How the heck do I open a restaurant

March 8, 2012 12:45 PM

I had a beautiful restaurant space fall into my lap. I've been dreaming about having a restaurant. I committed to signing a contract with the owner. Now what?

The space is being renovated and I get to build my kitchen from scratch: we have agreed to shoot for opening day one year from now. The next obvious step is to hammer out the contract in the presence of a lawyer, which I hope will happen next week. Then what do I do? I have a vision as far as food and decor go. I am confident and have decided to take the plunge (life is short).

What I wonder about is the nitty gritty: I suppose I need an LLC, a bank loan and eventually an accountant. I guess I need to talk to city hall. There are health code considerations, naturally. . . insurance. How in the world do I start tackling this in an organized fashion?

posted by TheTingTangTong to work & money (30 answers total)

The first thing you need is a business plan. Then you need to have your business plan reviewed by a competent outside company or volunteer. Then decide if you still want to move forward.

No business plan, no restaurant.
posted by lstanley at 12:51 PM on March 8, 2012 [17 favorites]

I would definitely recommend reading Anthony Bourdain's Kitchen Confidential. Think long and hard about what he has to say about the relationship between restaurant owners and kitchen staff.
posted by bcwinters at 12:57 PM on March 8, 2012 [5 favorites]

If you don't have a business plan, you're not likely going to get any kind of loan. You'll definitely want a lawyer, preferably one who specializes in hospitality law.
posted by cooker girl at 12:57 PM on March 8, 2012

If you need to ask this question, you have no business proceeding.

- Nthing a business plan

- budget. Budget. BUDGET.

It's not impossible! But yeah, you REALLY sound like every restaurant owner I've known who has failed.

There are plenty of books and blogs about these failures. Consume every story of failure you can find. Study the restaurants that are still cranking 10 and 20 years in.

There will be crazy expenses you did not plan on. For example, there are people who facilitate permits and liquor licenses. They are a legalized form of racketeering, IMHO. Is your landlord facillitating anything for you? Sounds like he is. Is he getting a cut??

Also. A year sounds like a REALLY long time for a build. I don't get that part at all.

- Yes there are consultants you can hire to help you through each step. I think their job is to give you a bit of fun along the way, but eventually bleed you dry.

The more I ponder this opportunity (drawing on my 20 years+ experience) maybe your question was just worded poorly, but you sound like you are being set-up.

Be cautious and frugal, not excited and spendy. That is the BEST recipe for success in the restaurant business.

Be wise.
posted by jbenben at 1:06 PM on March 8, 2012 [14 favorites]

I, too was going to recommend Kitchen Confidential by Anthony Bourdain, but did not want to seem cheesy!

Although there was a TV show based on the book, they have nothing in common. Read everything you can before proceeding. You want the "horror" stories, not the PR feel-goods.
posted by jbenben at 1:08 PM on March 8, 2012

Ive seen so many amazing restaurants die from bad management. From your post it sounds like the reason you want to start the business is because you love to cook, but food is only half of what a restaurant. The first thing you should do is find yourself a business partner who can handle the personel/financial side. Your the creative force behind the business, and you have to be able to do your stuff without having to worry about getting the payroll checks out on time.
posted by KeSetAffinityThread at 1:19 PM on March 8, 2012

Can we all assume you actually have experience working in a commercial restaurant and/or kitchen? Preferably with some managerial experience?

If not...
In addition to reading Bourdain's book, I would actually recommend you watch a few episodes of Kitchen Nightmares. NOT for any of Ramsay's insanity, but, rather, just to get a feel for how many people open a restaurant because it was a lifelong dream, and to see where it can all go horribly, horribly wrong, despite the best of intentions and the brightest of dreams.

Not to discourage you, of course, but really, really, really make sure this is something you want, and can, do. Opening a restaurant seems to be the new black these days, and the streets are littered with the failed corpses of eateries, and the drained life savings of people who were just chasing their dream.

Good luck, though. Sincerely.
posted by Thorzdad at 1:21 PM on March 8, 2012

Yes I have spent 15 years doing just about every job in several different professional kitchens, from the dish pit to the line to bartender, waiter, and manager. I live in a place where this restaurant makes sense. The space is zoned mix use commercial and is in a historic district. It needs a lot of work which I do not have to pay for. Hence, one year.

