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How to Start a Restaurant Business

There are very few businesses that customers love more than
a great restaurant — a place that brings together friends and
family to share delicious food and conversation has a special
place in the heart of many patrons.

If you want to help create that type of magic and loyalty, then
starting up a restaurant could be a great idea. Don’t be fooled,
though. Running a successful restaurant can be a big
challenge, and you’ll have to learn to spin multiple plates.
That’s why we’ve put together this guide on your first steps for
starting a restaurant business.

There are very few businesses that customers love more than a great restaurant — a place that brings together friends and family to share delicious food and conversation has a special place in the heart of many patrons.

If you want to help create that type of magic and loyalty, then starting up a restaurant could be a great idea. Don’t be fooled, though. Running a successful restaurant can be a big challenge, and you’ll have to learn to spin multiple plates. That’s why we’ve put together this guide on your first steps for starting a restaurant business.

Whatever your idea for a restaurant, turning that vision into a place that creates amazing cuisine and delights your customers is doable with the right approach. In this guide we’ll cover:

  • How you can understand the world of the restaurant business
  • Questions you should ask to see if you’re ready to start a restaurant business
  • Choosing the best legal structure for your new organization
  • The best legal structure for your new organization
  • Some rules and regulations you will need to follow
  • Information on taxes and finances for your restaurant business
  • Resources for your restaurant business
  • ... and much more

Understanding the World of the Restaurant Business

Restaurants are one of the oldest types of businesses. People have always wanted to come together to share food, and the opportunity to try different cuisines and styles is part of a good eatery’s appeal.

Restaurants and other food establishments are big business in the U.S. As disposable incomes increase, people choose to spend more money on eating out, with Americans currently spending an average of 5 to 6 percent of their income in restaurants. Here are some other great statistics budding restaurant entrepreneurs might find interesting:

10%

The entire U.S. workforce these businesses
employs (around 15 million people)

$600B

Spent in restaurants every year

  • There are over 1 million restaurants in the U.S.
  • Nearly 40,000 new restaurants open in the U.S. every year
  • Three quarters of these are independent restaurants, not chains

These statistics make the restaurant industry very attractive to aspiring entrepreneurs, but there are big challenges in opening, running and growing a successful restaurant. Restaurants demand a great deal of work, so expect long hours. Add to that the need for staffing, thin profit margins and intense competition... Restaurants are not a field for the faint-hearted!

For those with the discipline, focus and commitment, running a restaurant can be a hugely satisfying experience for you, your staff and your patrons.

Questions to Ask Before You Start a Restaurant Business

Is Restaurant Entrepreneurship for You?

Running restaurants requires resilience. You will need to combine a taste for the interesting and unusual with great marketing and local presence. You will need to attract patrons in a very competitive local marketplace. Then, you must create amazing dishes, hire staff, acquire great chefs and create atmosphere and ambiance.

You can’t forget about the administrative side either. Sourcing ingredients, sorting out disputes, working out profits and more are all required. In fact, running a restaurant requires one of the most well-rounded skill sets of any business you might choose to go into. Along the way, you’ll learn amazing skills, develop great people management techniques and build huge amounts of experience in creating and running a successful business.

What Are the Main Skills, Expertise and Experience Needed to Be a Successful Restaurant Entrepreneur?

As we mentioned above, running a restaurant requires a huge and diverse range of skills. Among other areas, skills include:

Price
Hiring

Finding, interviewing and hiring great service industry employees both for front of house and kitchen work

Quality
People management

Dealing with staff, coverage, issues and other people management areas

Speed
Marketing

Promoting a restaurant against a fiercely competitive field. Local marketing expertise is essential

Reviews
Meal design

Working with chefs to create innovative meals, source ingredients and creating reasonable profit margins

Speed
Restaurant creation

Setting up the restaurant in the first place. Finding equipment, furniture, fixtures and fittings to create a cohesive decor with the right atmosphere

Reviews
Operational management

Ensuring customers are being treated well, orders are dealt with promptly and food is prepared to the standards you expect

Speed
Business administration

Sorting out profits, payroll, financial management, accounting and all the other areas that go into running any successful business

What Are the Main Challenges for a Restaurant Entrepreneur?

There are several major challenges for any restaurant owner. These start with competition — your local area only has a certain footfall, and you’re likely competing with dozens of other local eateries. Although you will build up a good reputation over time, strong marketing is essential in attracting patrons to your business from the start.

