6 Steps Before Opening a Restaurant

So, you’ve thought of opening a restaurant in your hometown, but you’re not sure where to start. Here are six necessary steps you need to check before opening your dream restaurant.

1. Calculate the Expenses for Your Dream Restaurant

When you’re starting a business, understanding the potential profitability of it is essential to success. If you can’t make payroll or rent, it’ll be hard to survive to see your dreams come true.

There are two types of expenses: fixed and variable. Fixed expenses are the ones that you incur regardless of how much food you sell, such as rent, utilities and payroll. These are the expenses that you should be prepared to pay from your initial investment the first few months, or until the sales catch up.

Another type of expense is a variable expense. Say for example a burger in materials, labor and packaging costs you $1 to make. That $1 is the variable expense. Your Sales Price minus Variable Cost = Contribution towards Fixed Expenses. The Fixed Expenses divided by the Contribution is how many units you need to sell to break even, or reach a point where you’re not losing, or making, any money.

Knowing your breakeven point is very important. It allows you to channel your limited resources towards reaching a point where you’re not in a loss.

Reducing the breakeven point, such as by reducing fixed costs, such as rent by negotiating well with a landlord, may help you survive a tougher business environment.

2. Obtain licenses/permits

Every restaurant owner needs to obtain a health license & a food handler’s permit from the local government to run a restaurant in the USA whilst also maintaining the food & environmental quality of your standard, according to the National Food Health Safety Department.

Upon eventual inspection, your food inspector will notify you whether your restaurant may open as is, or what to change. We advise you to research your locality’s law on restaurant licensing, food handler permits, and regulations.

We’ve found that local health inspectors are some of the greatest people. Search for your local health department and give them a call or stop by their office! They’ll answer all your questions.

3. Hire the right staff

The average labor cost for a restaurant ranges anywhere from 25% for takeout joints to 40% for fine dining. This includes people from the chef to the wait staff. Having the right people can make or break the operation. Having the right manager that can coordinate between staff and external departments, such as suppliers and contractors, is the key to success.

Owner operators usually assume this manager role until a certain level of sales kicks in, so get ready to make your dreams come true on the ground floor! Aside from in house staff, having the right suppliers and consultants, such as accountants, is very important. Make you sure you get to know everyone you’re working with – and work with those you trust.

4. Get Your Paperwork in Order

When you decide to open a restaurant, there are a lot of formalities to go through. This includes signing the lease and getting ready to open. However, before you open, here’s everything you need to get into order:
Corporation or LLC – This is registered with the State you plan to do business in. Every state has their own process, but much of it can now be done online.

Employer Identification Number- So this little 9-digit number is like the Social Security Number for your business. You can register for this online, but to do it right, we recommend working with your trusted advisor. Keep this very safe – it’s extremely hard to find once you lose it.

Occupancy & Health Permits – When you open a restaurant, it’s best to hire a contractor or architect that has experience in this field. You need to get approval for all your restaurant equipment, fire exits, seating and more. The occupancy will approve your location for the restaurant business, while the health permit will allow you to operate the restaurant.

Further, for the health permit, you may need a HACCP plan, which breaks down how each item will be kept safe from foodborne illness. The architect team you work with can also help you get permits for your signage.

Food Safety Certification – There’s a high chance if you’re thinking about starting a restaurant, you’re a Certified Food Manager. There needs to be always at least 1 Certified Food Manager on staff to ensure everything is going well in the operation.

Traders License – This is the final step. It allows you to open your business and is usually issued by the local Courthouse.
Liquor License (if applicable) – Each municipality has their own requirements for liquor, but they are usually a bit stringent. It’s best to work with an experienced team if you intend on serving liquor at your location.

Further, you also need to have all the right filing structures in place. You need to be set up to record and file sales tax, along with paying your employees in the way the IRS and State requires them to be paid. Having the right insurance, like business insurance, liability insurance, and workers compensation insurance is also important. When you work with a trusted consultant, they should be able to point you in the right direction.

5. Select the right location

The right location can make or break your business. If you’re a carryout or fast-food restaurant, your requirements for a location are vastly different from a fine dining establishment. You can serve delicious food to your customers, but if no one knows it’s there, then no one’s going to come. A good location is not just about the population, it’s where your customers are going to be.

Alongside getting a good location, you want to consider signage and marketing too. Will you work with delivery services, operate your own delivery, or not do delivery at all? Will you have lunchtime specials? Will you do happy hours?

You should also consider the lease terms. As most landlords require a personal guarantee, will any of your other assets be at risk because of this lease? Again, the best advice here is to talk with trusted consultants to guide you.

6. Order restaurant equipment

Your kitchen must be well equipped before you can establish your new restaurant. Refrigeration units and cutlery are two types of equipment that every restaurant requires. You may also require specific equipment, such as pizza deck ovens or pasta cookers, depending on your menu.

Some of your selections will be influenced by the size and layout of your kitchen, such as whether to go with narrow-depth equipment or double stack units to conserve space. Another factor to consider is whether to purchase new or used restaurant equipment.

There are numerous advantages to purchasing restaurant equipment online. While you’re juggling the other aspects of launching your new restaurant, being able to purchase online, research features, and compare costs on your own time relieves some of the pressure.

Look for an online supplier who specializes in commercial restaurant equipment and offers wholesale pricing and quick shipment. You can also buy some of the items in used conditions to save up funds; but make sure they are in working condition. Stoves or ovens can be bought in second hand condition.

You’ll also need to find a source for food, disposables, and other products that you’ll need to reorder on a regular basis. All in all, you should have a written plan ready before you start a restaurant business.

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