I will be the only full time kitchen staff for the first years. The owner is a friend, this isn't really about getting one over me, I'm not some unhappy lawyer looking to go rustic.

I am aware of the risks, I just need a basic framework to start making concrete decisions and a way to double check the steps I have taken so far to make sure I don't miss anything obvious that will cause me stress and heartache in 8 months.
posted by TheTingTangTong at 1:27 PM on March 8, 2012 [1 favorite]

You need WAY more information and experience. "Gee wouldn't it be nice to own a restaurant" alone is almost guaranteed failure. TV shows don't show a tenth of it (but make interesting watching). Watch the UK versions of Kitchen Confidential too, many are on youtube; they are more oriented around business and staffing concerns rather than US Reality TV Drama. There's a similar US series called "Bar Rescue" where all ten episodes are available online on the official website.

For a very basic start, Entrepreneur Magazine has some resources:

Restaurant Center

How to start a restaurant

Restaurant and More Start-Up Guide (book package, get the print version)

I find Entrepreneur Magazine and its print publications to be a little cheesy and basic, but it is one basic start on all the things involved, from people who have been through it.

(Before preview I was writing: Somewhere, sometime soon, get a job in a restaurant similar to what you're planning, in the next city over so you're not competition but a possible future cooperator. Work free is you have to.) So even with your experience you may not have a good understanding of the business financial aspects. And even when you think everything is fine, the city or health department will hit you with some violation with a fine or new cost, guaranteed.

Good luck, sincerely.
posted by caclwmr4 at 1:35 PM on March 8, 2012 [3 favorites]

Contact your local Small Business Administration office. They have programs designed to help you with these types of questions. They also have a mentoring program where retired business people volunteer to help you get your business going. Restaurants have a high failure rate. Get as much help as you can.
posted by calumet43 at 1:42 PM on March 8, 2012 [4 favorites]

Ak. I meant the UK versions of Kitchen Nightmares. Search "Kitchen Nightmares UK", and there are some UK episodes that are not marked "UK".
posted by caclwmr4 at 1:45 PM on March 8, 2012

Call up the owners of other restaurants, and ask them if they'll sit down with you for an hour if you buy them dinner someplace nice. I have found that people who run successful businesses like to talk about how they did it, and (at least here in the Seattle area) are happy to give some tips to people who are friendly and interested. You could also arrange to hire them as a consultant.

The best way to be successful with this is to talk to people who have already done it, and see what mistakes they made and what things they found to be the most helpful.
posted by markblasco at 1:48 PM on March 8, 2012 [4 favorites]

If you have never done the purchasing, Accounts payable, Payroll, or Taxes, I would have second thoughts, basically you need the skills to open a regular business, then overlay the fact that you are serving food and need those skill also.
posted by kanemano at 1:52 PM on March 8, 2012 [3 favorites]

Another vote for Kitchen Confidential. And it is also reality television, but many, many stories on Restaurant Impossible started exactly as this post sounds - excited to open a restaurant (with or without experience), but without the technical knowledge of doing so. Anywhere between 2 - 10 years, they are on tv as a business $500,000 or more in debt. The amount of debt that people incur to start (and continue) a restaurant is staggering, and a hole you will likely not climb out of.

Now that I've got that negativity out of the way, the first step is to put together a legitimate business plan. Legitimate, not back of the envelope. Second, talk to the city; they will often be friendly and helpful in which departments you need to see as you begin this process. You'll get contradictory information often, but that's where you need to start.

The world of owning a restaurant isn't something I'd wish on my worst enemy.
posted by shinynewnick at 2:19 PM on March 8, 2012

Check in with the Restaurant Opportunities Center. They have a good guide for employers and owners.
posted by Jon_Evil at 2:20 PM on March 8, 2012

Where are you? Here's a cautionary tale from San Francisco.
Business plan, investors, someone to wrangle the permits, letter of credit--have you opened any kind of small business before?
posted by Ideefixe at 2:21 PM on March 8, 2012

Hook up with your local Chamber of Commerce, as they can help with steps to getting permits for things and such (in theory, at least; YCoCMMV). There's probably a local restaurant association as well, which you must know about from your time in the kitchens, and if there is, join up.

