How to Start a Restaurant? (Step by Step Guide)
Starting a restaurant is one of the hardest things you can do as an entrepreneur. The margins are thin, the hours are brutal, and most first-timers underestimate what's actually involved before they open the doors.
I worked with a business consultant who has guided more than 40 restaurant launches over the past 7 years — someone who's watched both the wins and the expensive mistakes up close. We also examined state-specific regulations across 15 jurisdictions and talked to restaurant owners who made it through their first year (and some who didn't).
Here's what we found.
Quick Summary
- To start a restaurant effectively, choose a niche, draft a business plan, secure funding, form a legal entity, register for taxes, and obtain the necessary licenses and permits.
- A comprehensive business plan and funding strategy are critical to the restaurant's initial setup and long-term success.
- Recent research shows that approximately 17% of restaurants fail within their first year, far lower than commonly believed, underscoring the importance of thorough planning and market research [1].
- Selecting the right niche and location is crucial for a restaurant's success. I always emphasize to my clients that it should align with the owner's passion and market demand.
10 Steps to Start a Restaurant
The U.S. restaurant industry is massive — over 700,000 locations as of 2025, according to the National Restaurant Association [2].
But size doesn't mean easy. To carve out your own spot, you need to pick a niche that fits your market and build everything else around it. That decision sets the tone for your business plan, your location, your hiring — all of it.
Here's how to do it right.
1. Choose a Niche
Choosing an idea that inspires your entrepreneurial spirit and brainstorming are the first steps in opening a successful restaurant.
Do you want to create a farm-to-table pop-up restaurant, quick-service restaurant, or a vegan food truck? Maybe serving solely warm breakfast comfort food is your only goal.
When picking a restaurant concept, consider the service you want to offer, menu items, your target audience, and your unique brand.
2. Draft your Business Plan
A good restaurant business plan forces you to answer the questions you'd rather skip — your target market, where the money comes from, and what happens when things don't go to plan.
Get this right and you'll have a clear path forward. Get it wrong — or skip it — and you're guessing with real money.
Work through these questions as part of your business planning process:
- What kind of restaurant do you want to run? This is your elevator pitch. Practice it on friends, family, potential investors — anyone who'll listen.
- Who is your restaurant for? Get specific. Your target market isn't "everyone who eats" — it's a real group of people with shared preferences and habits.
- Who are your competitors? Know what's already out there in your market and be honest about how you're different.
- Where will you open? Location and concept have to match. A high-end steakhouse in a low-income neighborhood won't work — no matter how good the food is.
- How will people find you? Social media, paid ads, word of mouth — you need a plan. We'd also recommend listing on Resy, OpenTable, and Yelp early, so guests can find, rate, and book a table online from day one.
- What will it actually cost to run? Build a full inventory of one-time startup costs and recurring monthly expenses. Don't skip this.
- How does the restaurant make money? Your business model needs to show how revenue covers costs and eventually turns a profit — not just in theory, but with real numbers.
- When do you break even? Use a revenue projection to estimate your break-even point and how long it'll take to recoup your initial investment.
- What won't you compromise on? Know your non-negotiables now — the principles that will guide your decisions when things get hard.
- How will you staff the place? Start with your head chef and expand from there. Even after you've hired the right people, you'll still need a training plan.
3. Obtain Restaurant Funding
Most restaurant founders we've spoken to go the business loan route — and in our experience, it's the most practical option for first-timers who don't have enough personal capital to self-fund.
The alternative lending market has expanded a lot in recent years, which means more loan products, more flexible terms, and more options tailored to small business owners.
Here are the most common ways to fund your restaurant's startup costs:
- Your own savings or personal assets.
- Friends or family members willing to invest.
- Business partners who take on ownership alongside you.
- A small business loan from a bank or credit union.
- Local, state, or federal programs — the Small Business Administration (SBA) and Small Business Development Centers (SBDCs) are worth checking out early.
4. Form a Legal Entity
If you're planning to operate under a name that's different from your own, register it as a "doing business as" (DBA) with your state. That locks in the name so nobody else can use it.
From there, you need to pick a business structure. This decision affects how you file taxes, how liability is divided, and what happens if someone sues your restaurant.
Forming a legal entity — like a corporation or LLC — protects your personal assets if things go sideways legally. It's one of the first things I tell anyone opening a food business.
You can work with a top LLC formation service for a small additional fee, or start an LLC yourself and keep your startup costs low.
5. Register for Taxes
Before you open, you'll need to register for federal and state taxes — and that starts with getting an Employer Identification Number (EIN).
Your EIN is how the IRS tracks your business for tax purposes. If you're hiring staff — and in a restaurant, you almost certainly are — you'll need it before you can run payroll. Apply directly through the IRS website; it's free and takes about 10 minutes.
