Becoming a restaurant owner can be rewarding, especially if you’re passionate about food. The role also has its challenges, however, so it’s important to be prepared. Let’s take a closer look at what you can expect — how much you can earn, the obstacles you might encounter and what it really takes to own a restaurant.
What is the role of a restaurant owner?
Owners play a high-level role in running the business side of a restaurant. They typically handle the finances, run the hiring process, oversee payroll, approve menu changes, order equipment and monitor the inventory-management system. To maintain a high health score, owners are often involved in developing food safety practices and preparing for health inspections.
As you research how to start a restaurant, keep in mind that the size of the business can have a big impact on your job. In small restaurants, owners often take a hands-on role in daily operations — in addition to big-picture tasks, they might cook, fill in as a server or run the cash register. In a larger restaurant, you’ll likely need people to help you, including a head chef, general manager and food and beverage manager.
How much does a restaurant owner make?
When you own a restaurant, your salary depends on a few key factors. The first is your legal business structure, which determines how much you can pay yourself and how that money is taxed. If your business is a sole proprietorship, for example, you can take an “owner’s draw” rather than a salary — after all, you’ll be paying income tax on all profits, regardless of what you pay yourself.
When you incorporate, the rules are more complicated. In a C corporation, you may need to deal with double taxation; the business pays corporate taxes on profits and you pay income taxes on your salary. In an S corporation, you might pay taxes on your salary and also earn distributions that aren’t subject to self-employment taxes. An accountant can help you determine which structure is best for you, your business and whatever partners you have.
Profit margins also play a role in your salary as a restaurant owner; the higher the margins, the more you can make. The National Federation of Independent Business (NFIB) suggests a business owner’s salary should be no more than 50% of the profits. The rest of the profits should go toward paying down debts, managing expenses, and making improvements. Since restaurant profits can fluctuate from month to month, you can expect the same of your salary.
How did you become a restaurant owner?
There are no formal qualifications or educational requirements for becoming a restaurant owner. However, it does help to have training or experience in topics such as finance, business, restaurant marketing or the culinary arts. Many owners learn by doing — according to the National Restaurant Association, 9 out of 10 restaurant owners begin in an entry-level restaurant industry job. They work their way up through different positions, gaining skills and expertise along the way.
To be a successful restaurant owner, you’ll need a few important skills and traits:
- emotional intelligence
- Bookkeeping and accounting
- Inventory management
- Kitchen operations
- Food preparation
- Customer service
Once you’re confident you have the skills and experience to open a restaurant business, it’s time to get started. The process varies for everyone but usually involves a few common steps:
- Write a business plan. Your restaurant business plan should explain the business concept and menu, describe your target audience and analyze local restaurant competitors. It should also outline a marketing plan, estimate the start-up budget, and provide financial projections for the first few years.
- Secure funding. Find start-up capital for your restaurant; you might get a business loan or bring on investors.
- Find properties. Select a property that suits your restaurant concept and your budget. Take into consideration the size, zoning, parking, ease of access and visibility from the street.
- Get permits and licenses. Depending on your area, you might need a business license, food service license, health permit, food handler’s license, liquor license and food seller permit.
- Create a menu. Develop the menu for your restaurant. Estimate the cost of each dish based on current ingredient prices and set menu prices accordingly.
- Purchase equipment. Buy all the equipment you need to accommodate customers and cook, serve and store food. This typically includes stoves, fryers, ovens, refrigerators, freezers, sinks, storage racks, furniture, dishes and utensils.
- Hire employees. Staff your restaurant with servers, bartenders, cooks, dishwashers, bussers, managers, and janitors and set wages for each group of workers.
What should restaurant owners expect in their first year?
The first year of owning a restaurant is both exciting and challenging. It’s a learning experience; you’ll find out quickly how to solve problems and adjust restaurant operations to help the business succeed. As you prepare, it’s helpful to anticipate some of the things that many restaurant operators experience after opening a business.
Shifting restaurant concept
When you open a restaurant, you’ll learn quickly what resonates with customers — and more importantly, what doesn’t. Flexibility is critical; you must be willing to make changes to satisfy diners and boost business, even if it means changing the restaurant concept. To that end, it’s a good idea not to lean too heavily on a specific theme, cuisine or service style in the beginning. That way, it’s easier to shift gears as you get to know the market and your target audience.
No matter how well you plan, running a restaurant always comes with unexpected operating costs. Your stove might suddenly stop working, customers might go through paper products faster than expected or a cold front might cause your pipes to burst. Make sure these surprise expenses don’t sink the business by keeping a cash reserve on hand — ideally, this fund should equal 3-5 months of the restaurant’s operating expenses.
It takes time for a new restaurant to settle into a predictable demand pattern. Until you do, there’ll be days when your restaurant is overstaffed or understaffed. To minimize excess labor costs and ensure the best service, start tracking order volume right away. Soon, you’ll see a pattern of peak hours emerge and you can schedule employees accordingly. Meanwhile, cut costs where you can create a financial buffer.
The first year of a restaurant often comes with significant financial turbulence. High start-up costs and unpredictable expenses mean you might not turn a profit for 3 to 5 years. Don’t panic — this is the norm in the food service industry. As long as your revenue is solid, you’re keeping costs in check, and you’re building sustainable business practices, the restaurant can eventually become profitable. And when the business stabilizes after the first year, it’s easier to forecast your expenses, increase your restaurant’s profit margin and pay down debt.
What are the challenges of owning a restaurant?
Does owning a restaurant still sound appealing? Here’s the final test: getting real about the potential challenges. If you’re willing to tackle these common issues, you’ll have a head start on less-prepared restaurant owners.
- Hiring and turnover. Finding and keeping employees is an ongoing challenge for most restaurants. Tech solutions, such as self-service kiosks, sophisticated POS systems and reliable mobile ordering and delivery apps, can streamline operations and balance staff members’ workloads.
- Rising food costs. Inflation, recessions, and supply chain disruptions are driving up food prices. You can combat these costs by adjusting menu prices, adjusting portion sizes and introducing new revenue opportunities such as catering, food trucks, gift cards, private events or branded merchandise. Suppliers matter, too; you might be able to save by switching vendors or working with local businesses.
- Reaching new customers. As a restaurant owner, you’ll always need to think about bringing in new diners. Building an online presence is key; 77% of diners in the United States look at a restaurant’s website before they decide to try it. To expand your restaurant’s digital marketing and get in front of more people, consider adding delivery services and online ordering.
Start your career on the right foot with Grubhub
If you’re opening a new restaurant, the right delivery partner can help you increase order volume and reach new customers. Look no further than Grubhub: the platform is designed to help restaurant owners succeed.
As soon as you’re up and running, you can list your restaurant on Grubhub Marketplace to build brand awareness among local diners. With Grubhub loyalty and promotion tools, you can even offer “grand opening” specials to convince new diners to try your food. While you’re at it, sign up for Direct, a free service that enables you to build a branded online ordering site. You won’t pay commissions on orders, and you’ll get access to customer data for easier marketing and relationship building.
Ready to start boosting business for your new restaurant? Get started with Grubhub today.