How to Open a Restaurant


Opening a restaurant will, without a doubt, be one of the most thrilling and terrifying experiences you’ll ever go through.

Why? There are so many unknowns.

But the good news is that you’re not the first to feel this way while staring down at all the choices you get – and have to – make. With the right resources, skills and support from people who have been there, your journey will not only be successful but so, so worth it.

Figuring out how to open a restaurant successfully is all about the right balance between having a rock solid plan in place before you start and allowing yourself enough flexibility to modify or pivot the plan on the fly. Things never go exactly as planned, but equipping yourself with the information in this article will provide you with the greatest opportunity for success and sustainable growth.

Whether you’re at the very beginning of researching how to write a restaurant business plan or just about to launch, this article will provide you with the basics of what you need to know when opening a restaurant. We include the most comprehensive and up-to-date information, best practices, and resources.

You’ll learn:

  • How to create a business plan for your restaurant
  • Main things to consider when building your restaurant
  • What you need to run your restaurant, such as technology and staff
  • How to drive sustainable return on investment after you open your restaurant

How to Open a Restaurant: Planning

How to Open a Restaurant

1. Funding Your Restaurant

Start-Up Costs 101

It’s exciting to think about opening a restaurant. The food, the ambiance, the people. But reality can knock the wind from your sails pretty quick when you start considering how much money you really need to open a restaurant.

One of the biggests challenges you’ll face when opening a restaurant is dealing with hidden fees and expenses that pop up. Our goal is to equip you with the knowledge and best practices so you feel confident navigating the financial side of starting your business – even if you’re figuring out how to open a restaurant with no experience.

To start you off, here are a few benchmark cost ratios you should take into account as you plan:

  • Major expenses: 75% of your projected sales
  • Smaller expenses: 15% of your projected sales
  • Profit margin: 4%–10% of your projected sales

a. Major expenses

Here’s a breakdown of the major expenses you’ll likely encounter as you prepare to open your restaurant:

  • Rent and utilities: 5%–10% of your projected sales
  • Food and beverage: 25%–40% of your projected sales
  • Staff salaries: 30% of your projected sales, with management salaries accounting for ~10% of this ratio (see part 2 of Phase 3: Enabling)

Rent

Best practice when purchasing a lease is to not go beyond 10% of your total restaurant revenue. Ideally, you should aim for a range between 5% to 10%.

However, your restaurant’s location will have a big impact on the cost of your lease. For example, if the location is in a small town or suburban area, it’s reasonable that the cost will be closer to the lower end of the spectrum at around 5% to 8%. If you anticipate your restaurant will earn $800,000 per year in sales, aim to pay $40,000 to $64,000 per year for your lease.

On the other hand, if your restaurant is located in an expensive market, like downtown New York City, expect to pay upwards of 13% of your revenue.

Avoid leases that are closer to 15% of your restaurant sales – that’s not a situation you want to get stuck in. That extra 5% will have a significant impact on your profit margin and prevent you from budgeting for other important variables.

If you find a great location, but the landlord is asking for too much in rent, don’t be afraid to negotiate. If they don’t budge, you’ll need to find another space if you want to manage your budget properly.

Pro tip:

 

Ask the landlord about offering a percentage deal. A percentage deal uses an agreed-upon level of sales to establish the baseline rent.

 

The advantage of taking a percentage deal is that you only need to pay, at most, your baseline rent if your restaurant sales are at or below your projected sales level for that month.

 

The downside is that if your restaurant makes more than the agreed upon sales, you have to pay an increased percentage of rent. If you go this route, be careful what you end up agreeing to. If you have a great month, so does your landlord!

Utilities

Commercial electricity use in the U.S. costs an average of 11.0¢/kWh, equating to an average monthly bill of $700. Annually, restaurants in the U.S. spend an average of $2.90 per square foot on electricity and $0.85 per square foot on natural gas.

