From the October 2003 issue of Startups

According to the National Restaurant Association, 38 to 40 percent of food dollars are spent on meals away from home. That means potentially millions of choices are being made over where and what to eat. If that whets your business appetite, you've probably dreamt of being a restaurateur. But before you decide to open a restaurant of your own, you must know who your customers are and where they're located.

Restaurateurs don't always agree on the best approach to concept development and site selection. Some restaurateurs believe you must determine your concept and market before choosing a location. For example, you may want to start an Italian restaurant, so you research the market for this type of cuisine, and then, based on what you find out, choose a general area and, ultimately, a precise location for the restaurant. Others believe finding the location is the most important task. For example, an entrepreneur may find a great building in a downtown business district, decide it's perfect for a restaurant and then determine the best concept for the location.

When it comes to restaurants, it doesn't really matter whether you research your market or your location first; what's critical is that you take the time to research both thoroughly. Here are four essential steps to get you started on the road to opening your own restaurant:

Step 1: Choose Your Concept
Restaurant patrons want to be delighted, but not necessarily surprised. If they're anticipating a family-style steakhouse but find themselves in a more formal environment with a bewildering gourmet menu, the surprise alone may keep them from enjoying the restaurant. Concepts give restaurateurs a way to let patrons know what to expect and also provide some structure for operation. Some of the more popular restaurant concepts include:

  • Casual-dining restaurants: Casual-dining restaurants appeal to a wide audience, ranging from baby boomers to kids to Gen Xers to seniors, and they provide a variety of food items. Many successful casual-dining restaurants center on a theme that's incorporated into their menus and décor.
  • Family-style restaurants: These establishments offer speedy service and menus appealing to a broad range of customers, from children to seniors. Family-style restaurants have prices slightly higher than those at fast-food restaurants, yet still provide table service.
  • Ethnic restaurants: Ethnic restaurants enjoy a significant share of the U.S. restaurant market. Their menus typically include "Americanized" versions of ethnic dishes as well as more authentic food. The three most popular kinds of ethnic restaurants are Chinese, Italian and Mexican. Other popular types include Caribbean, English, French, German, Indian, Japanese, Korean, Mediterranean, Thai and Vietnamese. An even wider variety of ethnic restaurants can thrive in metropolitan areas with a culturally diverse population.
  • Seafood: Quick-service seafood restaurants generally offer a limited range of choices, often restricted to fried fish and shrimp. Midscale and upscale restaurants offer a wider selection of seafood items, prepared in ways other than fried, including baked, broiled and grilled. Seafood can be risky, as seafood prices are always changing and many kinds of seafood are seasonal. Beware: Quality can vary tremendously.
  • Steakhouses: Steakhouses are part of the midscale and upscale markets. Midscale steakhouses are typically family-oriented, offering a casual environment with meals perceived as good values. Comfort is emphasized, and Western themes are popular. Upscale steakhouses offer a more formal atmosphere and may serve larger cuts of meat of better quality than those served in midscale restaurants. Upscale establishments offer guests more privacy and focus more on adult patrons than on families.

Step 2: Set Up Your Facility

Layout and design are major factors in your restaurant's success. You'll need to take into account the size and layout of the dining room, kitchen space, storage space and office. Typically, restaurants allot 40 to 60 percent of their space to the dining area, approximately 30 percent to the kitchen and prep area and the remainder to storage and office space.

  • Dining area: This is where you'll be making the bulk of your money, so don't cut corners when designing your dining room. Visit restaurants in your area and analyze the décor. Watch the diners; do they react positively to the décor? Is it comfortable, or are people shifting in their seats throughout their meals? Note what works well and what doesn't.

    The space required per seat varies. For a small, casual-dining restaurant, you'll need about 15 to 18 square feet per seat to assure comfortable seating and enough aisle space so servers have room to move between the tables.

  • Production area: Too often, the production area in a restaurant is inefficiently designed, and the result is a poorly organized kitchen and less than top-notch service. Keep your menu in mind as you determine each element in the production area. You'll need to include space for receiving, storage, food preparation, cooking, baking, dishwashing, production aisles, trash storage, employee facilities and an area for a small office where you can perform daily management duties.

    Arrange your food production area so that everything is just a few steps away from the cook. Your design should also allow two or more cooks to work side by side during your busiest hours.

Step 3: Plan Your Inventory
Before you open your restaurant, you need to make sure it will be adequately stocked. To calculate basic stock accurately, review actual sales during an appropriate time period, such as a full year of business. Of course, during your start-up, you won't have previous sales and stocking figures to guide you, so you'll project your first year's stock requirements based on your business plan.

Depending on the size and type of your restaurant, during your first year you can expect to spend anywhere from $8,000 to $60,000 on food, $2,000 to $15,000 on beverages, and $300 to $1,000 on paper products.

Step 4: Hire Your Staff

Your employees will help define your restaurant's reputation. There are several categories of personnel in the restaurant business: manager, cooks, servers, busboys, dishwashers, hosts and bartenders. When your restaurant is still new, some of the duties may cross over from one category to another. For example, the manager may double as the host, and servers may also bus tables. Be sure to hire people who are willing to be flexible in their duties. Your payroll costs, including your own salary and that of your managers, should be about 24 to 35 percent of your total gross sales.

