How to start a restaurant business: what to know first

Starting a restaurant is a rewarding venture that blends culinary passion and hospitality with sharp business savvy. The industry is massive, with sales projected to top a trillion dollars, driven by a consistent demand for dining experiences from casual family meals to special occasion celebrations.

This guide will take you through the practical steps of validating your concept, securing funding, selecting the right location, and obtaining the necessary licenses to help you launch a successful restaurant business in the U.S.

Step 1: Validate your restaurant concept and plan your budget

First, research your target market. Use data from the U.S. Census Bureau to understand local demographics. You should also perform on-the-ground foot traffic counts near potential locations to estimate customer volume during breakfast, lunch, and dinner rushes.

Next, analyze your direct competitors. Review their menus, pricing, and customer feedback on platforms like Google Maps and Yelp. This helps you identify market gaps and define what makes your restaurant unique. A common misstep is creating a concept too similar to established neighbors.

Estimate your startup costs

Restaurant startup costs typically range from $175,000 to over $750,000. Your initial budget should account for major one-time expenses. A thoughtful approach is to secure enough capital to cover at least six months of operating expenses, which provides a buffer during the initial opening period.

• Kitchen Equipment: $20,000 - $150,000+
• Leasehold Improvements & Renovation: $50,000 - $275,000
• Licenses and Permits: $2,000 - $10,000
• Initial Food & Beverage Inventory: $5,000 - $25,000

Here are three immediate steps to take:

• Download demographic reports for two to three potential neighborhoods.
• Create a spreadsheet comparing the menus and prices of three local competitors.
• Draft a preliminary startup budget that includes a six-month working capital reserve.

Step 2: Set up your legal structure and get licensed

Most new restaurants form a Limited Liability Company (LLC). This structure separates your personal assets from business debts. You can file for an LLC through your state's Secretary of State website for a fee that typically ranges from $50 to $500.

Once your LLC is approved, you might consider electing for S Corp tax status with the IRS. This can potentially reduce your self-employment tax burden on profits. It is a good idea to discuss this option with an accountant to see if it fits your situation.

Navigate federal, state, and local permits

With your business entity established, you'll need an Employer Identification Number (EIN) from the IRS, which is free. You will also need a state seller's permit to collect sales tax and food handler's permits for your staff from the local health department.

Your city or county health department also issues the main food service license after an inspection, which can cost from $100 to $1,000. If you plan to serve alcohol, apply for a liquor license immediately. The process can take 6-12 months and cost thousands.

Here are four immediate steps to take:

• File for an LLC with your state's Secretary of State.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Contact your local health department for their new restaurant inspection checklist.
• Research the specific cost and timeline for a liquor license in your state.

Step 3: Secure your insurance and manage risk

Protecting your business starts with the right insurance. General liability is your first line of defense, covering claims like customer slips or foodborne illness. A typical policy provides $1 million in coverage per incident. Commercial property insurance protects your building and its contents from fire or theft.

If you have employees, workers’ compensation is legally required in nearly every state. It handles medical costs for on-the-job injuries. For restaurants that serve alcohol, liquor liability insurance is non-negotiable. It covers damages or injuries caused by an intoxicated customer.

A comprehensive Business Owner's Policy (BOP) bundles liability and property coverage, with annual premiums often from $3,000 to $15,000. Many new owners underestimate their equipment value, so make sure your policy fully covers the replacement cost of your specific kitchen gear.

You might want to get quotes from providers that specialize in the food service industry. Consider companies like the Food Liability Insurance Program (FLIP), The Hartford, or a broker like Insureon. They understand the unique risks, from kitchen fires to spoilage.

Here are 4 immediate steps to take:

• Request quotes from at least two restaurant-focused insurance providers.
• Create an inventory of your kitchen equipment and estimate its total replacement cost.
• Confirm your state's legal requirements for workers' compensation insurance.
• If you have a liquor license, verify the minimum required liquor liability coverage.