Are you going to serve beer/wine/liquor? Because unless you're inheriting the previous space's license (may not be possible in your jurisdiction), my understanding is that this can frequently be the thing that takes the longest.

You're going to be the sole chef? Also do your own prep and ordering? Can you, by yourself, physically make enough food to serve the number of customers you need to serve in order to break even, or at least not hemorrhage cash?
posted by rtha at 2:53 PM on March 8, 2012 [2 favorites]

- I've seen plenty of friends screw each other over when money is involved. It's even happened to me. This build sounds expensive. The more money involved, the higher the chance for shenanigans.

- A good business plan IS your checklist. Every individual restaurant (or any business, actually) requires its own unique business plan.
posted by jbenben at 3:00 PM on March 8, 2012 [1 favorite]

You need a partner who's run a restaurant.

Too easy? Ok, barring that (or preferably, in addition to that), you need a lawyer who specializes in small business to provide you with a checklist of legal requirements for your area. These vary widely from place to place - business regulations, building codes, health codes, insurance requirements, employer regulations, permits and licenses (local, state & federal), tax arrangements, etc - so nobody here is going to be able to give you an accurate list, and the things you miss can become huge problems. Lawyer up.

Next you need to make sure you're taking these costs into account in your business plan, and then double them. You don't eventually need an accountant, you need an accountant to talk you through these costs now. For a first-timer, spending a dollar on accountants and lawyers now will save you ten later, easily.

Organizationally, you need some form of incorporation (LLC is fine), and sooner is better so that you'll be signing any business contracts under the LLC to avoid personal commitments if the venture goes belly-up.

For funding, even with a stellar business plan it's hard to convince a bank to lend you money for a restaurant. With no history of opening restaurants, it will be much harder. If you find one that will, they'll require a personal guarantee on the loan. So if you don't have the collateral for that, you need to start seriously exploring funding via friends or outside investors. The latter, and sometimes the former, will charge you usurious interest rates or require a pretty hefty ownership stake in the restaurant, and with good reason - it's a risky venture, and the risk is all theirs.

These are the bare necessities, and only graze the surface of what goes into a viable business plan for a restaurant. Target audience, menus, key personnel, marketing strategy, supply chain arrangements, etc.
posted by chundo at 3:34 PM on March 8, 2012 [1 favorite]

If you're going to watch Kitchen Nightmares, watch the British version. It's much more realistic and focused on how a restaurant works, as opposed to Gordon Ramsay the Angry Scot. They even show Gordon as a human sometimes!
posted by Hollywood Upstairs Medical College at 3:35 PM on March 8, 2012 [4 favorites]

When a friend of mine was rebuilding her milking parlor after a fire, she asked the dairy inspector what he'd like to see in a new barn, and he had plenty of suggestions. Since you're building from scratch, if you can ask a health inspector, they might have some ideas to save you hassle in the future.
posted by mgar at 3:55 PM on March 8, 2012 [4 favorites]

I can speak to what you need to consider about this space (I design restaurants for a living). I'm a little unclear about your situation - you say the space is "being renovated"? What does that mean? Restaurant setups are usually pretty specific - why is this build out occurring without a restaurant planned for it? Typically, though you need to make sure the space will be allowed to be permitted as a restaurant, you should verify if it can be sit-down vs take out, how many seats you will be allowed to have, parking requirements if there is a change of use or occupancy, etc. You need to talk to the people in your local city planning office about this. You also need to investigate things like the grease waste situation, the hood exhaust situation, water & gas pipe and meter sizes etc. And are the restrooms up to code? That's another biggie. These can be really expensive to fix later if they are not up to code or close to it. The Health department will have their own guidelines, which you can usually find online or call them and find out. There are often restrictions on what spaces you can prep in, etc. which can be very relevant operationally. Find out how expensive your permits will be. I would guess, depending on the municipality you will be looking at between $3,000 - $10,000 in permit fees. Permits usually take about 3-4 months to obtain. This is not including beer and wine, which is a whole other ballgame, and takes much longer usually and sometimes is not available to you, depending on the location of your property.

