How To Open a Restaurant

Are you thinking about opening a restaurant?

The restaurant industry is as exciting as it is tough — it’s full of adrenaline and camaraderie, and it’s also an industry where it’s very difficult to make money. Once it’s up and running, the average restaurant profit margin is typically only 3-5%. 

Competition is fierce, but success is truly sweet: there’s nothing like looking around a restaurant full of regulars, or seeing a restaurant team toasting to a busy shift well done. 

New restaurant owners, or restaurant ownership dreamers, need to carefully consider all of the variables it takes to open and run a successful restaurant. 

To help start bringing your own restaurant dreams to life, we‘ve put together a comprehensive step-by-step guide on how to open a restaurant, including:

• A customizable restaurant business plan template to map out your vision

• How to secure restaurant financing and capital to make your vision a reality

• The licenses and permits you'll need to secure to operate a restaurant business

• Tips on how to do restaurant marketing, and,

• Additional insights to help make your new restaurant venture a success.

How to Start a Restaurant, Step by Step

1. Decide on a Restaurant Concept, Mission, and Values

Diners have endless choices when deciding where to eat. There are over 1 million restaurant businesses in the United States, and that's not counting virtual food businesses like ghost kitchens. Choosing a restaurant concept that's unique in your market and appeals to diners in your area is imperative to standing out and getting butts in seats. 

It’s a good idea for all prospective small business owners to do some market research — what’s missing from your area? Is your idea going to appeal to your target customer?

Then, you can start to make more business decisions. Here’s a few to consider:

•  What’s your restaurant going to look like, and what food, drink, and service elements are going to define it? 

• Which cuisine will you specialize in? 

• What types of food are you going to serve? You don’t need a full menu yet, but a rough idea helps.

• Do you want to be known for using ingredients sourced from local farms, or will you opt for wholesale vendors? 

• Do you want to run a full-service restaurant, or a grab-and-go takeout place? 

Whatever your dream is, put pen to paper and write down all the possibilities — it really helps when narrowing it down.

Then, while you're in imagination mode, spend some time crafting your restaurant's mission and core values to fully express who you are and what you stand for as a restaurant business. 

Next, you’ll need to develop a unique restaurant logo and start imaging the aesthetic for your space, your marketing materials, your takeout containers, and any other elements involved in the dining experience. Laying this groundwork will help you substantially as you make larger business decisions down the line.

Test your Concept

A good way to test whether your restaurant idea will stick is to operate as a pop-up restaurant or food truck first. This way, you can have a solid proof of concept, build a repeat customer base, and hammer home to investors that your idea is one worth getting behind.

2.  Create a Restaurant Business Plan

A detailed, well-constructed business plan is the roadmap for opening your specific restaurant. Your business plan will outline your entire vision for your new venture, explaining in detail how the new business will take shape and operate once the doors are open.

You'll use your restaurant business plan to guide you and your team in the beginning stages, and to get funding from potential investors to obtain restaurant capital.

Here are some of the key elements of an effective restaurant business plan:

• Executive summary, including your restaurant name

• Company overview, including your business model

• Industry analysis (target market, location analysis, competitive analysis)

• Marketing plan

• Business model and service model (Quick service restaurant? Fine dining? Fast food? A sit-down dining room?)

• Operations plan (staffing needs, customer service policies and procedures, payroll plan, which restaurant point of sale you’ll get, which vendors you’ll use for produce and laundry and more)

• Financial analysis (investment plan, financial projections like break-even point, expected cash flow, expected costs)

If this is your first time crafting a restaurant business plan that accurately conveys your vision, mission, and goals to investors, it’s worth soliciting help from a trusted advisor or restaurant mentor to ensure you're putting your best foot forward.

Start with a template, and make it your own with lots of detail. Don’t be surprised if it takes at least a few weeks to gather all the information you want to include.

3. Secure Restaurant Financing

Opening a restaurant isn't cheap. Check out our guide on how much it costs to open a restaurant to get a better idea of the specific restaurant expenses and startup costs you can expect to encounter — as well as the unexpected costs. 

