How to Start A Restaurant Business in 2021
Entrepreneurs know there’s no one blanket strategy to successfully execute a profitable business idea, but a good place to start is with the basics. When it comes to opening a restaurant, we’ve compiled this article to serve as a roadmap to making your vision a reality.
Given that we are still in the middle of a global pandemic, let’s first take a look at current restaurant business trends that you should be aware of.
A quick overview of the restaurant business trends
The National Restaurant Association revealed in a survey that 65% of adults have ordered takeout or via curbside delivery on a weekly basis from June to September of 2020. It added that that 71% of restaurant operators reported that their off-premise sales represent a higher proportion of their total business during the pandemic than they did prior to it.
This survey was backed by Statista, which projected that the total online ordering for restaurants is eyed at 32.2 billion dollars by 2024. In addition, most people who will be ordering online are ages 25-34 (32%) and 35-44 (24%).
With a growing number of consumers projected to order food either directly from the restaurant or from third-party providers, people will increasingly turn to online reviews to decide whether a restaurant is worth giving a try or not.
A “Local Consumer Review Survey” published by Bright Local revealed that 93% of consumers used the internet to find local businesses in the last year. Eighty-seven percent read online reviews for local businesses in 2020, which is up from 81% in 2019.
The report stated, “Reviews for restaurants and hotels play an incredibly important role for consumers – not only are they used by many, but they are highly important to choosing a business.”
The top five sites that consumers used to find information – from reviews to opening hours – are Google (63%), Facebook (54%), Yelp (32%), BBB (28%), and TripAdvisor (24%). Interestingly, 60% of consumers also trust reviews they see on the company’s website, in other words, first-party reviews obtained and displayed by the business itself.
Keeping these insights top of mind can be helpful when executing your restaurant concept and marketing strategies. Check out our new restaurant industry trends list for 2021 if you wish to know more.
How do I start my own small restaurant?
1. Create your business plan
Before making huge upfront investments, you first need to do in-depth research. What is your restaurant’s concept? What kind of customers are you targeting? What type of cuisine will you serve? What is the atmosphere you are trying to achieve? Where do you want to open your restaurant? Are there other restaurants in the area offering a similar concept? Is there enough foot traffic in your desired location? Is there an ongoing demand for the concept you want to execute?
If your restaurant is the destination, think of your business plan as the map that will guide you to getting there. We’ve gone ahead and broken down important steps to take in making a solid business plan.
- Define your target market
Building a solid foundation for your restaurant business entails targeting the type of consumer that’s most likely to dine there.
Defining your target audience doesn’t mean you exclude everyone else outside that criteria, it just allows you to be more strategic in the ways you allocate your resources so that you’re attracting the customers most likely to be interested in what you will offer.
To do this effectively, identify who your target audience is. Maybe you’re planning to execute a fine dining establishment so your target demographic is older with a higher income. Maybe your concept is fast-casual so you’re catering to a younger audience who values quality and convenience above all else.
Beyond their age and income, it also helps to identify the psychographics or your targeted consumer – their lifestyle, interests, values, buying behaviors, etc. Do they value sustainability? Food quality? Ambiance? Do they want dining to be experiential? Are they a busy professional just looking for a quick and easy grab-and-go option?
Having a strong understanding of how your potential customers think will help you determine the best ways to get their attention.
- Think about your menu and budget
The type of cuisine you serve is the heart of your restaurant’s concept. What are the kinds of dishes you plan to serve within the confines of your budget? As you plan your menu, you should think about recipes that allow for the cross-use of certain ingredients, particularly specialty items. This way you are getting the full bang for your buck and working to avoid waste.
Knowing the menu and your budget will also determine the suppliers you will be working with. Naturally, you want to find suppliers who offer quality ingredients at a reasonable cost. The quality of your ingredients and the amount you pay for them will ultimately determine the price you set for each dish you plan to serve.
Your restaurant’s operations are at the mercy of your menu, so it’s important that you take time to thoroughly design your food and beverage line-up. Typically this is done on a seasonal basis, with the exception of some signature dishes that remain on the menu year-round.
