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BASICS TO GETTING STARTED (excerpt from article by Alberta Provence of Canada)

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Before proceeding, reference should be made to the Business Start-up Info-Guide for your region (Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan, Yukon) for information on the steps involved in establishing a new business.

Starting a business can be a rewarding undertaking, but it comes with its challenges. Before starting a business in Canada, it is wise to do your research. You should also make sure you are suited for entrepreneurship, and understand that significant effort may be required. As such, you should thoroughly enjoy the field you are getting into, and you must believe in your product or service as it may consume much of your time, especially during the start-up phase. There are many issues to consider such as regulations, financing, taxation, managing your business, advertising, and much more.
For more information, see the Checklist for Going Into Business.

The following is additional information to consider:

TABLE OF CONTENTS

    1. Industry Overview
    2. Licenses, Permits and Regulations
    3. Managing Your Operation
    4. Associations
    5. Resources
    6. Additional Information
    7. Disclaimer
    8. Bibliography
    9. Web Addresses


(Back to table of contents)
1. INDUSTRY OVERVIEW
The restaurant industry is:

  • demanding - expect long days, often 10-15 hours per day. You must excel in many areas such as food preparation and service, management, marketing, meeting people; purchasing, inventory control and personnel administration;
  • governed by federal, provincial and municipal laws. Understand all pertinent regulations before making any decisions, especially before purchasing or leasing a building.

A few years ago, the statistical bodies of Canada, the U.S. and Mexico got together to come up with a classification that was the same for all three countries, so that data collected in all three countries on a specific industry could be compared accurately across country boundaries. This system is called the "North American Industrial Classification System" or NAICS (pronounced "nakes").
  • NAICS codes are:
    • 722110 Full Service Restaurants
    • 7222210 Limited-Service Eating Places


Types of Operation
Depending on your experience, finances, location and customers, decide on the type of restaurant:

Traditional

  • cater to a variety of customers;
  • must excel in service, food preparation and inventory control due to lengthy menus;
  • popular in tourist areas, but declining in general.

Ethnic
  • highlight food from a particular country or region;
  • must offer personal service with excellent cuisine.

Specialty
  • offer one food type or a variety of a certain dish;
  • best in urban areas;
  • owners should have lots of restaurant experience.

Coffee Shop
  • offer a wide variety of quick, pre-prepared dishes;
  • heavy traffic flow is needed for high customer turnover.

Fast Food
  • normally franchise operations offering limited menu. For more information regarding a franchise, see the document Checklists for Franchisees
  • attractive to beginning operators

Cafeteria
  • offer simple, pre-cooked hot dishes and cold plates;
  • large transient population is needed;
  • controlling labour costs can be difficult.

Self-Serve
  • small operations offering take-out or eat-in;
  • location, efficiency and good food are critical;
  • easiest type of restaurant for the beginner due to low initial capital outlays and minimal payroll requirements.

Choosing Your Location
Choosing the right location for your business is important. Considerations include the needs of your business, where your customers and competitors are, and such things as taxes, zoning restrictions, noise and the environment. For most businesses, an appropriate location is critical.

Layout and Design
Aim for a practical, useful layout, while setting the mood. Make sure you have:

  • seating/waiting areas, serving room, cashier area, rest rooms, bar (optional);
  • one or more areas from which you can view the entire restaurant;
  • lighting, signs and obstacle-free traffic flow;
  • a variety of seating arrangements: 50% of customers come in pairs; 30% come alone or in groups of three; and 20% in groups of four or more;
  • adequate room - the suggested square footage requirements per chair are: 10-20 sq. ft in traditional restaurants, 10-12 in cafeterias, 7-17 in coffee shops;
  • a kitchen that allows efficient and effective food preparation and interaction between staff, safety in movement, dry and cold storage, dish washing, an area for staff's personal items, convenient delivery zone, ease of cleaning and maintenance, and proper ventilation and lighting.


