A business plan is perhaps the most important ingredient for starting or expanding a restaurant. Writing a restaurant business plan for the first time can be intimidating, but we have tips and sample plans to help write your plan.
Why is a Business Plan Important?
While many people write their restaurant business plan for the purpose of funding, the business plan can offer many more benefits.
You have likely already spent a lot of time thinking about starting your restaurant, but it’s next to impossible to stay organized and reach all of your goals by not writing them all down. It’s very difficult to have a clear vision until you put those thoughts on paper and that’s where the business plan comes in. Creating a business plan provides a blueprint to connect all the dots and make your vision a reality.
Another point to encourage you in writing your business plan is the Small Business Administration shows that over 21% of small businesses fail in the first year and 50% fail in the first five years. Some of the more common reasons for business failure include not starting with enough money, lack of planning and over estimating revenue. The business planning process identifies issues on paper which can help reduce costly mistakes after opening.
The business plan is also important because of the critical feedback you can get on your venture. It’s very common for a new entrepreneur to be overly optimistic when starting their business and being blind to what they don’t yet know. By having another restaurant owner, professional or consultant in the restaurant industry, local business owner or accountant look over your plan, they will provide critical feedback to find weaknesses in the plan and make sure your numbers are reasonable. Getting these insights and fixing the plan before taking it to a lender or investor increases the likelihood you will have a successful business and receive funding.
Taking the time to write a business plan is not something many prospective restaurant owners want to do because it’s unfamiliar and takes time. Keep in mind though, that writing a business plan is nowhere near as hard as running a restaurant, especially one that wasn’t properly planned from the start.
What Goes in a Business Plan?
There isn’t a set format that business plans are required to use, however there are certain topics that need to be covered. Below we have a restaurant business plan outline that should be helpful in getting started. However, since this is your plan, write it the way that makes the most sense for your business and the intended reader.
The executive summary is included at the beginning of a business plan but is going to be the last thing written. This section should be a clear, concise, and high-level overview to help the reader (often a lender or investor) quickly decide whether or not your project is one they will continue reviewing. If they aren’t engaged after reading the summary, they will not likely read further so it is important to quickly generate interest.
Common elements of an executive summary for a restaurant business plan includes:
- Overview of the restaurant concept
- What need is this restaurant serving that isn’t currently being served
- Experience of the owner(s) or staff
- Amount being requested
- How much the owner(s) are investing
- What the money will be used for
The business overview section of a restaurant business plan is where you provide details of what the business is going to do. It’s especially important to show the excitement you have for the business and knowledge of the industry. If you are using the plan for funding, you will have the opportunity to tell the loan officer all the great things you plan to do. However, the plan will likely be going to a loan review committee who won’t get to hear your story, so be sure to get all the important details on paper!
The business overview has a few key areas to focus on, including the restaurant concept, menu and why the restaurant is needed in your area.
In the restaurant concept section, provide some details on the type of food being prepared, the style of service, and design elements of the building. If possible, consider adding some background of why this style of food is important to you. If there is a good backstory, this is a great way to demonstrate your passion and add personality to the plan to get interest from the reader.
Here you will also describe the dining service you will offer such as full-service, limited menu, fine dining, casual, fast food, etc.
Finishing out the restaurant concept, be sure to include any visuals or mock-ups that may better convey the design of the interior and exterior of the restaurant. Pictures go a long way in demonstrating your vision.
A sample menu, while not required for a restaurant business plan, makes a big impact by having something tangible for the reader to look at. You don’t have to include all of the food and drink options that will be eventually offered, but the more refined the menu, the better. Prices should be included because those prices will form the basis in the financial projections later in the plan. Most food vendors will help with ingredient pricing on your menu items, which is important before setting prices. It’s also recommended to have the menu professionally designed for the best impression in the plan, but it’s perfectly fine to have a sample listing of the items and their descriptions.
Another important aspect of this section is to answer why this restaurant is needed. Describe what makes your restaurant unique among all the restaurants in your area and why people will go to you versus the competition.
While you may be the best [insert type of food] chef in your city, it takes a lot more than that to have a successful business. Not saying being the best chef isn’t important, but I’m sure you would agree McDonalds doesn’t make the best hamburgers, but it’s hard to argue they don’t have a great business. Optimally, there should be several reasons why you are wanting to open a restaurant over being great at what you do. Maybe there is a lack of a given style of food, growth in the local population, etc, but just saying you make they best food (unless you have some awards or proof saying otherwise) is going to be difficult for a lender to swallow.
The industry overview section should describe the overall market for restaurants. If national sales trends aren’t increasing, try to find positives that support the decision to open a new restaurant, such as population growth in your local market. The more supporting data you can come up with to support the strength of the industry the better, but be sure to reference where you got this information. A lot of industry information can be found with an online search or in industry publications but if you haven’t already, take a look at our Guide to Starting a Restaurant.