Step 4: Find your location and buy equipment

Look for spaces zoned for commercial use, typically between 1,500 and 5,000 square feet. A good rule of thumb is to plan for 25-35 square feet per customer seat. This gives you enough room for a kitchen, dining area, and storage without feeling cramped.

When you negotiate your lease, ask for a Tenant Improvement (TI) allowance. This is money from the landlord to help pay for renovations. Also, push for an exclusivity clause that prevents the landlord from leasing another space in the building to a direct competitor.

Purchase your kitchen equipment

Your kitchen is the engine of your restaurant. You can buy new from suppliers like WebstaurantStore or find used gear from local dealers to manage costs. A mistake some owners make is buying undersized equipment that cannot handle peak volume.

• Commercial Range (6-burner): $2,000 - $15,000
• Walk-in Refrigerator: $5,000 - $20,000
• Commercial Dishwasher: $3,000 - $12,000
• Three-Compartment Sink: $500 - $2,000

Here are 4 immediate steps to take:

• Identify three potential locations and verify their commercial zoning with the city.
• Draft a lease proposal that includes a request for a Tenant Improvement allowance.
• Price out a basic equipment package from a national supplier and a local dealer.
• Compare the costs and warranties for new versus used kitchen equipment.

Step 5: Set up your payment processing

Your customers will expect to pay with credit cards, debit cards, and digital wallets like Apple Pay. When you choose a payment processor, look closely at transaction fees and how quickly you can access your funds. Some processors hold funds for several days, which can strain cash flow.

Many new owners focus only on the percentage rate but forget to check for monthly fees or hardware costs. These can add up. You should compare the total cost, not just the advertised rate.

Choose your payment solution

For restaurants that need to accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit, and digital wallets directly through your smartphone. Just tap and you are done.

At just 1.99% per transaction with no hidden costs or extra hardware needed, it is particularly useful for tableside payments, food trucks, or catering events. Most processors charge between 2.5% and 3.5% per transaction, so the savings are significant.

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done. There is no waiting for bank transfers.

Here are 4 immediate steps to take:

• Compare the total monthly cost, including all fees, from two different payment processors.
• Decide if you need mobile payment capabilities for your service style.
• Check the fund settlement times for your top processor choices.
• Download the JIM app to see if it fits your business model.

Step 6: Secure your funding and manage finances

To fund your restaurant, you might want to explore an SBA 7(a) loan. These government-backed loans can go up to $5 million. Lenders typically look for a credit score above 680 and a down payment of 10-20% from you.

Plan for your first six months

Your loan should cover more than just the build-out. You need enough working capital for at least six months of operating expenses. This includes payroll, rent, utilities, and inventory replenishment before your revenue stabilizes. A common misstep is to underestimate these ongoing costs.

In addition to SBA loans, you can look at traditional bank loans, though they often require more collateral. You might also find grants specific to your region or concept. The National Restaurant Association Educational Foundation sometimes offers opportunities you can explore.

Here are 4 immediate steps to take:

• Contact your local Small Business Development Center (SBDC) for free loan application help.
• Draft a detailed 12-month cash flow projection for your business plan.
• Request a loan pre-qualification from a preferred SBA lender in your area.
• Calculate your total estimated operating expenses for the first six months.

Step 7: Hire your team and set up operations

Build your core team

Your staff brings your restaurant to life. Key hires include a Head Chef ($60k-$100k+), a General Manager ($55k-$90k+), and Line Cooks ($15-$25/hr). Your chef leads the kitchen, while the GM handles daily business operations.

All employees who handle food should have a ServSafe Food Handler certification. If you serve alcohol, your front-of-house staff will need an alcohol service certification. These are non-negotiable for compliance and safety.

Manage your daily operations

Aim to keep your labor costs between 25% and 35% of your total revenue. A mistake some owners make is understaffing to save money, which hurts service and burns out the team. You can use scheduling software like 7shifts or Homebase to manage shifts and communication efficiently.

