People with good culinary skills tend to tell a story through the dish they are serving, and stories tend to charm people. If you are a hobbyist chef willing to improve and monetize your skills at a minimal budget, then you have landed in the right place.
Here, we will tell you everything you need to know about the process of how to start a restaurant business at a low budget.
So dive in to make the best out of your marketing, finance, logistics, human resources, and risk management strategies through an easy approach.
Why Should You Start a Restaurant Business?
Every restaurant owner, at some point before starting their business, has asked themselves this one question. Surprisingly, all of them conclude to different answers.
Over time consumers have grown busier and busier. Today everybody loves a delicious chicken meal without having to skin and cook the chicken. The hype for prepared food has skyrocketed and turned into a necessity among most.
Here are some of the reasons shown by restaurant owners who started on a small scale.
- Given that you have the proper set of skills, a carefully selected niche, and a unique menu style to offer, this is your perfect place to leech profits off of your talent.
- Sales and consumption in the food business are comparatively much larger than most other products combined.
- Production of food products and dishes of a common niche is comparatively easier than most products, although this does not apply to high-end restaurants.
- Revenue maximization becomes easier gradually yet exponentially.
- Necessary pieces of equipment and ingredients for restaurant startup are going to be easier for you to acquire and manage.
- Food services such as catering require a low startup cost and bring in significantly more profit per order.
And this brings us to our next big question.
How Much Money Do We Need to Start Our Restaurant Business?
Despite being one of the widely asked questions by entrepreneurs, it has no one right answer as valuation is variable upon various factors. The amount becomes entirely subjective to your resources. The proper way to project the money you will be spending is to calculate the cost per square foot.
The elements of cost calculation are renovation, rent, décor, equipment, and build-out cost, most importantly, the cost of food items being served.
Setting a target before stepping into the game is important. Analyze your potential growth in terms of the competition and probable obstacles you’ll be facing as soon as you open your restaurant.
Here we have compiled for you some tweaks in restaurant business policies that are modified to adjust and support the low budget.
Business Plan Factors That Influence a Cost-Efficient Restaurant Startup:
Let’s go over the factors that are important for a cost-efficient restaurant startup.
Finding a Suitable Location
Your starting location doesn’t have to be a commercial kitchen. It may be the one from your home. But if you have enough capital, then go for ‘renting and renovating’ instead of ‘buying and building’ an empty place because it’s significantly expensive.
Inquire about the history of the location. Focus on the traffic and facilities it provides. Getting a good traffic location with a low budget is difficult, so choose accordingly. Do not spend all of your money trying to get that one location that everyone says to be hot and booming.
If you are going for a commercial kitchen, study the layout of the production and dining area thoroughly. Start at the bottom and gradually work your way upwards.
Cutting down the Equipment Cost and Reduce Inventory Spoilage
Buying new equipment for your new startup may sound exciting. A cost-efficient alternative to this is purchasing second-hand kitchen equipment at auction or leasing.
Most of your inventory and ingredients have a shelf life. Ask your vendor to make multiple deliveries to ensure freshness and reduce spoilage.
Compensating for Your Budget through Unique Concepts
Develop unique and smart sales policies. Setting the right theme and niche is crucial for attracting potential long term customers. Your concept of service must be unique for your restaurant to flourish rapidly.
Remember that you are not the only one trying to start a restaurant in a cost-efficient way, so bring something new to the game.
Calculating the Cost of Goods Sold and Professional Fees
The ‘cost of goods sold’ (COGS) is the direct cost of producing that product. In your case, the product may be anything from a breakfast dish to a pack of cookies. COGS includes the cost of materials and labor as well. Ideally, that amount is 15-30 percent of the selling price in profitable businesses.
This means your food should be lucrative and exciting enough so that you can charge at least 3 times of what your actual cost was.
Start with a substantial selling price. That way, when you grow, you don’t have to suddenly raise the prices just because the costing has gone up. A sudden rise causes lots of customers to fall off. Avoid making this mistake at all costs.
If you are thinking of hiring a waiter, a chef, or an extra hand to take care of your accounts, calculate the fees you are going to be spending there before budgeting.
Capital Collection Tips
The capital collection is one of the most vital aspects of starting a restaurant. Let’s know about it.
