front-of-house employees and an operations manual for the back of house. These manuals should not only describe responsibilities and how you want things done, but also a code of conduct and how you want employees to treat customers.

Spend time now refining what you want the interior to look and feel like. You should’ve already picked lighting and surface finishes, but you now need to pick out and order furnishings and decor, and select music. For the back of house, you should be negotiating supplier contracts and working with both food, nonfood and equipment suppliers to select tabletop and smallwares as well as your initial food and supplies inventory.

Create an organizational chart of positions and who reports to whom. Define responsibilities of each position (though you’ll want to cross-train people over time, in case employees have to cover for one another when someone calls in sick or is on vacation). Once you’re clear on the skills you’re looking for to handle each position, start recruiting efforts. Look for management—chefs and general managers—four to six months before opening, so you have them on board two to four months in advance.

Create a hiring strategy that your whole team understands, and prioritize soft skills ahead of experience for certain roles. It’s easy to teach someone how to garnish a plate or clear a table, but teaching them how to adopt a different attitude is nearly impossible.

Fun Fact:

8 in 10 restaurant owners say their first job in the restaurant industry was an entry-level position (such as server, bus person, dishwasher, host, etc.).

Source: National Restaurant Association

Training and Startup

As you get closer to opening day, you’ll have to start up, test and calibrate your kitchen equipment, and train both kitchen and service staff. Here again, it pays to rely on experts to help you. Some equipment manufacturers even offer free startup services through certain dealers.

While you’ll want to train your employees to follow certain procedures and methods of food preparation and service, back-of-house staff especially should also know how to use and operate all the kitchen equipment. Often, manufacturers offer training for the proper use of their equipment. 

Front-of-house training should include not only dining and bar service but POS training as well. And don’t forget that in most locales, all staff will need food safety training to get food handling cards from the health department, and front-of-house staff will need alcohol-service training.

By now, you’ve worked with a graphic designer to print menus, design signage, and help you build a website. Gear up your publicity program and social media presence in anticipation of opening day.

As the restaurant comes to the final stages of completion, preplan how to organize your refrigerated and dry storage areas, and place initial orders for supplies. Consider soft opening events to test your readiness. Learn from what goes wrong as much as what goes right.