Turn your dream of starting a restaurant into reality with our recipe for start-up success. Learn how to find restaurant premises, create a restaurant business plan and hire restaurant staff.
The UK is fast becoming a nation of casual diners, with greater numbers of people choosing to eat out at restaurants rather than cook at home. According to Pragma Consulting, nearly a third of people in the UK dine out at least once a week and subsequently the restaurant business is growing, with the Office of National Statistics recording over 15,000 new restaurants opening each year.
So if your dream to be your own boss involves running a restaurant or café, there’s never been a better time to make it a reality. But starting a restaurant isn’t for the faint hearted. To be successful takes money, hard work and long hours, and the reality of running a restaurant can come as shock if you haven’t catering experience. It’s also risky with high failure rates. According to accountancy firm Moore Stephens, 1,290 restaurants failed in the UK in 2014 – up 20% on the previous year.
One of the biggest reasons for restaurant failure is lack of planning. Opening a restaurant without knowing what’s involved can leave your fledging business flailing. Get it right, and a restaurant is a tremendous business to run and if you’re a people person who is highly motivated then a restaurant startup is a rewarding challenge.
Is starting a restaurant right for you?
You’ll need to be self-motivated, hard working and be people-focused to make a success of your restaurant startup. It’s worth asking yourself at the start if running a restaurant would suit your personality:
You’re patient A restaurant requires patience and persistence, and one of the biggest reasons for failure is a new owner impatient for results and giving up too soon.
You’re highly motivated – You need stamina and self motivation, especially during the early years. Motivating yourself daily will help your restaurant thrive.
You’re business minded – The majority of time running a restaurant is spent on business matters – bookkeeping, accounts, supplier relationships, marketing, staff management and customer service. If getting stuck into running a business appeals, then a restaurant could be right for you.
You’re a people person You’ll need to handle a whole range of customers, often face-to-face and learn how to handle difficult customers as well.
Watch this: Restaurant guru and celebrity chef Gordon Ramsey gives his five tips on how to open a restaurant:
Choose the right concept for your restaurant startup
Decide on the type of restaurant you want to run, and the customers it will serve. A restaurant aimed at city workers will need a different menu and faster service than a countryside restaurant specializing in locally sourced food.
Think about how original your restaurant needs to be. In a competitive market, having an original restaurant concept will help your restaurant stand out. Unique concepts can be based around theming your restaurant such as the American West or offering a unique menu, such as exotic dishes or a wide range of beers or spirits from different countries.
If you’re struggling to come up with an idea for a new restaurant, consider a franchise instead. Many chain restaurants such as Pizza Express, McDonalds and Subway work on a franchise basis where you buy the rights to use an established business’s name, trademarks, business model and menu. Buying a franchise offers a less risky entry into the catering business.
Research starting a restaurant
Running a restaurant starts with market research, which means working out how you’ll attract customers, establish supplier relationships, find out about competitors and working out the costs and operational logistics of starting a restaurant.
Most experts agree that it’s best to get experience in working in a restaurant before starting your own business. Working in a busy restaurant helps you learn on the job, see how operations work behind-the-scenes, and pick up the skills needed in sourcing food suppliers, running a kitchen and dealing with customers. Even if you want to skip this step, carry out as much research into how a kitchen is run, and even fundamentals such as opening hours, menu prices, and covers a similar restaurant in the same area will do over a week.
Food costs of running a restaurant
Food costs will be your largest expenses. Look to source food from reputable suppliers, negotiating discounts on bulk purchases.
Margin pricing While food costs vary depending on the type of restaurant you’re running, aim for a margin for each dish on your menu of around 65% after the cost of ingredients. So, if the ingredients in a dish cost around £5, you’ll need to price a dish at around £15. Drinks margins should be around 20% for alcohol, and 50% for branded soft drinks. Knowing this will help with planning ingredients costs.
Choose the right suppliers Bulk discount warehouses are useful for catering ingredients, and specialist companies should also offer discounts for volume sales. Local suppliers can save transportation costs, and often have better quality ingredients. Always meet suppliers in person, request samples of their food and drink, research their service history and get testimonials from other customers.
Watch this: While it’s based in the US, Howcast has a helpful video guide to understanding the fundamentals of restaurant costs – from premises to materials used in staff training that can be applied to any restaurant startup:
Finding restaurant premises
Location is vital for restaurants. Make sure the location is suitable: opening a sandwich bar for office workers means you’ll need to be in a busy city centre to take advantage of passing trade. After food and staffing, rent will be one of your highest monthly outgoings. Property sites such as Rightmove have commercial property sections allowing you to view potential sites.