Utility costs differ depending on the city you’re operating in. Check with local providers for specific rates. To get an accurate estimate of how much of your restaurant’s budget will be spent on utilities, you’ll need to know the approximate square footage of your space.

Water, heating, and electricity costs will also depend on where your restaurant is located. You’ll likely spend more on cooling or heating costs if you’re located in a hot or cold climate versus a more moderate one.

Food and beverage

A good food and beverage cost ratio is between 25% to 40% of your projected restaurant revenue. That means if your restaurant earns $30,000 per week in revenue and your food and beverage cost ratio is 30%, you’ll pay approximately $9,000 in food and beverage expenses that week.

Your restaurant concept also impacts the food and beverage cost ratio because the quality of ingredients drives cost. A high-end restaurant serving steak tartare and caviar can have costs running north of 40%. On the other hand, a small cafe serving homemade pizza could have a food cost ratio as low as 20%.

The key difference between these scenarios is the average check size but also the labor required. Steak and seafood might be more expensive but a restaurant serving these may not need to do as much prep as one where everything is made from scratch.

It’s important to note that a restaurant with a 40% food and beverage cost ratio can be just as profitable as a restaurant with a 20% ratio. This is because there are so many other variables at play, including what your food suppliers charge and your menu pricing strategy.

A best practice is to create forecasts based on your restaurant concept, with the expectation that your first month is going to be a trial-and-error experience. You’ll either overestimate how much you need and produce more waste than anticipated, or you’ll find you can’t keep up with the customer demand for your food and end up running out of stock.

b. Smaller expenses

Here’s a breakdown of smaller expenses you‘ll encounter as you prepare to open your restaurant:

  • Business registration: $100–$1,200
  • Consultants: Varies by region/expertise
  • Licenses and permits: Varies by region (see part 2 of Phase 1: Planning)
  • Insurance: Varies by provider and insurance type (see part 2 of Phase 1: Planning)
  • Construction and renovations: $279,807 average; $300–$500 per square foot for kitchen, $150–$300 per square foot for dining room (see part 1 of Phase 2: Building)
  • Equipment, smallwares, and furniture: $100,000–$300,000 (see part 1 of Phase 2: Building)
  • Technology: $1,100–$7,000 for POS hardware + $70–$400 per month for POS software subscription (see part 3 of Phase 3: Enabling)
  • Marketing and promotions: Varies by venue (see part 2 of Phase 4: Opening)

Business registration

Before diving too deeply into how to start a restaurant business plan, you need to make sure you register your business. All new restaurants must be registered with their respective state. Guidelines will vary depending on the type of business you’re opening (e.g. sole proprietorship, partnership, LLC, etc.).

Each business registration requires a fee that’s usually in the $100 to $1,200 range. Be sure to investigate up-front versus annual renewal registration fees. Some states require businesses to pay a flat yearly fee, while others require payment based on a percentage of sales.

Each state will have its own online license center, so it’s easy to do a quick Google search using the term “business license” and your state name. Look for a government website because that’s where you’ll find the most reliable information on business types, as well as how to register your business and access applications.

Consultants

No matter what past experiences and skills you have, when figuring out how to open a restaurant, there will always be areas where you’ll have blind spots. You don’t have to go it alone!

It’s important to know your strengths and weaknesses, then contract restaurant professionals for highly specialized areas of work, such as accounting, legal, and real estate.

Here are a few specialized areas where restaurateurs usually need assistance:

Accountant or bookkeeper

Average cost:

  • Accountant: $150–$250/hour
  • Bookkeeper: $60–$120/hour

Functions:

  • Advising on the business plan
  • Prioritizing the budget
  • Reporting for weekly food and labor costs
  • Doing taxes and performing payroll duties
  • Analyzing financial statements
  • Certifying required financial statements for loans
  • Communicating changes to tax laws

Restaurant business consultant

Average cost:

  • Hourly rate: $99–$350
  • Per project: $500–$10,000

Functions:

  • Helping develop the overall restaurant concept
  • Advising on the menu
  • Providing guidance on customer experience practices
  • Training and support to improve all aspects of the restaurant
  • Observing budget and spending patterns

Architect

Average cost:

  • Dependant on total construction costs (ranges from 10%–17% of total building costs)

Functions:

  • Designing the floor plan
  • Project managing construction
  • Liaising with structural engineers
  • Advising on contractor hiring
  • Completion of construction documents

Lawyer

Average cost:

  • $150–$800 an hour

Functions:

  • Helping raise public and private capital
  • Conducting mergers and acquisitions
  • Advising on contract, regulatory, intellectual property, and labor issues
  • Handling legalities of sale/leaseback transactions and offering legal advice on real estate

Real estate agent

Average Cost:

  • 4%–6% commission

Functions:

  • Providing market insight
  • Assessing property value
  • Negotiating property lease
  • Completing building transaction
  • Preparing financial documents for your bank
  • Determining the budget against projected revenue

Forecasting Your Sales Before Opening Your Restaurant

One of the most important steps you need to address during the process of figuring out how to open a restaurant is to calculate your forecasted sales. Healthy and sustainable sales set the foundation that will keep your restaurant alive for years to come.

Not a math whiz? No problem.

Here’s what you need to know:

  • Forecasting only requires a bit of simple math and a few informed assumptions about your business.
  • Being completely accurate is unrealistic because you can’t predict the future.
  • You always need to be reworking your forecast, especially in the beginning as you begin to better understand the market demand.

The best way to prepare a financial forecast is to do the following:

  1. Get help from financial experts who have a background in the restaurant industry.
  2. Be realistic when making assumptions about your business.
  3. Understand the basic math required to properly forecast your sales.
  4. Review your financial forecast at regular intervals.

We’re going to take you through each of these steps so you can hit the ground running once your restaurant opens.

a. Getting help with sales forecasting

One of the biggest challenges is figuring out how to open a restaurant with no money or very little start-up capital. If you’re applying for external financing, the quality of your financial documents needs to be top priority.

Ask for help before drafting any financial documents related to your business. Hire restaurant experts with the right knowledge to ensure you’re forecasting your sales correctly.

Two experts you should seek advice from when forecasting your revenue include the following:

Restaurant business consultant

Before forecasting your sales, make sure you’re asking the right questions and making realistic assumptions about your restaurant. A restaurant business consultant can provide you with industry knowledge you may be lacking and help forecast your sales as accurately as possible. If you’re looking for investors, they can also provide support in developing a pitch.

Accountant

Once you’ve determined the variables that will most likely influence your sales, an accountant can help translate this into numbers for your financial forecast spreadsheet. Your accountant also has access to industry knowledge and research that will help you compare against the performance of similar restaurants. This will provide grounding for your financial forecasts.

b. Business assumptions that will inform your financial forecast

At this point, you’ve still got a lot of unknowns. Like, how is the public going to react to your concept and menu? Will it change your competition’s pricing or marketing strategy?

Let’s start with what you do know. This should include:

  • Your seating space
  • The general price range for menu items
  • The days you’re more likely to be at or near full capacity

Market research can tell you the average time it takes for customers to become aware of a new restaurant. This way, you don’t overestimate or underestimate how long it will take for people to start walking through your doors.

Before forecasting your restaurant sales, here’s what you should know about your venue:

  • Square footage: How much space do you have for customers in the front of house vs. staff in the back of house?
  • Seats: How many people can you serve at any given time?
  • Prices: How much will you be charging per menu item?
  • Hours of operation: Are you open for breakfast, brunch, lunch, dinner, and/or late night snacks?
  • Market trends: When a similar restaurant opened in a similar location, how long did it take for it to operate at 100% capacity?

c. Basic math for sales forecasting

Once you’ve consulted with your team of experts and other restaurateurs to fine tune your business assumptions, you’re ready to do some simple math to forecast your sales.