- Find a strategic location
One of the most important steps to opening a restaurant is finding the location. When you think about all the different factors to take into account here – foot traffic of the area, other attractions nearby, competition in the area, square footage, rent costs, layout, parking, etc. – you realize how challenging this really is.
It’s most likely that you won’t be able to get everything you want, so look at your budget and list out what your priorities are before you start your search. Is it most important for you to be in the heart of the city? In this case, you’ll likely have to sacrifice space as rents are more expensive in more populated areas. Or is having a big open space most important to you and you’re willing to be in a more remote area to have that?
- Create your branding
Conceptualizing what your restaurant is – the cuisine, the ambiance, the overall dining experience – is half the battle. The other half is being able to convey what that concept is to consumers. This is done through branding.
Your branding tells the story of what your restaurant is. Why you chose to serve this type of food in the way you chose to serve it. You want to communicate what makes your restaurant unique and different.
Your brand goes beyond your marketing materials. It’s essentially everything about your restaurant: the food, the interior design, the color scheme, the way the dishes and drinks are named on the menu, the glassware and plates you use, your logo, etc. This all needs to be cohesive and help to tell the story of your restaurant’s concept.
When building your brand, you need to go back to your target market. Who are they? What are their interests? What motivates them to make purchasing decisions? Answering these questions will help you gauge whether or not your brand resonates with the personality, needs, and expectations of your customers.
You should also identify your competitors. What are they doing to capture your target market? In contrast, what are they not doing? What is their branding like?
Seeing what’s worked and what hasn’t worked for your competitors gives you a competitive advantage in structuring your own brand.
2. Secure your funding
Most restaurants are bootstrapped from the very beginning and can take a while to really get off the ground and start earning a profit.
It’s important that you have a plan in place for financing if you hit a bump in the road or funds are tight. You can turn to lending institutions to back you up during emergencies, renovations, or unplanned inventory investments.
Getting a restaurant business loan can be daunting especially when it’s your first time. Some of the most basic requirements lenders will need are your personal financial statement, ownership and affiliation documents, profit and loss statement, projected financial statements, business certificates, business licenses, and your income tax returns.
In some instances, lenders will also seek for your loan application history and your business overview to make sure that you are capable of paying off your loan.
How much money do you need to start your own restaurant?
Opening a restaurant is, no doubt, a costly endeavor. There’s rent costs, utilities, food and inventory costs, staff payroll, marketing expenses – and those are just the planned costs. It’s highly unlikely you’ll be able to pay for it all out of pocket. You may be able to get investments from friends and family, but chances are, you’ll also need to obtain outside financing.
Having a financial cushion affords you the security of being able to pay for dues and make certain financial decisions without constantly being constrained by a thin budget. Of course, the type of restaurant you want to open will determine the total cost, and thus, the financing you need. So, what does this cost look like for your restaurant concept?
A Smallbiz Trends report on the costs of starting a restaurant gleaned the following insights:
- Food trucks are the least expensive route. They can range from $15,000 and $100,000
- If you’re looking to franchise, the cost will depend on the franchise. The most expensive can start at $1.5 million and go up to $3.5 million.
- The most successful brick and mortar restaurant types are quick service, fast-casual, fine dining, family dining, and casual dining. Once you’ve secured your location, kitchen equipment alone can cost anywhere from $75,000 to $115,000. This doesn’t include furniture, tableware, glassware, paying your staff, etc.
How can I start a restaurant with no money?
You’re lucky if you have people around you who can invest in your restaurant business. If you don’t, here are other ways you can bring your vision to life:
- Explore restaurant incubators
Restaurant incubators are the go-to haven for new restaurant owners who are looking to raise capital, find an ideal location to set up a new branch, or gain firsthand customer experience and feedback about their business.
Not to be confused with kitchen rentals, restaurant incubators serve as a residency for restauranteurs through which they have their own physical space and a dedicated support system.
Similar to a pop-up shop for a retail brand, these incubators provide chefs and aspiring restaurant owners with the space to bring their vision to life, without the costs of actually building the restaurant themselves.
Some worth noting: R. House (Baltimore), Smallman Galley (Pittsburgh), and La Cocina (San Francisco).