To serve hot food, the premises needs an A3 planning licence. Expect to pay a premium for A3 sites in popular locations such as city centres and shopping malls. Other premises costs include lease or rental deposit, service charges, business rates, as well as rolling contracts for waste management and pest control. Expect to pay up to £20 per square foot in the heart of cities, less in lower traffic areas.
When choosing a location, view it from the customers’ perspective. Consider local transport and parking and nearby competitors. Look for premises with the right balance of usable floor space in order to maximize profits with space for lots of covers. Allow around at least 50 per cent for dining; 35 per cent for the kitchen and food prep; and the rest for storage and offices.
Hire restaurant staff
After food and rent, staff salaries are the next biggest costs in running a restaurant. Average salaries for a chef range from £20,000 to £35,000, while waiting staff average the minimum hourly wage. A typical restaurant will need at least a manager, one chef (more if you open seven days a week) plus waiting and kitchen staff. Overall, staff should account for no more than 50% of your total costs.
When recruiting, carry out face-to-face interviews – positive, friendly staff who work well under pressure are essential. Create detailed job descriptions listing all duties involved.
Watch this: Hiring staff is fundamental to get right – hire hard makes managing easy. Paul Bolles-Beaven of US-based Union Square Hospitality Group gives his advice on employing great restaurant staff:
As an employer, you’ll need to pay employer’s tax and National Insurance contributions and maybe holiday pay depending on hours and your terms of employment. Contact HM Revenue & Customs for more information. Read our first time employers guide to hiring staff for more advice.
Remember, you need to keep a record of everything you pay your employees, including wages, payments and benefits. You also need to make sure that you keep to employment law on issues such as employee rights, working hours, minimum wages and equal opportunities. For more information, visit the www.gov.uk website. Contact HMRC’s new employers helpline on 0300 200 3200 or visit HMRC’s new employers advice.
Create a restaurant business plan
A business plan is essential and will help you secure funding for your restaurant. It should forecast how you’ll grow your business over a three-year period and include the following:
Restaurant concept – summary explaining what your restaurant offers and why it is different.
Target customers – a snapshot of customers and why they will eat at your restaurant.
Menu and pricing – a sample menu with ingredients for each dish, including ingredient costs and menu prices.
Start-up funding – how much funding your restaurant will need, including interest repayments.
Competitor analysis – details of your competitors, menu prices, marketing activity, and estimated customer numbers.
Marketing plan – a marketing strategy showing how you’ll advertise your restaurant and the expected ROI for your marketing spend.
Overheads – details of all costs including staff, premises, utilities and both fixed and variable costs.
Financial forecasts – revenue projections, costs and the assumptions you have made.
Create the perfect restaurant business plan with our free guide and template.
Get restaurant funding
The costs involved in starting a restaurant are significant even before the first customer walks through the door so it’s vital to secure funding early. Most restaurants don’t achieve a profit in the first year, and even when profitable, margins can be as low as 5%, making cash flow a challenge.
You’ll need finance in place to cover the cost of your premises, refit, equipment, operating expenses and salaries for at least six months. Funding sources include a business loan through a bank, angel investors, government grants or a small business loan from the Start Up Loans Company.
Many people invest their own savings in their new coffee shop venture but there are alternative sources of funding available. You can borrow up to £25,000 as an unsecured loan via Start Up Loans. Learn more.
Find out the difference between a secured vs unsecured business loan
Register your restaurant startup
You’ll need to register your restaurant with several government departments – as well as set up as a limited company and register for VAT. You must register with the environmental health service at your local authority at least 28 days before opening. Registration is free and can be done online via the government web site.
To sell alcohol requires a licence from your local authority and additional licences are needed for live music and other entertainment, for selling hot food and drink between 11pm and 5am, or selling food on the street.
Learn about food standards and regulation
Cooking and serving food means adhering to a host of regulations relating to health and safety and food hygiene. Kitchens must be the right size for your business, be safe and sufficiently equipped for safe food preparation. This includes suitable storage, refrigeration, cooking, food prep areas and washing facilities. Staff must be sufficiently trained in food hygiene – the legal responsibility for this lies squarely with the business owner.
Environmental health officers will make regular inspections of your restaurant, and if you fail to meet legal requirements, you could face a fine and even risk being shut down.
The Food Standards Agency (FSA), the government body that regulates food safety in the UK, offers lots of guidance for those starting a food business. The Safer Food, Better Business leaflet details the key requirements for serving and preparing food and drink.
Rules also apply menus. Food and drink must be described accurately, include allergen warnings and prices may need to include VAT, depending on the nature of your business and the whether you’re VAT registered. For more information about when you need to charge VAT, contact HM Revenue & Customs (HMRC) on 0845 010 9000 or visit HMRC.