Let’s say your restaurant has 32 seats. Your average lunch dish costs $12 for food and $3 for a beverage. In this scenario, you know that at full capacity, your restaurant would expect the following sales:

  • 32 units x $12 per unit (food) = $384
  • 32 units x $3 per unit (drink) = $96
  • = $480 at full capacity

Approximately how long does it take to have lunch at your restaurant? If it takes about an hour and you’ll only have one seating, then $480 would be your final estimate for the day at full capacity.

What about dinner? If you’re charging $20 for food, $5 for a drink, and you’ll likely be serving two seatings, you would end up with:

  • 32 units x $20 per unit (food) = $640
  • 32 units x $5 per unit (beverage) = $160
  • = $800 at full capacity
  • x 2 seatings = $1,600 at full capacity

You’re off to good start.

But remember. Your restaurant won’t be operating at full capacity every day. Based on what you now know about your sales at full capacity, you can calculate a baseline average for the week and year.

Let’s say you anticipate selling at half capacity on slow days (Mondays and Tuesdays) versus full capacity on busy days (Fridays and Saturdays). You’re not open on Sundays, so sales for that day would be zero. Your anticipated sales for lunch per week might look something like this:

  • Monday: $240
  • Tuesday: $240
  • Wednesday: $360
  • Thursday: $360
  • Friday: $480
  • Saturday: $480
  • Sunday: $0
  • Weekly average = $308.57 per day (for lunch)

Scale this process by multiplying your average week times 52, then divide by 12 to get the monthly average. This is your baseline month for lunch sales. Do the same for dinner and/or for any other dining times your restaurant will have.

Because your restaurant is just starting up, it’s safe to assume you won’t reach full capacity for some time. Most restaurateurs divide their average estimates in half when calculating their final sales forecast numbers upon opening.

d. When to rework your sales forecast

After opening your doors, it’s best to revise your sales forecast once a month. But it’s also critical to review your forecast whenever you encounter any big changes.

Here are some key events that warrant a review of your sales forecast:

  • Your prices change
  • Your seating changes
  • Your operating hours change
  • You have real sales numbers

2. Licenses, Permits and Insurance for Restaurants

Every city has its own mix of requirements when it comes to licenses, permits, and insurance. How many you need of each is affected by numerous factors, including your restaurant’s location, square footage, and staff numbers.

Businesses such as restaurants will often have to put down deposits for each type of insurance, so this can add up quickly. Be sure to check with your lawyer and city requirements as soon as possible to ensure you obtain all required documents.

Licenses and Permits

As with any other type of service-oriented business, restaurateurs are subject to a number of licenses and permits. Many of these requirements come with nominal fees. If you’re planning to renovate, have outdoor seating, or serve alcohol, each will require a license or permit.

Acquiring certain licenses and permits can take a long time. Seriously. It’s a lot of waiting. That’s why it’s best to start the application process as soon as possible, so you can cut through the red tape, one by one. The licenses and permits needed to open a restaurant will depend on many variables. Due to the varied nature, many city offices have tools that help restaurateurs learn what they need before they move forward with applications.

Whether online, through the phone, or in person, common details you’ll have to provide include (but are not limited to):

  • Size and legal structure
  • Activities taking place within your business
  • Space you’re leasing or buying
  • Inventory and alcohol sales
  • Equipment and emissions
  • Renovations and changes to the building structure
  • Square footage of indoor and outdoor space
  • Staff insurance and training needs
  • Waste disposal
  • Promotional events

Even if you aren’t able to provide all these details, provide as much information as you can so you can start the application process early. Restaurants sometimes need upwards of 30 licenses and permits.

Common types of licenses and permits are related to:

  • Starting or managing a business
  • Construction, development, and zoning
  • Serving, selling, exporting, and importing
  • Using roads, sidewalks, and public facilities
  • Electrical, plumbing, and heating
  • Vehicles
  • Dangerous goods and waste
  • Business and professional services

Insurance

It may not be the sexiest topic, but insurance will help you sleep better at night knowing you’re protected. You also need to make sure you know how to protect yourself and your restaurant from lawsuits and claims.

