How to start a business: Opening a restaurant

Starting a business is a dream for many Americans, and opening a restaurant is high on the list of choices.

It can also be a great entrepreneurial opportunity because Americans like to eat out a lot. According to Statista, an average household in the U.S. spent $3,526 in 2019 eating out, which is up 41% from 2010.

The key to successfully starting a restaurant business comes down to how you approach your startup process. Take these steps and your restaurant will have a greater chance of success.

Do your market research

Understanding the demographics of the area where you intend to operate is essential, says Natalia Levey, who opened Kojo Sarasota with her husband three months ago in Sarasota, Florida. It's their third restaurant and second restaurant concept—they also own two locations of Speaks Clam Bar.

The demographics of the area should determine your menu choices and restaurant concept. For example, launching a sandwich shop or vegan eatery in a college town could become a hot spot if you can keep prices affordable for students.

In addition to studying your local customer base, take a close look at the restaurants in the area. Which ones are thriving? Which ones are struggling? Can you tell why? For example, is the food poorly prepared, or is their takeout ordering system problematic? Studying what they're doing right, what they're doing wrong, and what consumer response is can tell you a lot about what you might expect with your own restaurant.

Look at more than location

Yes, "location, location, location" is paramount, which is why market research is the first step in opening a restaurant, but location isn't all you should check out.

Investigate your landlord to be sure you've got a good one. Kristine Daub, founder of byCurated, says "A good landlord builds an ecosystem of businesses that feed each other's foot traffic. They upkeep the area around the premises. A good landlord knows how to bring business to his property in the retail and entertainment industry."

Determine your service model

Your service model defines the ordering, preparation, serving, and payment. It’s critical that your restaurant service model harmonizes with your cuisine, sales channels, labor force, restaurant space, and other key components.

Common service models include traditional, sit-down dining or quicker, counter-service models. More and more often, restaurants are blending service models to satisfy modern guest demands, such as what’s offered with Toast’s New Steps of Service. It’s a cutting-edge, guest-focused service model that gives guests the power to order and pay as they please via QR-codes—while increasing the efficiency of your front-of-house staff by freeing them from terminals via handheld devices.

Understand your finances

"One of the most critical steps is understanding expenses," Levey says. These include everything "from permits, construction costs, technology, potentially paying recruiters to help hire staff, new equipment, products for menu testing and mock services before opening, uniforms, printed materials, takeout containers, and so much more," she says.

Identifying how much it costs to open your restaurant helps prevent unexpected costs from cropping up and enables a more accurate calculation of your breakeven point, which is another essential figure you'll want to be familiar with.

Calculate your restaurant prime costs

Do yourself a favor and control of your daily restaurant costs from the get go. These primary daily costs are your cost of goods sold (COGS) and labor costs — also referred to as restaurant prime costs.

You don’t have to project every penny of your prime costs before opening, but you can implement a strong foundation so you can track costs from the beginning via consistent and ideally automated restaurant costs breakdowns. 

Know the rules and regulations

Mychel "Snoop" Dillard, owner of Atlanta's Crave Restaurant, Member's Only, and Escobar Restaurant & Tapas, which she owns with rapper 2 Chainz, emphasizes the importance of having "the proper licenses and permits."

Skip this step and your opening will be delayed, or you could get shut down later. Know the local codes and make sure you're in compliance.

Build an online presence

Even before you open your doors, start to educate your local market that your restaurant is coming soon. You can do that digitally and help build anticipation for its opening. Martin Orefice, who has helped build restaurants and who now runs Rent to Own Labs in Orlando, Florida, recommends using "social media platforms like Facebook and Instagram to generate buzz about your restaurant." He suggests asking questions regarding dishes they're looking forward to or want to see, what kind of interiors and ambiance they prefer. "The answer to these questions can help you build a restaurant that resonates with the needs of the customers."

Open a restaurant that’s built to last 

Combining a great location, a concept that locals are excited about, and marketing to spread the word about your delicious food are among the most important steps in opening a restaurant.

Need help building your restaurant business? Check out the benefits of starting off right with the combined power of LegalZoom and Toast Point of Sale—a partnership built for the unique needs of your restaurant.