Let’s face it, almost every one of us have at some point in our lives proclaimed, “I should open a restaurant”. However, running a restaurant is far from easy, and requires much patience and skill to operate. This article will tell you about the top 11 challenges faced while running a restaurant business. Despite the heavy risks and the tough hours, the restaurant business is also rewarding. If you too have nurtured a lifelong ambition of starting up a restaurant, and don’t know how to go about it, or are currently in the middle of setting up your first restaurant, then this article is just for you and will tell you in detail, how to start a restaurant business.
How to Start a Restaurant Business
We have listed, and explained in detail, how to start a restaurant business below.
1. Deciding the Concept of the Restaurant Business
The first thing to consider to how to start a restaurant business is deciding the concept. You need to keep a number of things in mind before deciding a concept, the major one being the amount of capital you have for investment. The Average Price per Customer (APC) gives you a fair idea about the average amount of money a customer would spend in your restaurant.
Once you have decided the concept, you must decide the theme and cuisine of your restaurant. The interiors must be in sync with the theme of your restaurant.
2. Investment Needed to Start a Restaurant Business
Most aspiring restaurateurs’ dreams never see the light due to lack of funds and is one of the most important parts to consider when you think of how to start a restaurant. Following is the investment required to start up different types of restaurant. There are three ways you can raise money for your restaurant dream.
1. Self-funding- If you have enough money in the bank, then congrats, you have crossed the first hurdle of opening a restaurant. It is also a good idea to open a restaurant in partnerships, as it reduces the risks of investment.
2. Loan- You can take a loan to fulfil your restaurant dream. However, securing a loan from a bank may include hassles as they look for collateral or someone who can underwrite the loan.
3. VC/Angel funding- Getting investors on board can be difficult, especially if yours is a first-time venture. Investors usually look for your restaurant venture’s growth potential, quality, and the scalability of your model. The performance of your first few outlets is considered before investing.
3. Restaurant Costs Involved in Running a Restaurant Business
Restaurant costs are a major part of running a restaurant and need to be evaluated and planned carefully when you think of how to start a restaurant business. Below are the major restaurants costs.
Food Costs- Food cost is the cost of all the raw materials used in preparing a dish. Ideally, the food cost should be around 30-40% of your menu price. Read how to control your restaurant food costs here.
Overhead Costs– Overhead costs are the other expenses that are not related to food or labour. These include-
- Rent- The rent covers a major part of your restaurant costs, and is heavily affected by the location of the place. However, the rent should never exceed 10% of your total revenues.
- Interiors- You can decide on the interior of the place based on your restaurant concept and theme, and your budget.
- Kitchen equipment- Purchasing good quality equipment may seem like heavy on the pockets, but they always recover their costs in the long run.
- License- Restaurant licenses are an important expense of your restaurant, and cannot be ignored. Based on your establishment type, the license fee varies. We have covered the topic of restaurant license in detail below.
- POS- The new age, modern technology POS can smoothen your restaurant operations like never before. The price of POS depends on its features and functionalities, that should be chosen on the basis of your restaurant needs. We have covered the topic of POS below in detail.
- Marketing- You should ideally spend 1-2% of your revenues on marketing your restaurant.
4. Deciding the Location for the Restaurant
The location is an important factor to consider while discussing how to start a restaurant business, as it can determine the success of your restaurant. While choosing your restaurant’s location, it is a good idea to identify your competitor in that area and gauge their success. The competition needs to be gauged not just in terms of cuisine, but also the type-casual dining, fine dining, QSR, etc. This would help establish that a target customer base already exists in the area.
Other factors to be considered while deciding the location of the restaurant business-
- Visibility and accessibility- The restaurant should be located at a place where it is easily visible as well as accessible. Upper floor locations are generally not considered good as their visibility is low, and customers also find them difficult to locate. A restaurant right in the front and at the ground floor has higher footfalls.
- NOC- Before you open your restaurant, you would also need No Objection Certificate (NOC) from at least three of your neighbours.
5. Licenses Needed to Start a Restaurant Business
You need to acquire licenses from the government to run a restaurant business. The cost of obtaining these licenses varies, depending on the size of your venture. It is advisable to apply for the licenses early, as they may take a lot of time to be approved.