To help you decide what kinds of insurance your restaurant needs, listed below we’ve got the most critical types that should be considered:

  • General liability insurance
  • Property insurance
  • Liquor liability insurance
  • Workers’ compensation
  • Business interruption insurance
  • Food contamination insurance

a. General liability insurance

  • Average annual premiums: $500–$6,000
  • Average deductible: None

This type of insurance protects your restaurant in the event that someone is injured on your property. General liability insurance covers a variety of areas and sometimes includes copyright infringement lawsuits, property damage, damaged reputations, and costs related to foodborne illnesses.

b. Property insurance

  • Average annual premiums: $1,000–$2,500
  • Average deductible: $1,000

Property insurance covers furniture, buildings, kitchen equipment, and other property you own within the business. If you are leasing your space, the owner of the building may already have property insurance. In this case, you wouldn’t have to purchase property insurance. However, you’d still be in charge of insuring the contents within the space, such as equipment.

Money-saving tip:

Certain insurance providers also offer business owner policies, which combine general liability and property insurance. Be sure to investigate the various insurance offerings within your state before making your decision.

c. Liquor liability insurance

  • Average annual premiums: $400–$3,000
  • Average deductible: None

Liquor liability insurance protects your business in the event an intoxicated customer commits a crime, damages property, or injures someone. When operating a restaurant, these are always risks, so make sure you’re protected.

d. Workers’ compensation

  • Average annual premiums: $2.25 per $100 of payroll
  • Average deductible: None

Workers’ compensation protects your staff from the cost of work-related accidents, illnesses, and lost wages. Restaurants are required by law to purchase this type of insurance. Most policies also include employer’s liability insurance, which helps with legal costs associated with a workers’ compensation lawsuit.

e. Business interruption insurance

  • Average annual premiums: $750–$10,000
  • Average deductible: $1,000

Business interruption insurance protects your business against closure due to weather-related events, vandalism, equipment damage, and more.

f. Food contamination insurance

  • Average annual premiums: $1,800
  • Average deductible: None

Food contamination insurance is designed to help you get back the expenses associated with contaminated or spoiled food in the event of a power outage.

How to Open a Restaurant: Building

1. Construction and Renovations

Here are the typical costs associated with construction and renovations when opening a restaurant:

  • Kitchen: $300–$500 per square foot
  • Dining Room: $150–$300 per square foot

Renovation budgets will differ depending on the kind of space restaurateurs are looking to achieve. For example, converting a space that was originally designed for another purpose will require significantly more investment than working with a space already set up as a restaurant.

Kitchen equipment, smallwares and furniture

Kitchen equipment, smallwares, and furniture costs typically range between $100,000 to $300,000.

Kitchen equipment

Large pieces of equipment such as refrigerators, ovens, freezers, and fryers can cost about $100,000.

Smallwares

Smallwares include tableware, glassware, utensils, and smaller restaurant equipment. Costs usually add up to about $80,000.

Furniture

A typical furniture budget ranges between $5,000 to $40,000. The final cost will depend on the size of your restaurant, the concept, and number of seats.

2. Inventory Management

Inventory Management Best Practices

Restaurant inventory management is the regular tracking of all goods that flow in and out of your restaurant. It can be complicated and time-consuming, even for the most seasoned restaurateurs. Properly tracking inventory requires not only time and established processes, but also properly trained and diligent staff.

When figuring out how to run a restaurant successfully, it can be a tough process to iron out. But believe us when we say that at the end of the day, having a solid inventory management system in place is definitely worth the investment.

To establish a good inventory management system, you need to know:

  • How to properly track inventory
  • How to develop processes for your restaurant
  • How to use technology to make inventory management more efficient and accurate

Proper inventory management requires setting up a series of processes that enable interactions between all your major activities, including ordering, receiving deliveries, stocking, counting, and inventory data analysis.