If you have the capability, funding your own venture is one of the most feasible methods of capital collection. This way, you won’t have to worry about meeting other’s expectations.
Some of the examples to consider if you’re planning to fund yourself are:
- Using your personal savings and resources
- Selling your personal property, such as motor vehicles, bonds, real estate, stocks, etc.
- Using credit cards of companies that have a reasonable interest rate
- Taking personal bank loans
- Or by cashing in your retirement account funds, keeping in mind the drawbacks of an early withdrawal
Self-funding entrepreneurs are not answerable to others for their endeavors. As a result, they are more likely to grow independently. On the contrary, they are also the only person to sustain a loss if things don’t go as planned.
Friends and Family
Borrowing your capital from friends and family is an easy option as you won’t need a solid business pitch to convince them. They are often more than willing to lend you the funds because they want to support you.
But keep in mind that there exists a risk of complicating your relationships. Don’t involve your friends and family unless you need to.
Banks and Organizations
Several banks and organizations have programs that lend money for small scale startups. Grants and microcredit loan-outs are also viable options.
Although you will need a convincing business plan and a guarantor to apply for loans from such organizations.
Finding a partner may be crucial, not only for investment but also for skill-sharing and better management.
Your best friend may not be your best business partner. Remember that partners share financial risks as well. Look for a partner that you are comfortable discussing ideas with.
When you are seeking capital from wealthy investors, also known as angel investors, do not expect them to just give their money away to you. The reason they have enough money to invest in others is that they are experienced enough to know where to invest.
So think out of the box and, more importantly, focus on proving why your background, resources, strategies are different from others. Always be prepared to answer why they should invest in you and not the other guy who has been asking for the same capital for say his/her woodworking business.
Finding Your Niche through Consumer Analysis
Carefully study the market segmentation and consumer preference before opening up and offering a menu. If you go through a detailed market analysis of your preferable region, you will find a wide variety of small food business opportunities.
Even though they have a limited product offering and curbed revenue system, here are some exemplary easy buildup opportunities for you at a very low budget.
- Tea stalls
- Ramen and noodle joints
- Food trucks
- Delivery only restaurants
- Vegetarian restaurants
These options are seemingly popular because of the following reasons:
- The required investment is lower
- The required skill is the bare minimum to run this sort of restaurant
- Setup and launch is easy
- Significantly less or no labor issues
- Delivery-only restaurants only require you to focus on production and distribution, without the hassle of infrastructure management.
- A vegetarian restaurant requires significantly low investment in raw products and ingredients
Sort Your Menu According to Your Niche
Your menu should be balanced yet creative. Even if you are offering a very generic menu, remember to keep at least a handful of items that the customers aren’t used to seeing in other restaurants.
The menu is the first thing that is handed to your customers when they walk into your restaurant. Therefore, it plays a huge role in setting the first impressions about the place. A menu with pictures of the food is always better than one without.
Don’t hesitate to brag about your food, special ingredients, and the process it goes through. Including a little text about how your salmon is roasted in a wood oven with care, can make a big impact on their appetite.
Do a SWOT Analysis of Your Plan
SWOT analysis refers to the strength, weakness, opportunity, and threat analysis of your business plan. This is required to understand if the plan you have in mind is viable and potentially profitable for your restaurant or not.
When you conduct this analysis on your plan after running a pilot project, you will have a clear idea of your qualities. You will be able to move forward by showcasing those qualities, and it will allow you to eradicate identified weaknesses as well.
Restaurant owners who performed the SWOT analysis to evaluate were able to manage the blow of area-based threats such as political unrest and global threats such as the Coronavirus pandemic.
Focus on Bringing Variation
By their definition of the Small Business Administration (SBA), an organization that has fewer than 500 employees, is considered a small business. There are 30.7 million small businesses in the U.S., which account for about 99 percent of all U.S. businesses, according to the SBA.
So if you want your small restaurant business to boom in no time, you will have to stand out from the crowd. Keep in mind that expensive promotional campaigns are not going to be affordable in your budget. Therefore, setting a unique niche and service style is going to take you far.
Even though people want diversity in their daily food, with diversity comes a greater risk of cost management.