Another major issue for restaurant owners is financial management and making a profit. The vast majority of payment you receive from patrons will go toward food ingredient costs (30-35 percent), staff salaries and wages (30-35 percent), occupancy costs like utilities and rent (5-10 percent) and other costs. After all expenses are taken into account, overall profit margins typically clock in at between 2 and 6 percent.

Staff management also comes with its own list of challenges. From unexpected absenteeism to interpersonal conflicts, juggling staffing priorities will take up a lot of your time!

No two days are the same for a restaurant owner, but all those days will be long! From working out menus, training staff, marketing and administration in the mornings through lunch and dinner services, you can expect to start work before 8 a.m. and not finish until well after close. If you open a restaurant, you need understanding family and friends...because they will not be seeing much of you.

Choose the Right Business Structure and Register Your Restaurant Business

Now that you have all the background information for your restaurant business, it’s time to make it into a reality. That starts by choosing the right structure or “legal entity” for your business. In the U.S., there are four main business structures. They are:

Choose the Right Business Structure and Register Your Amazon Business

Sole Proprietorship

This is the "default" business
structure and is what your
business will be if you decide
not to create a more formal
structure. We don't
recommend this type of
business as it doesn't give
you the legal protections you need.

Limited Liability

Limited Liability
Company or LLC

The most common type of business entity. An LLC is fast, simple and inexpensive to setup and maintain. It protects your personal finances and assets and is a great way to start your real estate

Series LLC

Series LLC

This is a special type of LLC entity that's only available in certain states. It allows you to create "mini" LLCs, each with their own limited liability and separate assets, under the umbrella of a master LLC.

S Corporation

S Corporation

This is a more complex type of
business and isn't generally
recommended for smaller
organization.

C Corporation

C Corporation

These are the largest and most
complex types of businesses
and are far more than the
average entrepreneur or
business owner will need.

For more information on the advantages and disadvantages of different types of businesses, please see our in-depth guide. If you’ve still got questions, we’ve answered them to help you choose the right business structure.

In almost every case, the right business entity for a restaurant is going to be an LLC. It provides you with liability protection, is easy to set up and run, has low administrative overhead and can be tax advantageous. We’ve got a complete guide to everything you need to do here, and we can even set up an LLC for your restaurant business. LLC formation does vary from state to state, but we’ve got you covered, wherever you are.

Set up & Maintain Your Restaurant Business

Once you've legally created your restaurant business, you’ll need to get some other things in place.

Business location

This is one of the most important choices for a restaurant owner. You will need to find a location that’s easily accessible, can meet the needs of your staff and guests and that won’t eat into your profit margins too much. Getting your business premises right is one of the most challenging aspects for a new restaurateur.

Permits and licenses

Running a restaurant business comes with certain rules, regulations and legalities you need to be aware of, especially around staff health and safety and food hygiene and preparation. Incfile can conduct a Business License Research package for you, or you can take the time to do the research yourself.

Finances and taxes

What kind of bank account will you get? Do you need a business credit card? How will you pay your business taxes? These are important questions to consider so your restaurant business stays in the green. Here at Incfile, we can even help you file your taxes.

Equipment and ingredients

Restaurants need a lot of upfront capital outlay on equipment, fixtures, furniture and decoration. From kitchen equipment through to tables, chairs, plates and silverware, you will need to carefully budget everything you spend. Add to that the cost of ingredients, and you will need to keep a tight rein on expenses.

Marketing

Your restaurant likely needs its own website, and you will also need to develop a local brand, logo and other marketing collateral. You should engage with local marketing firms who understand your immediate marketplace and can provide advice on getting your name out there.

Software

There’s a variety of software products specifically for restaurants that can make managing one much easier. From taking orders to food preparation and point of sale, the right software can make running a restaurant more efficient and cost effective.

Employees

You will need to hire employees throughout your restaurant business. From executive chefs to bar staff and servers to assistant cooks, getting your staff balance right is essential to your success.

Business maintenance

Most states require businesses to file an Annual Report report once a year. You will also be expected to pay estimated taxes on what you plan to earn in the current business year. Your federal, state, regional and city business licenses and permits may need to be renewed on a regular basis, typically once a year.

Our Start a Business Checklist will also help you get your restaurant business going strong.

Conclusion

f you want to start a business that’s going to be a challenge, but also comes with a huge reward potential, then running a restaurant could be right for you. Through the food and drinks you create, you will bring joy into people’s lives and give them a reason to choose your business. Over time, you will create a reputation as a truly unique eatery and be a place that people seek out to make new memories.

What could be better than that?