Developing a comprehensive inventory management system is a lot easier when you break down the numerous process into mini-processes that you can record, enforce, and adapt as needed.

Here’s how to break down your inventory management into more manageable mini-processes:

  • Document and develop procedures for tracking and recording the number of items
  • Create specifications for ordering and purchasing inventory
  • Establish procedures for receiving deliveries (e.g. Who should sign for deliveries and where should the stock be placed?)
  • Develop policies and procedures for reconciling inventory discrepancies
  • Maintain a regular schedule for analyzing inventory data

The purpose of performing all these mini-processes is to understand how much stock you have in your restaurant at all times. If you have access to this information, you’ll be able to avoid problems like:

  • Running out of inventory mid-service
  • Setting your restaurant up for staff theft
  • Excessive food waste
  • Tying up cash flow in excessive inventory
  • Relying on outdated and inaccurate financial reports
  • Going out of business

Inventory Software

Many cost-conscious restaurateurs use spreadsheets to keep track of their inventory. Inventory software is also an option worth looking into – especially if your top priorities are maintaining inventory accuracy and having easy access to data for your financial reporting.

For a lot of restaurateurs, inventory software is worth the investment because of the amount of time it frees up. With so many other areas of the business that need your attention, every minute you can spare counts.

Look for inventory management software that will aggregate data and give you an at-a-glance look at historical trends in ordering, discrepancies, and costs.

Here’s a list of three inventory management platforms to get your research started:

TouchBistro

A major benefit to TouchBistro is that it’s being used in over 100 countries, so it already has a reliable track record. The systems offers a complete iPad POS system that includes inventory tracking, so it’s easy to understand how all the elements of your business impact each other.

Orderly

This app allows restaurateurs to use their own existing inventory templates or create templates through the app. Inventory counts can be recorded on your device and then downloaded in Excel. The app also allows you to see your cost of goods sold and total valuation.

SimpleOrder

SimpleOrder is an inventory management system designed to streamline back of house restaurant operations and features POS sales integration, real-time food and recipe costing, and online purchasing.

How to Open a Restaurant: Enabling

1. Technology for Your Restaurant

The most impactful technology a restaurant can have is an efficient POS system. We’ve come a long way since the traditional, stationary POS systems and now restaurateurs can reap the benefits. And by that, we mean profits.

POS systems now function more like an operating system for your entire restaurant. They help manage your staff and inventory, integrate with self-serve kiosks, build customer loyalty, and provide valuable data that enables you to make better business decisions.

Choosing Your POS System

The right type of POS system for your restaurant will depend on your venue, payment processing requirements, and how you plan on using its capabilities.

No matter what your priorities, it’s important to consider all the options available for POS systems before making a final decision.

  1. Traditional POS

Traditional POS systems, also known as “legacy” POS systems, have been used in the restaurant industry since the 1980s. This system usually includes a network of stationary terminals with touchscreens connected to an internal, back office server. Payment processing is conducted at the terminal.

Common functions include:

  • Inventory management
  • Managing reservations
  • Handling delivery and takeout orders
  • Splitting bills between customers
  • Limited sales reporting and data forecasting

Considerations:

  • An upfront license fee is required
  • Monthly maintenance is required
  • A technician needs to install the system at your restaurant
  • You can only access your data at your location (no offsite access)
  1. Mobile POS

Advancements in tablet technology have enabled the development of mobile POS systems. With iPads, the once stationary POS terminal can now go anywhere, literally placed in the palm of the server’s hand.

The three main reasons restaurateurs are embracing mobile POS technology are:

  1. New payment processing requirements

To create more secure payments for customers, restaurants are now required to accept chip-and-pin (EMV) credit and debit cards. Plus, customers expect businesses to accommodate e-wallet apps, like Apple Pay and Google Pay.