Low Budget Marketing Strategies
While bringing in diversity, use your market taste analysis report as the frame of reference.
Advertising is important yet expensive, so it’s often avoided. For cost-efficient advertising, use social media as your advertisement medium. An online presence can be crucial for your food business.
Since you will have to work on holidays and weekends, make the perfect use of it by giving out promotional offers and discounts on those occasions.
Spend on low-cost promotions on Facebook and Instagram. Set up your restaurant’s social media profile and go about following the people from your town so that people can also find you organically.
Word of Mouth and Menu Items
Try to focus on the spread of word of mouth, even if it takes time.
Think out of the box with your menu items. Do not spend excessively on fancy packaging. Ensure proper hygiene and cleanliness of your restaurant for adding value and earning a good reputation. Consider low budget home delivery options for your neighborhood.
Provide discounts and promotional offers on occasions.
When you are just starting, offer catering services for weddings, birthdays, and other social gatherings to build your reputation.
Crucial Tips for Starting a Restaurant on a Low Budget
Here are some actionable tips for you that you should follow.
Go for Piloting Projects First
The most important tip is to start with a pilot project to understand consumer behavior.
Try to not jump into business with all of the money you got. After you have written a solid business plan, start your restaurant on a very small scale for experimental purposes. Conduct the SWOT analysis you learned and scrutinize your progress and setbacks.
When you feel assured of the viability of your plan, that is when you should start full-on with whatever small capital you have managed to achieve. Review and alter your plan according to need.
Communication Is Key
Since you are starting a restaurant with fewer capital resources, therefore it’s going to be easier for you to be involved in the field. Take advantage of this and communicate more with your customers by walking up to their tables and asking if they like the new item on the menu.
Small steps like this can make big differences.
Avoid Risky Events
Stand clear of involvement in political biases, scandals, and other risky incidents. The phrase ‘all publicity is good publicity’ is not exactly applicable to the food business.
A tarnished reputation is hard to rebuild. Do not risk your restaurant’s reputation against personal opinions or biases.
Observe Your Cash Flow
Do not ignore the subtle changes in your cash flow. Every little change happens for a reason, carefully scrutinize why and where your cash flow is taking a bump. Troubleshoot the cause as smoothly as possible.
Avoid over-spending. While working with a minimal budget, it might seem that there isn’t a lot of space for overspending, but that’s not true. This mistake is likely to happen at any budget range as it is a result of miscalculations and bad decisions.
Entrepreneurs who ignore risk analysis are bound to land on the red. Risk management is going to be crucial for you because your term of the day is ‘low budget’.
Potential Risks for Small Scale Restaurants
- 42 percent of the respondents stated that the most important problem for small businesses was that the market didn’t feel them needed any more
- While 29 percent because they ran out of cash
- 23 percent complained about not having the right team
- (CNBC, 2019)
All of these problems are avoidable through the proper ‘planning before execution’ we have been discussing all along,
Prepare for the Unexpected
Most small restaurant businesses require a capital reserve for emergency purposes. Be it a small amount of a few hundred only, an emergency fund is always crucial to stopping a small business from going bankrupt.
Remember that the more variation you bring in the food items you are trying to serve, the more costly and daunting it’s going to be. Consider the actual food cost vs. the ideal food cost for profit maximization.
Manage Your Legal Sectors
If your restaurant service is starting to pay off, then consider getting registered. This is a big step towards quick growth.
Since you are starting a low budget restaurant business so it may be necessary for you to get licensed according to the state you live in. Do your share of research to find out what the requirements are before you can legally sell food from your kitchen.
Look up the cottage food laws if you are starting off cooking for your restaurant from your home kitchen. Inquire about your state’s zoning permit before starting to sell your food.
Plan and Launch Your Restaurant Business on a Low Budget in No Time!
Not just restaurant businesses, it takes time for every sort of small business to rise. Do not expect to get rich by the end of your first year of business since the process is gradual.
With the right set of skills and proper management of resources, you will be able to scale-up higher than you expect.
Every business is potentially profitable. You either earn experience or experience and money both.
If opening your own restaurant has been your dream, but you are not willing to invest a lot in the project financially, then it’s alright.
This in-depth guide will substantially help you work around the obstacles of large-sized investment and help you climb towards success starting today.