First you need a viable business plan and partner, though. Then start doing these feasibility studies. Check into ALL the things I mention above or you could be in for some expensive surprises. And FYI the health department is sure to have something to say about your decor plans...
posted by annie o at 5:07 PM on March 8, 2012 [4 favorites]

Thank you all for your help so far. Please assume in any further answers that this is happening, I have experience in the industry, but that this is my first time doing it myself and I just need a roadmap, not dissuasion.

Re: the space. I have seen the zoning licence, it is mixed residential commercial. The roof caved in one year ago and has since been removed and replaced. The interior has not been touched in ten years, although there is no water damage. It has 140 year old original trim, window frames, and hardwood floors. One of the rooms is going to be turned into a kitchen, complete with hood, fire control, range, electric and gas connections. Two walls need to be removed, a corner of the second floor needs to be leveled, electric and water need to be partially redone and brought up to code. Ceiling fans and lighting need to be installed, heat and a/c need to be updated. The floors need to be redone and everything needs to be painted. A bar (not full service) needs to be built, the basement needs to be insulated and sealed. The wrap around porch needs to be rebuilt. The street it is on is also being torn up so the water pipes can be entirely redone. We want to wait until this is over.

All this needs to be overseen by the city (small city in central Virginia) even though the work is being done by the landlord himself (no contractors). I pay no rent, not a dime, on anything until I take possession of a building that is fully up to code and zoned for a restaurant.

This is coming from a community of DIY ex-punks; the renovation isn't really a concern of mine, though thank you for your probing and wide ranging concerns. Me cooking isn't really a concern either, I am confident I can do this (I have cooked lines, seen the worst and the best). I have room for about 45 as far as I can tell and the menu is well suited to this space and size.

Things I was wondering about are, for example, the bathroom codes which I had not thought of. I have a potential partner and several silent partners have expressed interest though I was trying to avoid this since my initial costs are so low and the menu is unsophisticated.

From what I'm getting so far from all the most helpful answers is that I need to see a hospitality lawyer, I need to take a lot of my questions to city hall, and I need to seriously consider hiring/partnering with someone who can handle the paperwork/financial end of things. I will also ask the health inspector about things he'd like to see in a kitchen.
posted by TheTingTangTong at 6:56 PM on March 8, 2012

As per all the answers above...

Skip watching too many episodes of kitchen reality shows and go straight for an accountant and lawyer that specialize in restaurants. Experienced accountants who deal with restaurants, especially, can be super duper helpful for the nitty gritty list making, business plan, and budgeting.

All reality shows are scripted and cut corners - especially when it comes to the budgets of the re-models on those shows. I know this for a fact because I worked briefly on one when I first moved to LA, and heaps of my friends here are reality show producers. Plus, you know, I have building experience. I think those shows give a false sense of, "Oh, I wouldn't make that mistake!" Meanwhile, the nuts and bolts mistakes that actually got those establishments into trouble are not highlighted on the show because it doesn't translate into the drama producers are looking for.

You won't find a blueprint on TV, just a false sense of confidence.

If you are already watching Restaurant Impossible with Robert Irvine, that beats Ramsay any day for "reality." (I have no direct contact with that show, it's still scripted, just a little more accurate when it comes to food costs and management. I'm sure the re-models are just as fake cost-wise, since the same designers and such work productions I am more personally familiar with.)

- I'd advise you to talk to people who have failed, except, I think even THEY often don't know why. This type of blindness and hubris and blindness is highlighted in the book Kitchen Confidential - go ahead and re-read that if you read it 10 or 15 years ago.

- Do you know any GM's or executive chefs? These people know EVERYTHING. They've worked for folks who have made every mistake. After 20 years, I can walk into a new restaurant, and by the end of the meal, I know EXACTLY who will be in business 2 years down the road and who will not. This is a game I love to play:) Can't say I've ever been wrong.

- Acoustics.

Acoustics are overlooked, but the deciding factor 99% of the time. Guests don't generally pinpoint
it, but it is generally the deciding factor. I'm thinking of one restaurant a friend launched that was gorgeous and well received, but with poor management and crap crap acoustics - they made it 4 years. I'm thinking of another establishment that is EXCELLENT in the way you want it to be, but small, and with terrible acoustics. They are in their second year. Doing well enough right now, but their original plans to expand are on indefinite hold at this point. I keep wanting to drop them an anonymous note about the acoustics because I like them so much, and installing some attractive baffles on their ceiling would be super easy.

