Restauranting FAQs

10 Questions about opening a new restaurant

••• Michelle Maria via Pixabay

1. How do I get a loan to open a restaurant?

Financing is often the biggest obstacle when trying to open a new restaurant. With a high failure rate, banks are not always eager to dole out hundreds of thousands of dollars to would-be restaurateurs. To help get an initial loan for financing, you should start with a through restaurant business plan. A business plan is a blueprint for success. It helps identify your core customer base, examine your competition and create a budget. More on Restaurant Business plans.

2. How do I choose a restaurant location?

Location, location, location. It can make or break a restaurant. If no one can find your restaurant, it doesn’t matter how great your food and service are. Before you settle on any location first examine the area population base, to determine if there are enough potential customers in the area. Another indicator of a good location is the other businesses in the area. Is the restaurant location in a thriving downtown or is it more like a forgotten ghost town. More about choosing the right restaurant location.

3. How long of a lease should I sign if I am renting my restaurant location?

Start with a year long lease, two years at the most. Any longer and you can run into serious legal trouble with your landlord if you can’t make rent. A year to two years will give you more than enough time to determine if the location is a good choice for a restaurant. More on negotiating a restaurant lease.

4. How do I choose a restaurant name?

Naming a restaurant is like naming a child; it should be given careful consideration. A restaurant name can reflect its location, theme, or local history. It can be play on words, like The Bag Lady (Paula Deen’s first catering business). More about choosing the perfect restaurant name.

5. Should I buy new or used restaurant equipment?

It depends on the piece of equipment and how used it is. Some commercial kitchen equipment have short life spans, like ice makers, and are better suited to leasing or buying new with a warranty. Other pieces of kitchen equipment, like gas ranges, are like dinosaurs that live forever with minimal repairs and can be bought used with confidence. More about buying new and used equipment.

6. What kind of licenses and permits do I need to open a restaurant?

Restaurant licenses and permits vary by state and town. If you plan to serve alcohol, you will need a liquor license as well as liability insurance. If you are using your restaurant equipment as collateral for a bank loan you will need to keep it insured, as directed by your financial institution. Other areas that you may need permits or licenses include entertainment permits, sign permits, seafood permits, sellers license… the list goes on and on. Insurance includes unemployment insurance, accident insurance, and whatever other kinds are required by your state. More about restaurant insurance and liquor licenses.

7. How do I price my restaurant menu?

The general formula for pricing a restaurant menu is 30% food cost or less. That means that the price of the food in any given menu item should not exceed more than 30% of what you charge for it. If you have a burger and fries platter for $8.00 on your dinner menu, the ingredients to make it should not cost more than $2.40. More on restaurant menu pricing.

8. Should I hire a general manager or do it myself?

I find there are two types of restaurant owners. The ones who feel comfortable being the front of the house and the ones who prefer to stay behind the scenes. If you aren’t a people person, then consider hiring a general manager to work the front of the house. However, if you enjoy talking with customers and dealing with customer complaints and don’t feel comfortable leaving it up to others, you might as well save yourself the money and do it yourself, or have a part time manager to look after things while you attend to all the chores of being a restaurant owner. More about hiring for your restaurant.

9. Is franchising better than owning an independent restaurant?

Restaurant franchising has pros and cons. A restaurant franchise offers up name recognition, built-in advertising and a set menu. Basically it is a turnkey operation. However, you pay for all the benefits. In some cases you can pay a lot to open a franchise. Some popular restaurant franchises require franchisees have up to a million dollars in assets to even be considered. More about restaurant franchising.

10. Will I make a lot of money owning a restaurant?

You might make a lot of money, but you will also pay out a lot of money, to keep your restaurant in business. Many people equate owning a restaurant with easy money (for the life of me I can’t figure out why). Owning your own restaurant can earn you a decent living, so long as you – the owner- do something. Cook, host, manage, accountant- something. Too many people open a restaurant thinking they will let the employees do all the work and they can sit back and collect a free paycheck. It might work for a little while, but eventually the dead weight will pull a restaurant under. Read more popular myths about owning a restaurant.