Getting Ready to Open a Restaurant? Do These Things First
If you have a passion for cuisine, cooking, and community, owning a restaurant may be a dream of yours.
But to make that dream a reality, you’ll need to prepare thoroughly. You must be thoughtful and deliberate about your future restaurant’s market appeal, finances, and operational plans if you want its doors to remain open for the long term.
Whether you hope to open a casual coffee shop or a fine dining establishment, you can start with the following steps.
Establish Your Place in the Market
Everyone needs to eat, but we all have different tastes, budget levels, schedules, and even aesthetic preferences. If you try to appeal to too many groups in your restaurant, you’ll likely end up alienating most of them.
To get a strong foothold in the dining market and stand out from competitors, carve out a clear market niche for your restaurant right away.
You might already have an idea of what kind of food you want to serve, what kind of atmosphere you want to create, and what kind of schedule you want to run.
But your focus should start with analyzing the type of person you expect to be a regular patron. Customer personas can help you get detailed about your ideal customers’ habits, lifestyles, and budgets.
Thinking about these factors and researching who lives and works in the vicinity of your potential restaurant will affect what kind of menu, aesthetic, and procedures you develop.
For example, if you’re interested in opening a breakfast and lunch spot, locating in a business district might mean you’re best off trying to attract the corporate crowd, who might prioritize speed, efficiency and convenience. You might not need to worry about keeping the prices as affordable as your competitors as long as you deliver superior service and quality.
If you’re locating in an entertainment district, your ideal customer might be more likely to come in for a leisurely weekend brunch or a family celebration. This type of restaurant might need to focus more on aesthetics, decor, and details to create an environment ideal for patrons who want to relax.
Nail Down the Costs
Once you’ve started to clarify your restaurant’s market fit, it’s time to get a handle on the resources that will be necessary to bring your vision to life -- and how much each of those resources will cost.
Here are some of the major expenses in opening a new restaurant.
Rent and Utilities
Begin by researching potential neighborhoods. Look for ones that fit your prospective brand, appeal to your ideal customers, and have a favorable competitive landscape (not too many competitors in the immediate area). Then make educated guesses about what a space with your desired square footage would cost in rent and utilities each month.
Equipment & Technology
Your restaurant will need industrial kitchen equipment, furniture, utensils and dishes, and a POS system complete with a cash register.
Construction and Decor
Most restaurant owners must pay to redevelop their space before it opens. Although you won’t know how much is necessary until you narrow down your search for a space to specific sites, you can assume that some cash should be budgeted for these changes. You’ll also need to put the finishing touches on your space with art, flowers, embellishments and other decor upgrades.
Hiring needs (managers, chefs, cooks, servers, bartenders, hosts, bussers, and dishwashers) will vary with your restaurant’s size and niche. Research what the competitive pay rates are in your area and be prepared to beat them to land the best talent. Include the costs of any benefits and paid time off. Other than your on-site staff, you’ll also need what this RestoHub article calls a “restaurant expert team” that directly helps management run the big picture of the restaurant. This team can include an accountant, a lawyer, architects, and restaurant industry consultants and specialists.
Legal Fees and Taxes
Restaurants need to make sure they’re in compliance with all applicable laws and regulations, including hiring and wages, food safety, and permits and licenses (such as a liquor license). Getting your restaurant compliant with all zoning and property laws will require hiring attorneys and paying fees to local municipalities.
You’ll have to account for a few different marketing expenses: The initial marketing push leading up to the grand opening (and the expenses of a grand opening celebration), and then ongoing monthly marketing efforts. Monthly marketing costs may include everything from the cost of your email marketing and CRM programs, to the costs of online reservation systems, ads, and promotional discounts. You may want to consult with an expert to assess just how much marketing you’ll need to do, as needs will vary widely based on your location and restaurant type.
Insurance requirements will vary based on where you live and your restaurant needs. Restaurants often require several policies (such as liability insurance, property insurance, and worker’s compensation insurance), and some policies require deposits upfront. Research all of these costs early in your planning process to understand how they will affect your bottom line.
Project Sales and Profitability
Once you have a basic understanding of your potential restaurant’s estimated costs, you can start to estimate how much money your restaurant could make. Well-researched sales projections will help to build a solid roadmap for profitability.
To estimate your sales, you’ll need to know several things:
how many customers can fit into your restaurant
what percentage of the restaurant will be full at any given time
average meal time
average generated per customer, per meal
how long your restaurant will stay open each day
To keep your guesses as accurate as possible, you can hire a consultant and look into the numbers for similar restaurants in the same area.
Restaurant expert David S. Peters also suggests “budgeting for 3-4% in comps so your employees can compensate guests and reward them at their own discretion.”
Once you have your sales projections, you can take a harder look at your numbers and see if you can expect to operate at a profit.
Here’s one simple way to break it down: About 75 percent of your projected sales should go toward major expenses (real estate, labor, and the costs of the food and drinks you’ll be preparing), and 15 percent of your projected sales will go toward the other expenses we listed above (marketing, permits and fees, software, equipment, etc.), leaving the rest for profits (source).
Of course, these numbers are just guesses. Projections should be adjusted and recalculated frequently as you nail down the details about your location and opening expenses, and then again once you open to account for new realities. But establishing these financial goals right away will put you on the right track.
To get the financial reports you’ll need to assess your restaurant’s ongoing financial health, make sure to select a robust, web-based POS system. A good POS system puts these reports at your fingertips in real time and can help to manage your entire business, from inventory to customer relationships.
If you’d like personalized help implementing a POS system for your new restaurant, we hope you contact us at Cloudscape Technologies. We specialize in helping restaurateurs find solutions that deliver value they never thought possible. We even install the software on-site and support you through onboarding. Request a free consultation today.