Exclusive knowledge of Grandma’s meatloaf recipe does not qualify you to be a restaurant owner. Starting a restaurant involves much more than just food. Success or failure will be determined by how well you plan before opening the doors. Cooks can afford to focus on only the food. It’s their job. Your job is to be the owner. You have a business to run. So, let’s learn how to start a restaurant business.
That said, the first step in getting your excellent eatery off the ground is to come up with a full menu. Some would argue that you need a concept first, but I disagree. Start with the food. Make a list of all the culinary creations you’d like to prepare and serve. Patrons will come to a new concept restaurant once. They’ll come back if the food is good. Always remember that.
Conceptualize Your Brand For Your Restaurant Business
Once you’ve decided what you’re going to serve, it’s time to figure out how. What will you call the new restaurant? “Grandma’s Meatloaf” might sound a bit plain, but you can run with it if that’s your signature dish. My parents took me to place called “Grandma’s Pie Shop” on Cape Cod when I was a child. It stayed open for over fifty years, right next to “Grandpa’s Tavern.”
Create a service model. Some restaurants have one person take your order and another deliver your food. This works well in high volume establishments because customers typically have shorter wait times to get their food. If you’re going for small and intimate, perhaps having one server handle the whole process will work better. Have a plan for service before opening.
What will your restaurant look like? Draw it out on paper and make sure you have a grasp on how much square footage you’ll need. Don’t try to cut corners. At some point, you’re going to ask someone to fund your new venture. Be honest about how much space you’ll need to make your vision a reality. Seek professional architectural advice in this area if you’re able to.
Setting Up A Management Structure
Your menu, service model, and concept should all be included in your restaurant business plan. You’ll also need an executive summary and a breakdown of the management structure. There are three basic structures you should look at here:
- Sole Proprietorship
- Limited Liability Corporation (LLC)
Sole proprietorships have a more difficult time getting approved for funding because all the liability falls on the shoulders of an individual. A limited liability corporation provides personal protection and tax benefits. It’s by far the most popular management structure for a restaurant. Partnerships allow for liability to be distributed, but they limit your personal control.
Market Analysis For Restaurants
This is the section that makes it or breaks it for your business plan. Legitimate lenders and venture capital firms will skim your executive summary and management structure. Those pretty much all look the same. A thorough market analysis shows them that you did your homework. Make sure you include all of the following:
- Geographic target area broken down by sectors
- Demographics and financials for residents in each sector
- Current and future real estate developments in the area
- Market segmentation: Ideal customer profiles (ICP)
- Competitive analysis and how your offering compares
If you’ve gotten to this point without analytics, you might want to reconsider opening a restaurant. Sixty percent of new restaurants go under in the first year. Why? Restaurant entrepreneurs usually come up with great food ideas. Where they fail is on the business side. Grandma’s cooking alone is NOT going to keep the doors open.
Marketing And Advertising Strategies
Are you still with me? I had to vent that last piece to get rid of the pretenders. Now that I know you’re serious, let’s talk marketing and advertising. You should include a breakdown of each of these strategies in your business plan. Avoid lumping them together. They are not “the same thing.” You’ll understand that when you start to analyze Return on Investment (ROI).
Marketing is defined by Oxford as “the action or business of promoting and selling products or services.” Advertising can certainly be considered a part of a marketing strategy, but so is market research and setting up promotional programs. The distinction is important. Here’s an example of how you’d segment it on your restaurant business plan:
- Marketing Strategy: Set up a “Taco Tuesday” luncheon for senior citizens. Market analysis shows that 40% of your overall target population is couples and singles over the age of sixty-five. Further research shows that seniors prefer to frequent familiar locations, so providing a good first experience should lead to repeat business.
- Advertising Strategy: Younger seniors can be found on Facebook, but most still prefer more traditional communication like snail mail, newspapers, magazines, and television. A bulk mailer coupled with some print ads and a Community Access TV commercial should be a cost-effective way to fill the restaurant on Taco Tuesday.
Compile a series of these to break down your marketing and advertising strategy. Make sure you do your research. You don’t have to put your exact advertising costs in this section, but you will need to include them in the “financial projections” portion of your business plan. The demographics references should be taken directly from the marketing analysis section.
Breaking Down Costs And Expenses For Your Restaurant Business
It’s time to put a price tag on this venture. If you haven’t already done so, go back through your business plan item by item and create a spreadsheet to show your projected costs. Make sure you include legal and accounting fees, insurance, commercial leases, construction materials and labor, equipment, food costs, advertising and marketing costs, salaries, and utilities.
Once your list is complete, do it again so you don’t miss anything. Better yet, have a financial professional do it for you. One of the first lessons you’ll learn when running a restaurant is that you cannot do everything yourself. Stick to what you’re good at and outsource the rest. An accountant won’t be cooking in your kitchen. You shouldn’t be doing your own books.
Putting It All Together: Financial Projections and Funding
If you haven’t run away screaming yet, you might just be restaurant ownership material. Look at all that you have accomplished. The menu is done. Your management structure and service model are decided. You’ve completed a market analysis, assessed start-up costs, and made a list of projected expenses. You have a marketing plan. It’s now time to run the financials.
How much money can you make with this business model? It’s definitely a question you want to have an accountant answer for you. Lenders and VC’s want to see projected financial statements prepared by an accounting professional. Those should include:
- Sales Projections
- Expense Budgets
- Cash-flow Statement (Projected)
- Income Projections
- Assets and Liabilities (Balance Sheet)
- Breakeven Analysis
For best results, your financial statements should have an addendum that contains a detailed cost analysis of your marketing and advertising strategies. This will help you to better explain how you plan to accomplish your financial goals for the new restaurant.
Obtain Funding And Plan For The Future
With the financials complete, your business plan is done. You can take it to your local bank to get a traditional loan or seek out venture funding. The one thing you should not do is invest your own money. Don’t take cash out of your savings. Forget about applying for a second mortgage. Businesses can fail. Your personal assets are your safety net.
Restaurants were among the hardest hit during the Covid-19 crisis of 2020. What will you do if your restaurant is faced with a government shut-down or damaged by a natural disaster? Some scenarios will be covered by insurance. Others won’t be. If you do your due diligence in the beginning, you can certainly expect success, but always be prepared for the unexpected.
Final Thoughts: How To Start A Restaurant Business
So now you know the ins and outs of starting a restaurant business. There’s a lot you’ll have to do to get your business up and running, but you can do it! There’s also always the option of opening a restaurant franchise. Either way, use this guide and get your restaurant business ready to serve customers!