  • Manager: The most important employee in most restaurants is the manager. Your best candidate will have already managed a restaurant in your area and will be familiar with local buying sources, suppliers and methods. You also want a manager with leadership skills and the ability to supervise personnel while reflecting the style and character of your restaurant.

    To get the quality of manager you want, you'll have to pay well. Depending on your location, expect to pay a seasoned manager $30,000 to $40,000 a year, plus a percentage of sales. An entry-level manager will earn $22,000 to $26,000 but won't have the skills of a more experienced candidate. If you can't offer a high salary, work out a profit-sharing arrangement--it's an excellent way to hire good people and motivate them to build a successful restaurant. Hire your manager a month before you open so he or she can help you set up your restaurant. Once the business is running, the manager can anticipate slower times of the day or week to schedule his or her off-hours.

  • Chefs and cooks: When you start out, you'll probably need three cooks--two full time and one part time. Restaurant workers typically work shifts from 10 a.m. to 4 p.m. or 4 p.m. to closing. But one lead cook may need to arrive early in the morning to begin preparing soups, bread and other items to be served that day. One full-time cook should work days, and the other evenings. The part-time cook will help during peak hours, such as weekend rushes, and can work as a line cook during slower periods, doing simple preparation. Cooking schools can usually provide you with the best in the business, but look around and place newspaper ads before you hire. Customers will become regulars only if they can expect the best every time they dine at your restaurant. To provide that, you need top-notch cooks and chefs.

    Salaries for chefs and cooks vary according to their experience and your menu. Chefs command salaries significantly higher than cooks, averaging $600 to $700 a week. You may also find chefs willing to work under profit-sharing plans. If you have a fairly complex menu that requires a cook with lots of experience, you may have to pay anywhere from $400 to $500 a week. You can pay part-time cooks on an hourly basis; check around for the going rate in your area.

  • Servers: Your servers have the most interaction with customers, so they need to make a favorable impression and work well under pressure, meeting the demands of customers at several tables while maintaining a pleasant demeanor. There are two times of day for wait staff: very slow and very busy. Schedule your employees accordingly. The lunch rush, for example, starts around 11:30 a.m. and continues until 1:30 or 2 p.m. Restaurants are often slow again until the dinner crowd arrives around 5:30 to 6 p.m.

    Because servers in most establishments earn a good portion of their income from tips, they're usually paid minimum wage or slightly more. When your restaurant is new, you may want to hire only experienced servers so you don't have to provide extensive training. But as you become established, develop training to help employees understand your philosophy and the image you want to project.

Together, these steps will get your restaurant off to a good a start-and ensure that it's cooking far into the future.

On the Menu
What's hot in food franchising

In the push to give the people just what they want, a franchise can give you what you need, perks like proven concepts and name recognition. Sound good? Here are the latest hot trends in the restaurant business--and the franchises that are meeting the market demand.

  • Some of the hottest concepts going right now are in the fast-casual segment. Customers hankering for a healthy alternative to fast food, with perks like limited table service, don't mind spending a little extra time and money if they're getting quality food and service. Panera Bread and Camille's Sidewalk Cafe offer customers items like sandwiches, wraps and salads, while Crescent City Beignets' menu includes entrees and goodies with a Cajun flair.
  • Kids between the ages of 5 and 13 accounted for 13 percent of the population in 2000, yet this group influences $500 billion in spending by their parents, according to marketing expert James McNeal. And you can be sure that extends to where their families eat. To appeal to kids and parents alike, Ozon's offers a quick-serve concept featuring the Tosti, a toasted sandwich kids can fill with various stuffings--easily customized for every kid's taste and presented in a funky atmosphere.
  • Health is top of mind for patrons of all ages. According to the National Institute of Diabetes and Digestive and Kidney Diseases, 35 to 40 percent of women and 20 to 24 percent of men are on a diet at any given time. The Vegetarian Resource Group reports that 20 to 30 percent of the population buys vegetarian products. That's good news for companies like Healthy Bites, a quick-service concept specializing in healthy, nutritious meals and offering items like the Grilled Portabello Philly, a meatless take on the Philly cheesesteak, and Mr. Goodburger's--billed as a healthy burger joint--whose meat-free menu includes soy burgers.
  • The quest for healthy dining options is leading consumers to Asian concepts, which emphasize vegetables, grain and fish. Two Asian-influenced segments are reaping the benefits of the demand for healthy food and customized meals: noodle and Mongolian barbecue restaurants. Noodle restaurants, both quick and full service, let customers mix a variety of vegetables, sauces and meats with rice or noodles. Wild Noodles has an international flair with noodle dishes inspired by Asia, America and Italy. Zyng Noodlery highlights flavors from China, Japan, Korea, Singapore, Thailand and Vietnam. Customers at Genghis Grill, HuHot Mongolian Grill and other Mongolian barbecue chains have a similar build-your-own experience but also see their creations grilled by the restaurant's cooks.
--Devlin Smith

Adapted from Entrepreneur magazine's Start-Up Guide #1400, How to Start a Restaurant and Five Other Businesses. Buy it here or read another excerpt here.