Calculating Seating Capacity
To determine the maximum potential of your restaurant and break-even point:

    1. determine desired profit - convert to percentage of sales to get sales required;
    2. determine number of operating days - divide number of days into sales to get average daily sales;
    3. estimate volume percentages for meal periods (breakfast, lunch, dinner);
    4. multiply figures in step 3 by average sales per day to get dollar volume per period;
    5. determine average check per meal period;
    6. divide dollar volumes in step 4 by average check for the number of patrons per period;
    7. estimate a) average seat occupation per meal period; and b) time per meal period;
    8. divide time per period by average occupation to get seat turnover per period;
    9. divide possible seat turnover into number of patrons to get number of seats required per period;
    10. take the largest seating requirement in step 9 and add a 20% safety margin for the seating capacity.


Preparing Menus and Setting the Right Price
Plan your menu carefully. Know what items your customers prefer and how they like them prepared. Provide variety while maintaining stable cost averages. Menu prices are a combination of food costs and what is needed to meet expenses and realize a profit. Generally, the price of an item is approximately three times the food costs, depending on restaurant type, operating expenses and competitors' prices. To establish pricing:

  • estimate your sales - counter-balance higher cost items tagged with lower markup, with higher markups on lower cost items;
  • maintain a desired overall food cost percentage, usually 33-40% of gross sales, and a normal margin of profit;
  • balance items ranging in popularity - monitor high demand items which can determine your success.


(Back to table of contents)
2. LICENSES, PERMITS AND REGULATIONS
One area of rules and regulations that all new businesses must comply with is that of licenses, permits and regulations. When creating a business, the entrepreneur must contact the municipality involved, along with the provincial/territorial and federal governments.

Each municipal government has the authority to issue its own business licenses within its jurisdiction. Since there is no uniformity throughout the country regarding municipal licenses for businesses, you should consult with the appropriate local officials to determine whether your business will be affected by local regulations and licensing requirements. Businesses (including home-based businesses) must also meet the zoning by-laws that control property uses in their municipalities.

Examples of licenses, permits and regulations that could apply to you when starting your restaurant may include, but are not limited to:
Licenses


Permits

  • vendor permit
  • building permit


Regulations

You can get permit, license and regulation information by contacting your province/territory, local city hall, town or village office or rural municipal office. Contacts for local, provincial/territorial and federal governments can be found in the government listings of your telephone directory or on the Government of Canada Web site.

(Back to table of contents)


3. MANAGING YOUR OPERATION

Insurance

Insurance needs for businesses vary greatly. It is best to choose an insurance agent or broker familiar with your size of business and, in particular, an agent familiar with your type of operation. If you don't have an insurance agent, it could be a wise decision to ask other business owners in your area to recommend one. Your local restaurant association may also have information about insurance packages specifically tailored for restaurants.

The following list is included to remind you not to overlook the complex areas of business insurance. It is best, however, to discuss your specific requirements with your insurance agent.

Basic insurance:

  • fire insurance (extended coverage on buildings and contents);
  • liability insurance;
  • burglary protection (theft coverage);
  • dishonesty insurance (covers thefts by employees).


Marketing/Advertising

Word-of-mouth advertising and good public relations are often the best ways of promoting a restaurant. Depending on your market and its size, also consider flyers, newspapers (especially for holiday promotions), radio, TV, the business pages of the telephone book and the Internet. Also bear in mind that a satisfied customer is good advertising.

Internet
A Web site should have details to describe the location (your restaurant's address, telephone and fax numbers, and directions on how to get to your restaurant), hours of operation, menus, and anything else you think may be of interest to potential customers. However, once you launch a Web site, you must update it on a regular basis.

Participating in community events is another way of advertising your restaurant. You may also hold events that will promote your restaurant, i.e. have a wine or beer tasting evening and choose the menu to suit the occasion.

For more information regarding advertising and marketing, see the following documents:


The Online Small Business Workshop - Marketing Basics covers the basics from developing your customer profile to promoting your business.

The federal Competition Act governs misleading advertising and deceptive marketing practices for all businesses in Canada. The Act defines which marketing practices are illegal and the process of complaint investigation.

For more information, consult the Competition Act - Misleading Advertising and Deceptive Marketing Practices, administered by Industry Canada or visit the Competition Bureau Web site.

Market Research
Successful businesses have extensive knowledge about their customers and their competitors. Acquiring accurate and specific information about your customers and competitors is a critical first step in market investigation and development of a marketing plan.

