How to Start a Restaurant – ShoeMoney
We’re busy. We don’t have time to cook and eat. We’d rather just eat and run.
And besides, 50 percent of Americans hate to cook. It’s a chore. If they could afford a cook, they would. But instead, they choose to eat out when they can afford it.
This is why the restaurant industry is booming. We’ve seen an increase in the number of food-service joints from 40 years ago from 155,000 to 960,000 in the United States alone.
But it’s still difficult to float that business off the ground. Competition is fierce and if you can’t provide great service, incredible food, and provide a comfortable and fun atmosphere, your competition is going to beat you to the punch.
What does it take to claw your way to the top and build the best restaurant on the block? Today we’re going to explore in depth what that means and how you can start a restaurant from scratch this year.
Not a Get Rich Quick Scheme
The restaurant business is a “work hard and maybe make a living” game. But that’s why people get into the business. They don’t get into it for the money, they get into it because of the challenge.
Just because something is challenging doesn’t mean it has to be complicated. Look at ultra-distance running. You’re simply running from one point to another, or around a loop until you’ve met a time or distance goal. It’s not a complicated sport. But only a few people can do it.
The restaurant business is similar. You’re just serving people food. That’s it. You’re doing what grandmas have done for generations. That doesn’t mean everyone can be successful at it and it certainly doesn’t mean everyone can do it well.
If you’re good at managing all the moving parts of a restaurant business, you can make a lot of money. But you have to understand exactly how all those parts fit together.
It really doesn’t matter what kind of food you’re going to serve. All restaurants operate under similar principles. Below you’ll find a comprehensive guide to those principles.
What’s Your Target Market?
Millennials supposedly kill entire industries. We were born into plenty and then graduated into a recession. We were in deeper debt longer than any other generation since the great depression.
Thus, Millenials didn’t eat out much. And when we did, we preferred quality, farm to table, hipstery places to the mass market “family restaurants” our parents loved. No more TGIF or Applebee’s. It was instead any place that served a craft cocktail or offered brunch and mimosas.
Different generations prefer different kinds of dining experiences. For example, my grandparents prefer fast food and buffets when they eat out. They wouldn’t spend more than $30 on eating out if they could help it.
As you can see, you’ll never capture the entire market. If you tried, you’d have a menu a mile long and no cook willing to prepare it all.
This is why you need to choose who you’re going to market to and what kind of food you’re going to prepare and serve accordingly. Focus on five to ten percent of the market and you’ll fill your restaurant every weekend.
Gen X prefers value and ambiance over speed and efficiency. Depending in what region of the country a GenXer lives, you will find different values. In middle America, GenXers are family-focused. They want all you can eat salad bars and large portions of American food.
GenXers in cities are more career-focused and have little time for long meals. They are just as ethically conscious as the Millennials and they will want farm to table and ethically-sourced foods.
They’re richer than their parents and will be willing to pay top dollar for excellent food.
No longer the largest generation on the planet (Millennials surpassed them not soon after 2012 — Go us!), Boomers are the richest. They were able to go to college for less money, borrow less, and build wealth earlier than their younger counterparts.
This means that Boomers are huge business for the restaurant industry. They still love family restaurants such as Applebees and Friday’s and Chili’s and they’re likely the reason those chains still exist.
They’re becoming grandparents are going to want to take their grandkids out to spoil them. They’re the least ethnically diverse generation in the United States and will prefer good old American food.
This generation is just hitting college so watch out. They’re done with the silly war between generations. They just want to make the world a better place or make lots of money through Instagram or whatever.
It’s difficult to tell what this generation will choose for their dining pleasure. They are the most ethnically diverse generation yet and thus will likely be less picky than their grandparents’ generation. Whether that will translate into preferring niche dining experiences like the Millennials or homey chain restaurants like their grandparents is yet to be determined.
Restaurant Service Styles
You can break the restaurant industry into three distinct categories: upscale, midscale, and quick-service. You might know quick-service better by the name “fast food.”
Fast food offers a limited menu that’s mostly pre-cooked or prepared in bulk or fried. The price is relatively low, although the gap in price between midscale and quick service has been shrinking.
Fast food restaurants justify this by selling convenience in place of quality. These are the places that offer drive-thrus.
You can find any manner of fast food. From Mexican fast food to Chinese and Italian. If you can come up with a process to make it in bulk and make it quickly, you can create a fast food restaurant from it.