Licenses required for a restaurant
- Trade license from the municipal corporation- Depending on the size of the restaurant, the cost incurred is from Rs 10,000 to 1 lakh. However, the actual license fee ranges from Rs 5000 to 10,000 for a small restaurant. The licenses are issued for the financial year and need to be renewed in March every year.
- FSSAI-You need to get a license from the Food Safety and Standards Authority of India (FSSAI) to operate a food business. The size of your venture, turnover, installed capacity, location etc are factors in obtaining an FSSAI license and costs around Rs 5000 to 10000.
- VAT Registration- VAT registration varies from state to state. This can be done in two ways–either you charge a fixed percentage of the sale value, or charge customer 12.5% and then pay the VAT after adjusting for input credit
- Professional Tax license- You need a professional tax license for employing salaried staff. This is payable on a monthly basis for all staff earning above Rs 10,000.
- Liquor License- Obtaining a liquor license is the trickiest of all and is also pretty expensive. It is advisable to apply for them early, as they take a lot of time as well.
- Business Registration- You need to register your business as a partnership firm or a Pvt Ltd company. You’ll need to file annual returns, audit your finances etc. Hire a CA to help you with the finance of your business.
There are a few other licenses required as well such as fire safety certificate, pollution control license etc.
6. Manpower Needed to Start a Restaurant Business
Hiring the right talent and retaining them is one of the biggest challenges while running a restaurant business. Hiring through referral is the most common form of hiring, with existing employees referring their friends and family. As a first-time restaurateur, you can hire through the traditional way: set up an advertisement in the newspaper, put up ‘We’re hiring’ posters, or hire through agencies. There are also a number of active groups on Facebook and Linkedin, from where you can source talent. The number of employees needed in different types of restaurants.
There are basically three types of staff required in your restaurant-
- Kitchen staff- Your kitchen staff comprises of the cooks, food preparation staff, support staff etc. This is mostly unskilled labour.
- Service staff- The waiters, housekeeping staff, busboys etc are your service staff. Since they have to interact with customers, they need to be good in communication, and etiquette trained.
- Management staff- Your restaurant’s manager, chef, cashier, store manager etc comprise the management staff, and they need to be educated as well as experienced.
Hiring the right chef is extremely important for your restaurant as your food is what’s going to attract your customers. Apart from cooking, your chef also designs your menu, keeping in mind the ingredients that are easily available, and train and lead the staff to prepare and present the dish. Therefore, an experienced chef is a must for your restaurant.Before you start a restaurant business, you must also remember to train your staff not only about their job but also in communication and etiquette. Find out how to create a Human Resource Structure for your restaurant here.
7. Designing the Menu
The next part of how to start a restaurant is designing a menu. A smartly designed menu can make a huge impact on your restaurant food costs. The menu should comprise of items that can be prepared easily and use local or easily available ingredients. It is advisable to serve dishes that use similar ingredients, thus reducing wastage.
The menu also needs to be designed in a way that lures customer to spend more. Find out how to write mouth-watering descriptions that would tempt customers to spend more.
8. Supplier and Vendor Management
A healthy relationship with your supplier and vendor is important for the smooth functioning of your restaurant. You must have at least two-three vendors in each category. This would help compare prices, and also serve as a backup in case some problem comes up with one.
You must always have two days worth of stock in your inventory in case of unexpected emergency situations. The items must always be delivered in the morning and checked every day. Both quality and quantity check must be done at the closing time of your restaurant. It is always preferable to have long duration contracts with the vendor as it helps maintain consistency. You also need to check the Trade Identification Number (TIN) of the vendor before you give him your restaurant’s supply contract.
9. Technology Needed to Start a Restaurant Business
Restaurant technology is often the most ignored part of running and managing a restaurant, though perhaps the most important. With new age modern technology, there are a number of integrated features in the POS that have smoothened restaurant operations to a great extent. Niche restaurant technology solutions are available for different types of restaurants. Read a detailed guide on how to choose the perfect POS for your restaurant here.
The idea of owning a restaurant is great. However, starting a restaurant from the scratch and running it is a humongous task. With this article, we hope we were able to educate you about how to start a restaurant business. If you still have any doubts or questions regarding opening or managing your restaurant, do let us know in the comments below, and we promise we’ll help you out 🙂
Note: The figures and facts mentioned in this article are in accordance with the Indian restaurant space.