Indicate the legal entity of the restaurant and how ownership is structured. If you aren’t sure about the differences between a sole proprietorship, partnership, corporation or LLC, be sure to check out our overview of legal entities.
Finding a great location is an important aspect of starting a restaurant. Ideally, the location of your restaurant should be in a location with high visibility and traffic, easy to get to and close to your customer.
You may not have a site identified yet or you may have several to choose from, which is fine. If you don’t have one yet, discuss what you’re looking for in terms of general location, square footage, foot traffic, parking, price and any other important details. If you don’t have a site selected yet, include as many details as are available and estimate on the high side as to what your location is going to cost.
Read about tips for choosing a location
Hours of Operation
Include the hours your restaurant will be open and include any reasoning as to why those hours are important if relevant.
Provide some details on who your equipment and food vendors will be. Make sure you have identified all the suppliers necessary to ensure constant and reliable inventory for the items listed in your menu. If you are focusing buying from local farmers, do you have a back-up source to ensure consistent delivery?
Permits and Licenses
Before opening a new restaurant, you’ll need to obtain several federal, state, and local licenses and permits.
Learn more about licenses and permits for a new business
Owners, Management & Employees
In this section, include a brief biography on the owner’s professional experience and education. This section is especially important when looking for funding as a lot of weight is placed on the experience of the owner(s) and their ability to successfully run a restaurant. If the owner(s) don’t have direct industry experience, explain how their previous experience is relevant.
Management and Employees
This section outlines the restaurant’s staffing plan and will ultimately help to estimate the positions needed and forecast payroll expenses.
In the management portion, outline the title of the position and wages for any managers or key positions. There may be some people you have already selected for these key roles. If so, include a bio about their experience to help build the credibility of the team.
Next, include information about staffing to detail what positions and how many people are needed to run the restaurant. Include the title of the position (such as servers, waitstaff, cooks, etc), the number of people needed for each position, hours needed per week or month and the wages for those positions.
Include a timeline of milestones already achieved and those that are being worked on. By having a timeline, you will have a list of the sequence of when critical tasks need to happen.
The competition for diners is only getting more competitive and complicated with the number of ways to market keep expanding. Without a solid plan to inform and entice, it may be hard to get customers in your door. Getting noticed in the market is critical, so what will you do to get the message out and make your restaurant stand out?
The marketing section is one of the most important sections of the business plan, but is often not given the time and attention to detail as it needs. Why is it so important? Because your business needs customers to spend money and without sales, there is no business. Without knowing who your customers are and how to reach them, they may never hear about your restaurant.
Some key areas of the marketing section should include the target market, promotional strategy and competitive analysis.
The first building block in the marketing plan is defining the target market. While everyone likes to eat, it’s easy to assume that everyone is also your customer, but that’s not the case.
A target market is a group or groups of people that are most likely to benefit from a company’s offerings. A target market shares a similar set of characteristics such as demographics (age, gender, education, or income), interests (sports, hobbies, lifestyle or values) or geographic areas. Don’t think of targeting a specific group as excluding people and limiting business potential. By defining your target market, you are able to more effectively spend your marketing budget by specifically going after the people who are most likely to be interested in visiting your restaurant.
After defining who your target market is, try and find numbers as to how many of them there are. This is usually easier to do with demographic or geographic information, but having actual data in your business plan lends credibility and will help to form the basis for the sales projections we will work on later. Here is a free resource to help research the size of the potential target market.
After defining the target market, the promotional strategy comes next. The promotional strategy looks at how to best reach your target market. By knowing your target market, assumptions can be made on how to best reach them by focusing on their media preferences.
The promotional strategy should include how you plan to promote the restaurant before opening and then how you will keep them and attract new customers after the business starts.
If you are going to do the marketing in-house, make sure to have a solid plan in place on how you will generate attention through the various marketing channels like print, radio, social media, website, etc. Knowing your target market is key so you can most effectively reach them. Many plans make the mistake of stating they are going to use word-of-mouth marketing and do social media themselves as their only marketing. Word-of-mouth is great but it takes years to build in most cases. Social media can be effective for many businesses, but it takes a consistent and dedicated strategy to make it work well. Most business owners get busy working in the business and can’t stay consistent with their social media efforts. Not only is a strong promotional strategy important for the success of your restaurant, but lenders and investors will see through a weak promotional strategy which may affect your ability to get funded. Also, be sure to not guess how much advertising is going to cost and get actual quotes so you have real numbers in the plan.
If marketing isn’t your strong suit or maybe you aren’t sure you have enough time to stay consistent, you can look at hiring a marketing company. Hiring a marketing company lets you focus on what you do well, while they focus on what they do well and market your restaurant. If you decide to go this route, get details and prices for the work they are going to do. Include these details in the plan.