The easiest way to comply with ever-evolving data security requirements is to use a mobile POS system that integrates with handheld credit and debit card machines. These can be brought directly to the customer’s table for transaction.

  1. Cloud installation and easy access to data

Mobile POS systems don’t require on-site installation for cloud-based deployment because the hardware can be easily set up in the restaurant and the software is connected to the cloud. Restaurateurs are able to access their sales reporting and financial forecasts from anywhere in the world and on any device.

  1. Software integrations

Mobile POS software can connect with other software you might be using. This means that your primary POS software can be connected to other management software that you use for activities like labor management, accounting, customer loyalty, and more.

2. Staffing

Staff Salaries

When considering the ideal labor ratio for your restaurant, best practice is to target 25%–35% of gross sales.

Just like with your food and beverage costs, your labor ratio will depend on your restaurant concept. A full service, sit-down restaurant will have a higher labor ratio of 30%–35%, whereas a quick service restaurant might spend between 25%–30% of gross sales on payroll. Management salaries usually account for 10% of your labor ratio.

When figuring out how to staff your restaurant, fair scheduling and wages will be big differentiators in attracting top quality talent.

In the U.S., many states have passed “fair scheduling” acts. These require managers to give their staff at least two weeks’ notice when assigning shifts, and provide additional payment if scheduled to work last minute.

You’ll also need to comply with your state’s specified minimum wage. If your state’s minimum wage is higher than the U.S. federal wage, you’ll need to comply with your state’s minimum wage regulations.

Each state regulation will also specify whether or not minimum wages are lower for the restaurant industry. This is because tips can be considered as a part of wages. If this situation applies to you, make sure that when tips are included in staff’s total wages, you are meeting the minimum obligations.

How to Open a Restaurant: Opening

1. Operational Finances

Understanding Your Data and Financial Reports

Congratulations! You’re about to open your restaurant – the dream is finally a reality. But to keep it your reality for years to come, it’s critical to understand your financial reports.

Below are the most important financial reports you should pay attention to. Learn how to analyze them in as much depth as possible, so you’re able to make the right business decisions for your restaurant.

  1. Food and beverage sales report

Your food and beverage sales reports should be standard reports generated on a daily, weekly, and monthly basis. These sales reports aren’t the only reports you’ll pay attention to, but they are required in order to generate any other type of financial report. They also come standard with any cloud-based POS system.

These reports tell you critical day-to-day information, such as:

  • Daily, monthly, weekly sales activity
  • Sales by menu item
  • Sales by employee
  1. Prime cost report

Prime costs roll up into your profit and loss statement. Best practice for running prime costs reports are on a weekly basis.

Prime cost: The total cost of sales plus all payroll-related costs (including management and staff wages, as well as payroll taxes and benefits).

To calculate your prime costs, you need to generate the following reports from your POS system:

  • Weekly labor cost report
  • Weekly cost of goods sold report
  • Weekly sales report

With these numbers, you can then calculate your prime costs:

Cost of goods sold (CoGS) + Total labor cost (include taxes, benefits, and insurance) = Prime cost

Calculate the percentage of your prime costs against total sales. Your prime cost ratio should be less than 60%. If the ratio is greater than 60%, you’re spending too much on inventory and labor.

 

  1. Profit and loss statement

A profit and loss statement is a management tool that reviews the total revenue and expenses of your restaurant during a given time period. Essentially, this report reflects costs that are subtracted from sales. (Note: A P&L is also known as statement of earnings, statement of operations, or an income statement.)

This report gives you an idea of your restaurant’s financial health. A profit (positive number) indicates that your restaurant is doing well financially. A loss (negative number) means that it’s time to reassess your business strategy and decide which areas need to be tightened up to save on costs or increase revenue.

How often do you need to generate profit and loss statements? It depends on what you think is necessary. If you don’t have a bookkeeper, you may benefit from a monthly P&L. Or, as a new restaurateur, try generating weekly reports at the very beginning, so you get a real-time look at the overall health of your business as it gears up.