This the middle class of restaurants. They offer full meals at a sit-down restaurant but also offer value. Most family restaurants fit in this category. Think Chili’s and TGIF.
But mom and pop restaurants fit here too. You don’t have to be upscale to be niche.
You’ll find Greek, Italian, Chinese, and really any ethnic restaurant can fit in this category. It’s a broad category.
If you want a real challenge, start an upscale restaurant. Depending on what region in which you’re building your business, this could be difficult. Why? Finding and training employees who will uphold your standards.
In a region where midscale is the norm, you’re going to have a difficult time finding individuals who understand upscale standards. I’m not saying it’s impossible, just difficult.
If you’re in a region where upscale is common, then you’ll have a slew of qualified applicants. To maintain an upscale restaurant, you need to control the quality of the experience at every level. From the ramakins to the french fries, everything must be quality and well-presented.
When people are paying top dollar for food, they will be pickier. They’ll never come back if your service demurs just a little.
Write a Business Plan
Once you know the kind of establishment to build, you need to set out a roadmap. Details are important. How much equipment are you going to need? What are the methods of inventory management? All the mundane things you didn’t know you needed will eventually make it onto your business plan.
Describe your market. Menu pricing, detailed financial info, data on startup capital, long-term income forecasts, expense forecasts. ALL THE THINGS.
You might even consider an exit plan. You never know exactly what might happen in a volatile industry like the restaurant world. You want to have every angle covered.
Fund Your Business
How much money do you think you’ll need to start a restaurant business? The cost to open a restaurant is anywhere between $3,000 and $275,000 per seat. PER SEAT.
But you don’t have to spend the maximum to start a restaurant. You do have to consider everything from equipment to employee benefits, but if you can make the money you have on hand last, you might be able to squeak by on less until your business starts making money.
Where then do you get the funds?
Your Own Assets
Inventory your assets. People often have more than they realize. This includes savings, retirement, real estate equity, cars, and really anything of value.
Starting a business takes sacrifice and you might have to sacrifice valuable things to make your dreams come true.
Another place to look is your own personal line of credit. How much credit do you have on your credit cards? I know several people who just got the Capital One Venture card and that comes with up to $30k in credit. That’s enough to start a business. But beware, credit card interest is horrendous. Pay it back as soon as you can.
Family and Friends
Once you’ve taken account of your asset, approach family. I had a friend who started a business off of borrowed money from family. He was able to fund his business for a couple of years before he started making money.
Fortunately, my friend had a good relationship with his father-in-law. Be careful when borrowing from family. Do you think your relationship with them could survive a failed business venture?
If not, then you might want to stay away from borrowing from family and friends. They won’t be happy when their money disappears entirely and you end up back at your old job.
A Partner’s Assets
Some people might want to partner up with you but not do the actual work. These people often have money to give. Take advantage.
They’ll want in on the planning process and want to be kept abreast of any future changes. But this kind of funding is the most freeing. You won’t have restrictions on what you can do with the funds.
If the person is experienced, they can become a powerful mentor in your life. They can give you pointers on how to deal with challenges you may not have thought of previously or give you shortcuts to success they only learned by experience.
Local commerce is valuable to local and state governments. The more businesses there are, the more tax dollars flow to those in charge. These institutions often create grants and government business loans to fund small businesses.
Do your research. If you’re a veteran, look for veteran’s benefits. If you’re a minority, look for grants tailored for minority entrepreneurs.
Begin by asking at the local chamber of commerce and then expand to the internet.
Choosing a Location
What are you willing to spend on location? If you’re going to be downtown, you’re going to spend downtown prices. But you might get the numbers to compensate.
Run the numbers and see how much overhead will be compared to revenue forecasts. If you’re going to make more than you spend, then go for a prime location.
If you’re great at marketing and think you can entice people away from downtown to your location, then go for the slightly out of town cheaper location. You’ll save money and attract more customers.
What are the factors you need to decide on?
What’s your sales volume? Will the location effect this?
Accessibility. How easy will it be for people to find and access your location? Will people with disabilities be able to access it easily? Will people be able to walk to it from the local neighborhood?
What are the ordinances in your zone? Some cities employ strict ordinances to ensure their citizens experience quality. You may have to adhere to these if you choose certain regions or zones.