The competitive analysis section will provide an overview of the competition in your area and why you believe guests will choose your restaurant over them. You will likely focus on the businesses selling the same type of food in your area, but don’t forget that people can choose to eat any type of food so it’s important to know the competition close to your restaurant. Also, be sure to not say there isn’t any competition because nobody makes your style of food. There is always competition for food, regardless of how unique you are and saying there isn’t any competition tells the reader you may not really understand the market.
You can list how many restaurants are in a 1, 3 and 5 mile radius from your location and then focus on the top 3-5 competitors. The purpose is to research and show you understand the competition and what gives you a competitive advantage. If you don’t have a competitive advantage yet, it may be time to go back to the drawing board to come up with one. Unless the local population is growing, it’s going to be difficult to get people to change where they are currently eating unless you offer something different or the competition is really bad.
Some of the key areas to look at in a competitive analysis include:
- Competitor’s name
- Years in business
- Type of food
- What they do well
- What you will do better
This is not the place to bash your competition or make references to how bad their food tastes or what a terrible person the owner is since these are subjective statements. Doing so also makes you look unprofessional.
The financial projections of your restaurant business plan are the most important part of the plan, but are often the most intimidating. Typically, lenders and investors will read the executive summary first to see if it is a project they would be interested participating in and then jump right to the projections. If the thought of preparing your own financial projections is a bit daunting, software such as LivePlan helps make it easier.
Sales projections can be complicated to estimate without knowledge of the market. There are a number of ways of estimating sales for a restaurant, but you will want to refer back to your target market research that was done earlier to support your assumptions.
This is a common place for new business owners to be overly optimistic and is where having a mentor or consultant help with the plan.
Read our article on creating sales projections for more information.
When looking at sales projections, the effects of seasonality also needs to be evaluated. Seasonality is more significant in some businesses than others and is important to estimate because it can show in the financial statements whether a business is projected to run out of money.
Simply dividing sales by 12 months is a common mistake picked up by lenders and investors because it shows the entrepreneur may not really understand the sales trends for the industry.
Local markets will vary, but restaurants are typically slowest in January and February.
Uses of Funds
Start off with a section for the Use of Funds to show the total cost of starting the restaurant. List any costs you have already incurred and what still needs to be purchased. You don’t need to itemize every little item like dishes or spoons, so combine the cost of all similar items and list them.
It’s important to have quotes for everything should the bank or lender request them, but only add quotes for the more expensive items such as building renovations or large equipment as attachments in the Appendix.
Total up the Uses of Funds to find the total cost of the project
Sources of Funds
The Sources of Funds section breaks out where the money is going to come from. The owner’s investment is commonly listed first. Most lenders are going to want to see the owner(s) put in between 15% – 25% for a new restaurant.
Other funding sources are listed next such as bank loans, investor funds, etc.
Learn more about finding financing for your restaurant.
The total amount in the Sources of Funds should match the Uses of Funds.
There are three primary financial statements that a lender is going to look at for a start-up restaurant which include the cash flow statement, profit and loss statement and balance sheet. The information provided previously in the narrative portion of the business plan must match the financial projections.
Cash Flow Statement – The projected cash flow statement is an important tool when starting a business. Similar to a checkbook register, the projected cash flow statement shows an estimate of the money coming into the business and expenses that will need to be paid. The benefit of this statement is to see whether there is enough cash to sustain the business based on the assumptions. Should this number be negative, the assumptions need to be reevaluated to see if sales can be increased, expenses reduced or if more cash is needed to start the business.
The cash flow statement is typically structured to look at three years in the future, with the first year broken out by month and years two and three broken out by quarter.
Profit & Loss Statement – This statement (sometimes called a P&L statement or income statement), while similar to the cash flow statement, shows the annual income and expenses of the restaurant. The projected profit and loss statement is often displayed annually and takes a before-tax view of the financial results of the business.
Balance Sheet – The projected balance sheet statement is not requested by all banks when reviewing a loan for new restaurant. A projected balance sheet shows the projected assets and liabilities for a business at start-up and then the end of each year.
Personal Financial Statement
If applying for bank financing, a personal financial statement will typically be needed for every person with a 20% or more ownership position in the restaurant. This statement is similar to one that is used to apply for a home or car loan. Here is a link to a personal financial statement template. The personal financial statement will show a borrower’s assets (checking & savings accounts, CD, IRA, 401K, valuables, home, vehicle, etc) as well as assets (mortgages, credit card bills, installment accounts, etc).
At the end of the plan, include an appendix section to include any supporting information such as resumes, quotes, floor plans, etc.
Save Time with a Restaurant Business Plan Template
To help with creating a business plan, you can use our free business plan template. This template can be used for any business, so some of the sections may not be relevant to your restaurant business plan. Some of the tips in this article should help you in modifying it to work for your restaurant.
To help with the creative juices, here is a link of free sample restaurant business plans.
Last, there is software such as LivePlan that includes a restaurant business plan narrative and financial projections to help make writing a business plan easier.