- Get an SBA loan
The Small Business Administration’s 7(a) Loan Program is offered to individuals who need immediate funding for short- and long-term capital for their restaurant business needs. It can also be used to lower restaurant debts and refinance existing loan obligations.
The maximum loan amount for small businesses $5 million. The SBA loan requirements include your credit history, location of the restaurant, your business plan, financial statements, and personal background information
- Look for an angel investor
Restaurants are considered higher-risk investments as they typically bring low financial returns. However, if you want to start a restaurant as soon as possible, try finding an angel investor who recognizes that passion and believes in your vision.
Angel investors will help you finance your business plan and may be able to help you navigate the operational aspect of running a restaurant. If they are knowledgeable enough on the topic – perhaps restaurants are their investing niche – they could even serve as a mentor figure through your entrepreneurial journey.
3. Get licenses and permits
Getting permits and licenses are important steps to opening a restaurant. In fact, it’s one of the most crucial requirements to avoid being penalized or forced to shut down by authorities. When obtaining permits, it can be helpful to seek legal counsel to review everything for you.
For a brief overview, here are some of the most important licenses for your restaurant business. Take note that there are other compliance requirements and certifications you’ll need to get before you operate.
- Business license – This license proves that your restaurant is recognized by state and federal laws as a legitimate business. This allows your county to collect revenues, impose zoning restrictions, and regulate your business.
- Fire department permits – You’re required to have the fire bureau inspect the safety of your restaurant against fire. They will evaluate your restaurant’s occupancy limitations, and ensure there are enough fire exits and an emergency evacuation plan in place in case of a fire.
- Building and zoning permits – Zoning regulates the usage of land where your restaurant is located. If you’re planning to build your own space, these permits will legally allow you to begin with your construction.
- Food service license – Your restaurant needs to be inspected to ensure that all food safety regulations are met before you start welcoming customers.
- Liquor license – You need this in order to legally serve alcohol in your restaurant. In the U.S., each state (or even municipality) has its own liquor laws that involve requirements for alcohol procurement.
- Employee identification number – You’ll need this for every employee to set up your payroll. You may easily request an EIN via the Internal Revenue Service website.
4. Build your restaurant’s staff
Your staff is the lifeblood of your restaurant. They are the ones interacting with customers and selling your product – that is, the food and the overall dining experience. Do your best to build a team around you that believes in your vision and shares in your passion. Take the time to interview candidates and ask them why they want to work at the restaurant.
Training is a huge part of building your team as well. Each staff member must be well-versed on every single item on the menu – not just to be able to answer questions and make recommendations but to keep customers safe from any food allergies.
Your staff also needs to be taught the operations of service – everything from how to greet a customer and take their order, to how they must enter the order into the system and bring it to the table.
5. Get ready for the soft opening
With your menu finalized, your inventory full, your licenses acquired and your staff ready to go, it’s time to open your doors.
Your restaurant’s soft opening is your opportunity to showcase your restaurant’s awesome menu, your staff, and your store’s overall ambiance. The question is, how do you prepare for it?
Here’s how to prepare for your restaurant’s grand opening:
- Meet with the team – It’s important to set your team’s expectations. Assign specific tasks for every member of your staff so they know where to go, what to do, and what level of services are expected from them.
- Make sure your inventory is full – You don’t want to run out of ingredients on your first day. From the spices you need to the sourdough that goes with the main dish, you need to make sure that everything on your menu is ready to be served.
- Keep your restaurant clean around-the-clock – Make a lasting impression on your first customers by ensuring that the restaurant is spotless. This includes the dining area, restrooms, and kitchen.
- Have certain tables designated for important guests – Have a plan in place for VIP guests – members of the media, critics, etc. Make sure their tables are ready upon arrival, that your staff knows who they are and is prepared to provide them with the most excellent service. Think about the specific dishes you want them to try.
Is it hard to start your own restaurant?
Opening a restaurant is no walk in the park especially when you’re doing it amidst the pandemic. But with proper planning and the right financial back-up, you’ll be able to bring your vision of a successful restaurant to life.