  1. Inventory reports

Your inventory report will help you accomplish three main goals:

  • Calculating the total cost of your current inventory
  • Determining the latest unit cost of each item
  • Tracking the number of goods in your restaurant

You should create inventory reports on a weekly basis – at the very minimum. When you’re ordering goods from vendors on a weekly basis, it’s easiest to do inventory management on the same schedule.

  1. Cash flow statement

Cash flow is the amount of cash you have on hand to pay bills. As a new restaurateur, make sure you’re always aware of your cash flow. We recommend generating a cash flow statement on a weekly basis.

There are two main components of cash flow: inflows and outflows.

Cash inflows: The combination of cash from customers, financing sources, and assets sold.

Cash outflows: The combination of cash spent on operating costs, payments to financing sources, and asset purchases.

Total cash flow: Cash inflows minus your cash outflows within a specified time period.

2. Marketing and Promotion

How to Write a Marketing Plan for Your Restaurant

Once you open your doors to the public, ongoing marketing and promotion are key to keep customers coming through those doors. Using a combination of digital and traditional marketing tactics creates the best approach to promoting your bar and maintaining business growth.

If you understand a few general marketing principles, it will be easier to minimize your investment (time and money) while maximizing results. To stay on budget, we recommend testing a few strategies before you execute on a larger scale.

Not every marketing effort will be a slam dunk, but you’ll need to take some calculated leaps in order to learn what works for your restaurant concept, target market, and location.

Similar to how you wrote a business plan before starting your restaurant, the best way to start is to write a marketing plan before investing in marketing initiatives. The good news? You’ve already done most of the heavy lifting in your original business plan. You’ll just need to fill in a few more details.

Here are the main steps to crafting a marketing plan for your restaurant:

Step 1: Take a look at your brand’s vision, mission, and position statements. These will already be in your business plan, so make sure you stay consistent as you apply your marketing lens.

Step 2: Revisit who you identified as your target audience(s) in your business plan. Pay attention to the demographics, psychographics, and behaviors of these customer segments. Your marketing campaigns need to address at least one of these segments and take into account those characteristics to make a connection with your audience.

Step 3: Perform a SWOT (strengths, weaknesses, opportunities, threats) analysis on your competitors.

For each competitor, consider the following:

  • Strengths: What is your competitor doing well that you could learn from?
  • Weaknesses: What could your competitor be doing better and why aren’t they doing it already?
  • Opportunities: How can you exploit your competitors’ weaknesses and do better than them?
  • Threats: Do your competitors offer something unique that you can’t?

Step 4: Define what differentiates you within the market by repeating the SWOT process on your own restaurant.

Step 5: Develop an elevator pitch. An elevator pitch is how you would describe your restaurant to a stranger in less than 60 seconds. The same messaging can be used in your promotional activities.

When developing your elevator pitch, state the following:

  • Your restaurant’s name and concept
  • The type of food/drink you offer
  • What you do for your target audience
  • How you do it differently

Step 6: Define and prioritize your marketing objectives. These will change as your business develops and grows, but always remember that each marketing objective needs to ultimately serve at least one of your overall business objectives. Common marketing objectives include increasing brand awareness for your restaurant, maximizing customer acquisition, and increasing customer retention.

Step 7: Decide what mix of digital and traditional marketing strategies is the best for your business and budget. Any marketing initiative should ultimately help you achieve your objectives, so be specific about how you’re going to measure success.

Conclusion

Now that you understand the fundamentals of how to open a restaurant, you’re on your way to turning your dream into reality.

Remember: you’re never alone as you go through your journey. There are plenty of resources and tools available to you, and many other restaurateurs ready to share their experiences and knowledge.

As long as you have well-thought-out and documented plans, processes, and reporting in place, you have the foundation for great success and sustainable growth. Good luck!