Here are 4 immediate steps to take:

• Draft job descriptions and salary ranges for your key positions.
• Research state requirements for food handler and alcohol service certifications.
• Compare features and pricing for two restaurant scheduling software options.
• Calculate your target labor cost percentage based on your revenue projections.

Step 8: Market your restaurant and attract customers

Plan your launch marketing

Start with a soft opening for friends and family. This lets you test your operations and gather feedback before the public arrives. After that, plan a grand opening event. You might want to invite local food bloggers or media for early press coverage and immediate buzz.

Build your digital storefront

Claim your Google Business Profile and Yelp page immediately. Fill them out completely with hours, menus, and high-quality photos. A mistake some owners make is ignoring online reviews. You should engage with all feedback to build a strong reputation from day one.

With your profiles ready, focus your social media on one or two platforms like Instagram. Post professional photos of your food and space. A simple paid ad campaign targeting users within a five-mile radius can effectively drive initial foot traffic.

Create loyalty from day one

Start collecting customer emails from your first transaction. You can offer a small incentive, like a free drink on their next visit. This email list becomes a direct line to your customers for promotions. A healthy email open rate for restaurants is often between 20-25%.

Here are 4 immediate steps to take:

• Claim and complete your Google Business Profile and Yelp page.
• Draft an invitation list of local food influencers for a soft opening.
• Set up a simple system to collect customer email addresses.
• Outline your first promotional offer for new customers.

Step 9: Price your menu for profit

Your menu prices directly impact your profitability. A key metric is your food cost percentage, which should ideally fall between 28% and 35%. This number represents the portion of your revenue spent on ingredients for the food you sell.

Choose your pricing model

The most common method is cost-plus pricing. First, calculate the exact cost of all ingredients in a dish. Then, divide that cost by your target food cost percentage. If a burger costs $4 to make and your target is 30%, the price is $13.33 ($4 / 0.30).

You should also use competitive pricing. Analyze what nearby restaurants charge for similar items. A mistake many new owners make is simply matching prices without calculating their own costs. This can quickly erase your profit margin if their costs are lower than yours.

Once you have prices, think about menu engineering. This means you analyze which items are popular and which are profitable. You can then strategically place high-margin items on the menu to draw attention and boost overall sales.

Here are 4 immediate steps to take:

• Calculate the raw food cost for your top five menu items.
• Research the menu prices of three direct competitors for similar dishes.
• Set a target food cost percentage for your restaurant.
• Use the cost-plus formula to set a preliminary price for one signature dish.

Step 10: Maintain quality and scale your business

Your goal is to keep quality high as you get busier. A good standard is to have all managers ServSafe Manager certified. This ensures deep knowledge of food safety protocols throughout your leadership team.

You can measure service quality with a few key numbers. Aim for an average ticket time of under 15 minutes from order to table. Also, track your online reviews. A consistent rating of 4.5 stars or higher on Google and Yelp is a strong indicator of customer satisfaction.

Know when to grow

Many new restaurants see their standards drop during the first big rush because they sacrifice quality for speed. To avoid this, create simple checklists for opening, closing, and line cook stations to ensure consistency every single shift.

Once your general manager consistently works over 55-60 hours per week, it is time to hire an assistant manager. This prevents burnout. For expansion, wait until you have at least 18 months of solid profitability and a stable team before you consider a second location.

Here are 4 immediate steps to take:

• Set a target ticket time for entrees during peak hours.
• Define the weekly revenue goal that will trigger hiring an assistant manager.
• Create a simple daily quality control checklist for your kitchen staff.
• Establish a minimum customer review score to maintain on platforms like Yelp.

To start a restaurant is a journey of passion and precision. Remember that great food is just the start; consistent service builds a loyal following. With this guide, you have a clear roadmap. Now, it is time to take that first confident step toward your dream.

As you get set up, keep your operations simple. A solution like JIM lets you accept card payments on your smartphone for a flat 1.99% fee, with no extra hardware. It helps you get paid easily from day one. Download JIM to get started.