"Every business planning to employ staff, even if it's only one employee, should apply for an Employer Identification Number (EIN) through the IRS website."
- LJ Viveros, Distinguished Growth & M&A Transition Advisor, Former General Manager
Two taxes to know about right away: state income tax (SIT) and state unemployment insurance tax (SUI), both of which are withheld from employee paychecks [3].
In some states, employees also contribute to SUI on top of the employer's share [4]. Rates vary by state, so check your state's specific requirements — and don't forget that federal income tax also needs to be withheld [5].
6. Register Permits, Licenses, and Insurance
Beyond federal taxes, most states require businesses to pay income and employment taxes at the state level too. For restaurants specifically, the permit list is longer than most industries.
Here are the licenses and permits most restaurant owners will need:
- General Business License: Authorizes you to operate at your specific location.
- Sales Tax License (Seller's Permit): Required in states and municipalities where restaurant food is subject to sales tax. You collect the tax from customers at checkout — in Pennsylvania, for example, that's 6% — and remit it to the state on a regular schedule.
- Food Service License: This typically involves an inspection by your local health department to confirm you're following food handling, storage, and prep rules. Employees may also need to complete a food safety program before the license is issued.
- Food Handler Permit: A permit confirming an employee has completed a state-approved food safety course.
- Liquor License: Required if you plan to serve beer, wine, or spirits. Prices and license classes vary widely by state and municipality — budget for this one early, because it can take months to process.
- Music License: Playing music in your restaurant — whether from a streaming service, CDs, or live performers — requires a license. Copyright fees apply regardless of the source.
Some states also require workers' compensation coverage and unemployment insurance. Check your official secretary of state's website for the tax and registration requirements specific to your state.
7. Set Up Accounting Documents
There's a lot of paperwork in the restaurant business — more than most people expect.
You'll need proper accounting records for tax filing, loan applications, and tracking whether the business is actually making money. A qualified accountant can help you set up income statements and other financial reports from the start, which is a lot easier than trying to reconstruct everything later.
Don't wait until tax season to get this in order.
8. Hire Qualified Staff
It's crucial to be aware of all the regulations employers must follow when you search for capable, trustworthy employees for your restaurant.
An HR consultant may assist in ensuring that you carry out the hiring process appropriately and adhere to regulations once you have hired employees and placed them on the payroll.
9. Invest in the Right Tech
The right tech setup can be the difference between a restaurant that runs smoothly and one that constantly leaks money. Start with your POS (Point of Sale) system — it's the operational core of your restaurant, handling everything from order-taking to payment processing.
Look for a POS with a clean interface, solid integration with your other tools, built-in sales reporting, and touchless payment support. Those aren't nice-to-haves anymore — they're table stakes.
Beyond your POS, set up direct online ordering. Third-party platforms like DoorDash and Uber Eats take 20–30% per order, which destroys margins fast. And automated inventory software can cut the 10–20% waste that quietly kills a lot of restaurants.
Tech typically runs 5–10% of startup costs. But done right, it pays for itself quickly through tighter labor management and fewer lost sales.
Related articles:
10. Market Your Restaurant
You can have great food and still fail if nobody knows you exist. Marketing isn't optional — it's part of the job from day one.
Here's where to start:
- Post food photos on social media consistently, respond to comments and questions, and make sure your brand's personality comes through.
- Build a professional website — it tells customers you're a real, operating business.
- Get listed on OpenTable, Resy, and Yelp so guests can find you, leave reviews, and book a table online.
- Offer an opening incentive — a first-visit discount or a referral program gives people a reason to try you out and come back.
- Plan a proper opening event. Local press coverage from a well-run launch can do more for you than months of paid ads.
FAQs
How Do I Plan a Small Restaurant?
You plan to open a small restaurant by choosing a concept and writing a business plan. A business plan contains a business description, summary, restaurant design, employees, and location.
How Long Does It Take to Open a Restaurant?
It takes months or more to open a restaurant. The period considers the time you'll spend setting up your business as a legal entity and obtaining funding, tax, license, permits, and insurance requirements.
How Much Does It Cost to Open a Restaurant?
It costs around $175,000 to $500,000 to open a restaurant in 2025, with the median cost at approximately $375,000. These figures vary depending on size, location, concept, rental space, licensing costs, and food costs, among other factors [3].
References:
- https://datassential.com/resource/restaurant-failure-rate/
- https://restaurant.org/research-and-media/research/industry-statistics/national-statistics/
- https://oui.doleta.gov/unemploy/uitaxtopic.asp
- https://ballotpedia.org/State_unemployment_tax#
- https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes
