Opening a restaurant is tough.
According to a study conducted by Ohio State University, 26% of new restaurants fail in the first year, and 80% fail within their first five years. There are variety of reasons surmised for these disturbingly high statistics — from inexperience and poor customer service to larger economic woes and the difficulty in acquiring sufficient funding.
But as alarming as these statistics are for prospective restaurateurs, figuring out how to open a restaurant with no money ups that ante considerably. Certainly, opening any business is challenging, but with profit margins for most restaurants hovering around 5–10% at best, succeeding in the competitive food service market is tougher than most.
So, prospective entrepreneurs who don’t have financial resources lined up to support a grand launch are already at a significant disadvantage. However, for those most determined, a single, driving thought remains:
“I want to know how to open a restaurant with no money.”
The thing is, you can’t.
The average full-service restaurant can run between $245,000 and $450,000 to get up and running. Franchises can cost between $750,000 and $3 million, in addition to the net worth and liquid assets required by the franchiser to meet you at the table.
Most entrepreneurs secure funding for their new restaurant either via private investors, small business loans, crowdfunding, or — if you’re fortunate enough — personal wealth. Additional options, such as financing through Rewards Network, open up after a short period (usually once three or more months of credit card records are available), but are not available pre-launch.
But while there may be no clear answer on how to open a restaurant with no money, there are more than a few ways to get your feet wet in the food service industry without starting at a traditional brick and mortar.
What follows are five ways to progressively ramp up your investment in a future restaurant, build brand equity, and save and raise money along the way — the closest you can get to how to open a restaurant with no money.
Personal Chef Service and Catering
One of the biggest expenses upfront in opening a restaurant is the actual physical space you need to host your business. But a lot of young chefs especially are choosing to build up their client list out of their own kitchen, by starting a personal chef service or catering business.
The advantages to both of these are clear for those running on a very tight budget:
- a predetermined customer count, so you don’t need to over-order
- advance notice for careful preparation and planning
- a shorter storage and outlay period for unprepared food
- the opportunity to serve guests — who may never have been exposed to your food — who will now know your name should you open a restaurant
If you do choose to open a catering company, you will likely need to get your kitchen certified by local authority or risk breaking health codes and law. If that is a barrier, you may need to consider renting time in a commercial kitchen.
Just take care not to overextend yourself or get greedy. Because there is no brick and mortar storefront to attract customers, catering relies on consistent word of mouth and person-to-person recommendations far more than any other form of food service, in addition to advertising. Too many bad experiences from poor service or underperforming and your reputation could go down the drain.
A Virtual Restaurant
This sounds quite futuristic, but in reality, a virtual restaurant is one running on a delivery-only structure — with no established brick and mortar presence. Many entrepreneurs are trying virtual restaurants out as a way to cut significant costs through kitchen sharing, a phenomenon that benefits both you as a new business, and an established restaurant looking to generate extra income.
For example, restaurants that may only serve breakfast and lunch can rent out their kitchen to an entrepreneur looking to provide dinner-only service (or vice versa). You can then partner with a delivery service to advertise and manage delivery of your food ordered through a website or app.
This arrangement requires a lot of discipline, particularly in ensuring the space you rent is a good fit for your concept and can easily be put back the way you found it. No landlord is going to want to rent space to you if your business is going to be a burden on theirs.
It could be a month. A week. A single night. There’s a ton of flexibility (with limited commitment) in trying out new food concepts through a pop-up restaurant.
Renting existing vacant space on a short-term basis isn’t your only hurdle, however. Restauranteurs who want to make a profit (or at the least, break even) need to hustle up as much advertising as possible, which requires a great deal of planning in advance. If you can’t get seats filled every night you’re open, there’s less time to try to balance the books as the bills come due.
What a pop-up can give you is a great showcase for potential investors who will want to fully experience your concept and food before committing money to a more permanent endeavor. It also gives chefs an opportunity to work out kinks on a live audience, and tweak your offering before committing to a brick and mortar restaurant.
A Food Truck
Slowly moving toward more permanent structures, the food truck is a growing, metropolitan phenomenon that could be an end goal in itself. The investment in space is nowhere near as expensive as putting down monthly rent on a building or storefront, and the amount of staff and resources needed to run a food truck is significantly lower as well. Advertising, especially online, is so crucial, however. You have to let people know where you’ll be!
It’s important to have a restaurant concept that works well with the overall concept of street food. Food truck customers are often lunch goers with limited time, so having dishes that can be prepared and handed off quickly is key. If you’re constantly making people wait in long lines to order and to receive their order, you’re not going to be in business for long.
Make sure that you’re aware of the laws and regulations regarding food trucks that are specific to your city. It’s not going to be as great of an investment if you keep getting fined for things like parking within 100 ft. of a brick and mortar restaurant.
Lastly, investing in a restaurant with a full and extensive back of house but limited service and space for a front of house can be a way of easing into the restaurant scene on a limited budget. It’s not necessarily that your food needs to be ready made or what most people like to call “fast food.” You just need to be able to provide an easy ordering experience — online, in-person, and over the phone — and food that can sustain delivery and take-out without losing its integrity.
This has been a popular and profitable mode of business for decades, especially for the pizza industry. In a time when many independent restaurants are seeing a dip in same store sales, pizza establishments are still booming. Lower overhead and ease of experience for the consumer has a lot to do with that.
Ultimately, the answer to how to open a restaurant with no money doesn’t lie in wishes and dreams, but in building up your repertoire over time, saving along the way, making connections, and making the effort to secure funds. Nothing ever comes for free, but hard work, careful planning, determination, and experience can certainly grease the wheels of becoming a successful entrepreneur.
Need a handy guide for the road to opening day? Download our free “Essential Checklist to Opening a Restaurant” today!