“Unforeseen costs come from everywhere: Delays in opening. Plumbing and electrical issues. Grease traps and hoods that need to be professionally cleaned. Refrigerators and freezers that break down. Ditto heaters and air conditioners. (Make sure to change filters and schedule regular maintenance.) Build in a contingency fund, because at a restaurant it’s always something, it’s always expensive, and it’s always at a bad time,” shared Chef Phillip Foss in The Takeout. 

Whether you're franchising, partnering, or going solo, opening a restaurant requires a serious chunk of capital — at least 95,000, and up to over $2 million. Securing a location, investing in new restaurant equipment (especially major items like ovens or walk-in refrigerators), and managing cash flow over the first few months all require a reliable source of funding.

For new entrepreneurs opening a restaurant with no money of their own, or for those who just need a little extra funding on top of their savings and personal loans, there are several financing options for restaurant small business loans. Here are a few of them:

• Crowdfunding. Especially if you already have a pop-up or a food truck under your belt, consider asking your customer community to chip in on your brick-and-mortar.

• Equipment and Technology Loans. Negotiate with your bank or provider a way to procure loans for kitchen equipment and restaurant technology, which can be one of the most expensive startup costs. Many point of sale providers, like Toast, offer 0% financing to offset the initial cost of the technology.

• Working Capital Loans. Working capital loans help cover operating costs while your restaurant has more expenses than income. Ideally, budget six to twelve months of operating costs until you reach break-even point.

• Lines of Credit. If you’re approved for a business line of credit, you’ll get a maximum credit amount but will only have to pay what you use. Like a credit card, the line of credit constantly revolves. As you pay your balance, you’ll have more credit to draw on for future expenses.

Other types of restaurant business loans include U.S. Small Business Administration (SBA) loans, term loans, merchant cash advances, and equity. 

When searching for restaurant capital, look to trusted lenders like commercial banks, credit unions, and even your point of sale and payment processing partners — and work with a trusted accountant and lawyer to walk you through the process.

4. Choose a Restaurant Location and Plan Your Design

Choosing the right location for your restaurant is critical. You’ll need to do research on the demographics, market, foot traffic, and competition in your location, as well as on the actual restaurant space and its size, visibility, and history. Who else operated there — and why did their businesses fail?

Buy, lease, or build?

You can either build, buy, or lease a commercial restaurant space, a decision that has a major impact on the overall startup cost. Depending on how much capital you have, any of the above options can work well, but it all comes down to choosing the right location.

Here’s some additional criteria to focus on when evaluating a restaurant location to decide if it's right for you:

• Target market and ideal customer profile

• Real estate market conditions

• Community

• Size of the site

• Previous tenants

• Licensing and zoning — was it always a restaurant? A commercial kitchen?

• Does old restaurant equipment come included?

Work with a commercial real estate agent to make sure you get a good deal and the process goes smoothly.

Match your concept and location

The location of your restaurant and layout of the space should suit your restaurant concept. If you want to open an elegant steakhouse, you might need your own dedicated building. If you want to serve sandwiches or tacos to beach-goers, maybe a food truck will do.

It's important to keep in mind that your location and available square footage will also play a huge role in your kitchen design and restaurant floor plan. If you envision creating a high-volume Italian restaurant with an exposed kitchen, for example, you will need a larger footprint and the ability to knock down walls and install proper ventilation — which not all landlords would permit.

But if you’re opening a fast-casual Thai restaurant that makes incredible lunch combos, you’ll be able to opt for a much smaller space — but make sure it’s very close to where the 9-5ers in your city go to work!

5. Apply for Restaurant Licenses and Permits

Acquiring all of the necessary licenses and permits to open a restaurant involves paperwork, money, time, and patience, so get a jump start on procuring them early on in the process.

Depending on your concept and the city or state where you open your restaurant, the necessary licenses and permits you’ll need — and the costs to acquire them — will vary. Some licenses are required for every restaurant, like business licenses, while others depend on your restaurant concept, like a liquor license.