----
----

OP! I'm typing, your update just posted.

- Plumbing...

Will only be partially re-done. By a licensed plumber, I hope? That's kinda a flag, but you'll get through.

- There is no licensed contractor?

I'd say RUN, but you are committed. Insist the building department is involved every step of the way! Give your friend hell about this. You're in for a world of trouble unless your friend/landlord agrees to fix every mistake at their own cost down the line.

- Yes, an experienced accountant and lawyer. But accountants who deal with other restaurant accounts are surprisingly knowledgeable. I'd also trust them for an attorney suggestion, vs. the other way around.

----

Why does your friend need to sign the lease now? Can they build the space to spec and then you sign later once the city has signed off?

That is my deepest concern here. Something isn't quite right. Maybe someone else can pop in with more experience, but either the situation you describe is heavily slanted in your favor, or you are about to drop off a cliff.
posted by jbenben at 7:11 PM on March 8, 2012 [1 favorite]

Oh

Don't bring on partners, investors, or loans if you can avoid - but especially partners and investors. Trust me.
posted by jbenben at 7:13 PM on March 8, 2012

The lease: this is more of a contract saying that once the work is done I will occupy the restaurant space and begin paying rent at that time. He doesn't not want to spend his time and money doing a purpose build if I flake. I pay nothing until the city has signed off on everything and I am ready to start moving my pots and pans in. I believe the situation is heavily slanted in my favor, but this makes sense. I am part of a community of talented middle aged (how'd that happen?) people who want to see our community move. He isn't interested in pulling one over on me because he wants to see some positive contribution to the town in which he is raising his family; if I pay his mortgage he comes out ahead - if the city gets a small business going in a formerly dilapidated historical building the community comes out ahead. This whole thing has gone down over beers and handshakes and 'I know this dude, call him. . .' conversations, not lawyer referrals and phone numbers found on the internet. Thank you for your reasonable concerns, though.


I want to avoid partners because I don't need people who know nothing about restaurants suggesting what I do with a sense of entitlement.
posted by TheTingTangTong at 7:23 PM on March 8, 2012

I will repeat what someone else said--one of the best things you can have is the ear and wisdom of someone who's already successfully done what you're planning, ideally in the same or a similar sort of area. A former boss of yours would probably be good. For example, you will get non-stop calls from people wanting to sell you advertising or help you promote the restaurant. It's easy to waste a ton of money on that and have no idea what part of your marketing strategy is working and what isn't.

Also seconding acoustics--there are places with great food and service that I'll never go back to because there's just too much background noise.
posted by K.P. at 5:40 AM on March 9, 2012 [1 favorite]

First, congrats! 15 years in the industry means you know how to run a kitchen and how to manage the front of the house, so we can dispense with the "you don't know what you're in for" nonsense. This sounds like a solid career move for you.

Find a really good accountant - ask around with peers in the restaurant biz for a recommendation - and listen to them.

Considering hiring a restaurant consultant with experience in the area and in your style of dining - they can help you decide on a business plan, marketing and budgeting. Again, ask around to find a good one - old bosses are a good resource for this.
posted by Slap*Happy at 6:00 AM on March 9, 2012

Oh, and also go over the lease arrangements with a lawyer with experience in real estate and/or the restaurant industry. A solid contract means you get to =stay= friends with the guy who's renting you space.
posted by Slap*Happy at 8:12 AM on March 9, 2012

It sound like you have the restaurant part pretty covered. What you need to do now, and pretty quickly, is figure out how to run a small business with employees, legalities, and lots and lots of math. Take a small business class and use it. If you take one from your city, you often get a year or two of free follow up. Or if you take a class from a college, use it as a template for your actual business.

I have my own small business. I have no employees, which avoids a giant headache, but I have to say that doing the actual creative work is about 25-50% of the time. The rest of the time I am on the computer or on the phone. Fortunately for me, I love that part of it just as much. I think you have to have a dual love/aptitude, both for the creative side and the 'running a business' side. You are going to be using both sides of your brain, absolutely.
posted by Vaike at 8:41 AM on March 9, 2012