In developing a marketing plan, your primary functions are to understand the needs and desires of your customer, select or develop a product or service that will meet customer needs, develop promotional material that will make the customer aware and ensure product or service delivery.

Accounting/Bookkeeping
A good record keeping system should be simple to use, easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.

Note: All staff working with cash should be trained to recognize counterfeit currency (see document Security Features for Canadian Bank Notes).

The legal requirement concerning financial records specify only that they be a permanent, accurate and complete record of your daily income and expenses. There are many types of record books and bookkeeping systems available. For example:
  • double entry bookkeeping;
  • commercial bookkeeping systems;
  • one-write systems;
  • computerized systems;
  • single entry bookkeeping.

Selecting Professional Services
The use of professional services is essential to the success of a small business. Professionals can provide knowledge and expertise in the areas where you may have little. They can round out your management team to ensure your business is operating efficiently.

As an entrepreneur, there are four main areas of professional services with which you may consult:

Furnishings and Equipment

Before you open your restaurant, you will need tables, chairs, lighting and decorative items. You will also need kitchen, bar and dinner wares. The menu, size of restaurant and kind of service will determine the type of equipment you will require. For assistance in this area, you may get the advice of a sales representative or consult trade publications and manufacturers' Web sites. List that equipment and its cost to you. An important factor to consider when choosing equipment is the after-sales service and repair and their affordability.

Used Equipment - Consider buying used equipment as a cost-saving measure. Sources of used equipment could be a restaurant that is closing or dealers in second-hand equipment. The drawback to this approach is that, often, there are no guarantees with the purchase.

Leasing Equipment - Another alternative is to lease equipment to help keep start-up costs down. To obtain financing for capital leasing for new or used equipment for the creation of your business, see the document Capital Leasing Pilot Project.

For more information on parts and materials, overhead, stock control and pricing, see the document Business Plan for Small Service Firms.
On Industry Canada's Web site, you may also want to consult the section on Furniture.

Setting-Up a Pay System
Pay administration is a management tool that enables you to control personnel cost, increase employee morale, and reduce workforce turnover.

Setting the Right Price
Setting the right price can influence what consumers will buy, which in turn affects the total revenue and the profit. In the end, the right price for the product/service is the price that the consumer is willing to pay for it. Hence, correct pricing decisions are a key to successful management.

Cost Control
In the restaurant business, you must have procedures for controlling inventory and costs. Ask people in the industry for information about procedures for:
  • Purchasing - Most of the time, purchasing is done over the telephone, by fax, or online. Often no contract is signed between the purchaser and the supplier; therefore, it is essential that you choose your supplier carefully.
    Develop specifications on food brand names, size, quantity, grade/weight, delivery time/place, emergency deliveries, availability and policies for substitutes or damaged goods. Entertain bids from multiple sources and get the best product for the lowest price. Use a Purchasing and Receiving Form.
  • Receiving - Check all deliveries against the Purchasing and Receiving Form, focusing on three things: quantity, price and quality (i.e., temperature: frozen goods must be frozen); packaging should be intact. Make sure specifications are met. Careful recording will show short shipments, price variations and weight differences.
  • Budgeting and Projecting - Establish a cash budget and maintain cash flow projections on a continual basis.
  • Calculating Monthly Food Costs - Determine the actual cost of food consumed and the actual cost of food sold. This is a combination of opening inventories, purchases, adjustments and closing inventories. This ratio should remain relatively constant.
  • Calculating Beverage Costs - Record all bottle deliveries and purchases.
  • Preparing Food - Make sure staff understand portion sizes (photograph entrees or give written instructions) and set up a recipe reference file to list dishes, portions and supplies needed.
  • Storing - Ensure refrigerated and frozen products are quickly placed in a cold storage- storage temperature for dry goods (between 10-21 C) and frozen goods (-18 C or less). Rotate your stock to ensure that oldest items are used first before the new stock.


Profit Watching
Making a profit is the most important -- some might say the only objective of a business. Profit measures success. It can be defined simply: revenues - expenses = profit. So, to increase profits, you must raise revenues, lower expenses, or both. To make improvements, you must know what's really going on financially at all times.

You can find additional information on managing your operations, by viewing our index of popular business topics.

Complete Article: http://www.cbsc.org/alberta/

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