Here are some other licenses and permits you’ll most likely need:

• Employer identification number (EIN), so your business will be known to the IRS for taxation purposes

• Certificate of occupancy

• Food service establishment license

• Seller's permit

• For each employee, a food handler’s license

• Sign permit

• Music license and/or live performance license

6. Develop a Memorable Restaurant Menu and Beverage Program

Brainstorm your restaurant menu and beverage program. There are infinite options for food and drink combinations, depending on the type of restaurant, so this is a very fun and exciting part of the process. If you’re opening in partnership with a chef, or a bar manager, work with them to come up with what you’ll be serving. If you’re going it alone, get all your ideas ready and run them by peers in the industry — and be ready to invite the opinions of your chef, sous chef, bartender, and bar manager once you’ve hired them.

Menu development

Consider how you can differentiate your business from what’s already available in your area. For example, if you’re selling barbecue, how can you make your ribs different from another local barbecue concept? What special sauce can you add, and how will you market it? What garnishes will you use? How will your menu contribute to your overall restaurant brand? How do your prices compare to other similar restaurants in the area?

Test your menu items as you develop them, and know you’ll refine them once you’ve got a chef onboard. 

Menu pricing and design

Next, you'll need to price your menu. This is where estimations of your menu’s cost of goods sold, food cost, and profit margins will come into play. Inventory management will be also essential here — try to plan out waste-reducing strategies from the beginning.

There’s so much that goes into crafting a unique, memorable restaurant menu, from meal selection and pricing to design and menu item placement. For more information on how to build and price a profitable restaurant menu, take our menu engineering course below.

7. Hire Top-Notch Restaurant Staff

Your employees are true extensions of your restaurant and its brand, making them one of the most important elements of your restaurant’s success. From front-of-house servers to cooks and dishwashers, there are dozens of restaurant positions you can hire for.

“The amount of work that it takes to both find great staff and then keep great staff, the amount of work that it takes to train everybody so they're ready to put forth the vision you've created — it’s an extremely HR-dependent business. I think a lot of people that go into opening restaurants are all about the food, which I am as well, but you learn very quickly that it's all about the people,” shared Joanne Chang, founder of Flour Bakery.

You have a few options for finding new restaurant employees, including referrals, neighborhood or industry Facebook groups, industry job boards, culinary school graduate pools, and general career sites.

The restaurant industry has long been dealing with high turnover — currently, the restaurant employee turnover rate is nearly 80%. That's because for many, working in a restaurant simply isn’t a sustainable employment opportunity — but it doesn’t have to be this way.

 According to the Bureau of Labor Statistics, only 34% of restaurant employees have employer-provided health insurance — and that number has only grown 3% in the past 10 years. Especially after having experienced a pandemic, many people are hesitant to take jobs that don’t come with meaningful benefits, including healthcare. 

In order to attract and retain staff, you need to make your restaurant a great place to work — and building employee benefits into your business plan from the beginning can help. Same goes for planning paths for employee growth and advancement:

“If somebody comes here and they decide they love it — they love being in the restaurant industry —we love to figure out how we can give them a little bit more training so that they can move to the next level,” shared Joy Zarembka, COO of Busboys and Poets. 

Here are some resources from Toast to help you attract, hire, and retain restaurant employees:

• How to Onboard a New Restaurant Employee

• How to Train New Restaurant Employees

• How to Reduce Restaurant Employee Turnover

• How to Be a Boss at Restaurant Recruiting

• How to Write Restaurant Job Descriptions Around Values

• How to Ask Great Restaurant Industry Interview Questions

• The Elements of a Restaurant Employment Agreement

To learn more, go through our video course on hiring and retaining restaurant employees.

8. Invest in Equipment and Restaurant Technology

With this restaurant technology powering your business, it’s easier to track and grow revenue and take your business from an idea to a successful restaurant. 

Tracking your metrics, and truly understanding them, is crucial. “For the health of your business, to know and understand fully what's happening to every dollar coming in and every dollar going out, is really invaluable,” shared Joanne Chang, founder of Flour Bakery.

The best restaurant technology can help your business run smoothly and provide an amazing, seamless guest experience. That's why restaurateurs need to invest in restaurant equipment and technology that facilitates memorable experiences, both on- and off-premise.

New restaurants should strongly consider investing in the following:

• A cloud-based restaurant point of sale system with handhelds

• Kitchen display screens

• An online ordering system for restaurants

• Restaurant reporting and analytics

• Restaurant inventory management software

• Restaurant accounting software
  Simple scheduling and team communication

• A restaurant payroll solution

• A restaurant loyalty or rewards solution

• Contactless payment options

9. Create a Restaurant Marketing Plan

Word of mouth can do a lot for spreading the word about an existing, bustling restaurant — but new restaurants need a way bigger marketing push.

Opening a restaurant requires a detailed restaurant marketing plan and budget that entices and engages your target customers. Everything from opening day incentives and weekly specials to your restaurant’s social media and email marketing plans should be covered in your restaurant marketing plan.

A restaurant marketing plan lays out your marketing activities on a daily and weekly basis across all available channels, including social media (from Instagram to TikTok to Facebook), email marketing, print advertising, and more. 

There’s no one-size-fits-way to market a restaurant. Your marketing plan should prioritize the channels where you have the greatest likelihood of engaging with your target or ideal customer. Download our customizable restaurant marketing plan below to get started.

10. Host a Soft Opening and Grand Opening

Once your space, menu, and team are ready to unveil to the public, it’s time to host both a soft opening and grand opening to introduce your restaurant to the world. 

A soft opening is when new restaurants invite friends of the business – friends and family of the business owner, friends and family of the staff, neighbors to the business, representatives from your distributors and vendors – to experience your "unofficial" first shift. In a soft opening, the whole team goes through a meal service for the first time and works out any big kinks in the process. Even if they’ve gone through extensive training, it's the first time that restaurant staff will work together as though it were a real shift, so be prepared to give feedback and make adjustments in the moment. Just like once you’re fully open, make sure everyone is following food safety and health regulations in compliance with the health department.

Restaurants typically invite friends and family to a soft opening because they tend to be more forgiving when mistakes happen and understand you're still learning what works. 

A restaurant's soft opening is traditionally a closed guest list — but once you’ve gone through the soft opening, it’s time to start marketing your grand opening to the public in order to build momentum and excitement around your new business. 

A restaurant grand opening marks your official opening to the public, the first shift – either breakfast, lunch, or dinner – where members of your community can come in for a bite or a drink. It’s completely normal for there to still be kinks to work out or mistakes that happen on the fly. Even after you’ve been open for a while, in this business, it's rare for a shift to go off without a single hitch: what makes a great restaurant manager (or owner) is the ability to roll with the punches, pivot quickly, and keep morale high, even through challenges.

Make sure to take pictures of your grand opening event for social media (and for your own memories). Don't forget to save and frame your first dollar!

Make your restaurant dreams come true

“Don’t be afraid to start from the very bottom; it builds character. Be consistent. Be authentic. Some days you’re going to struggle. Every restaurant does, including the prosperous ones. It’s still a rewarding experience to make an impact through food,” shared Jasmine Hernandez, Founder Of Chicana Vegana.

Opening a restaurant is exciting, and for many, it’s their lifetime dream come true. As you get into the day to day of running a restaurant, be sure to monitor your business’s performance by tracking your restaurant metrics, soliciting guest feedback, and finding opportunities mid-shift to stand back and take it all in. You're now officially part of the most exciting industry there is to work in. Cheers. 

And if, down the line, you decide to expand your restaurant business or open multiple locations, you know where to find us. 

For a detailed, time-bound list of things to do when opening a restaurant, get our checklist below.

Related Opening a Restaurant Resources

• How to Open a Brewery
• How to Open a Juice Bar
• How to Open a Pizza Shop
• How to Open a Food Truck
• How to Open a Coffee Shop
• How to Open a Bar
• How to Open an Ice Cream Shop
• How to Open a Donut Shop
• How to Open a Bakery
• How to Open a Smoothie Shop
• How to Open a Deli
• How to Open a Small Restaurant
• How to Open a Taco Business
• How to Open a Cupcake Business
• How to Open a Bagel Shop