Yes, you will need at least something to start a restaurant. That doesn’t mean you need $100,000 in the bank. It means you need enough for food, equipment, overhead, rent, etc. There are ways that you can test your restaurant concept with very little cash investment (we’re talking less than $2,000 here), and once that concept tests well with your target market you can look to increase to a $20,000, $50,000, or $250,000 investment in the future. Here are 7 ways you can test your concept with low cash and low risk. Click on each section to learn more:
1. At-home Restaurant Pickup
An at-home restaurant is decidedly the least expensive option. This works particularly well if you do not have enough to start a food-truck or pop-up yet, but you do have demand. If people know that you cook great food, and they are willing to pay for it, then you have a good chance of success. In this method, you decide on however many items you would like to put on your menu and cook at home using your own equipment that you use every day. Typically, the smaller the menu the better so you can test a very specific concept and cater to that niche like no one else does. You then sell the food to customers for pick-up where they can stop by your home to pay and receive their food. You can hire someone or have a friend bring the food to the customers somewhere close by if you do not want them coming directly to your front door. You could also have online pay available to make the process smoother.Â
Important note here, get a business license and any necessary permits, licenses, or insurances that you will need. You are still operating a business, and still need to adhere to food and safety standards. There may be different laws and requirements depending on where you live, the amount of food you sell, or how much money you are making from it. Make sure to check your local and state regulations so you are in compliance. If you are unsure where to start looking for what licenses and insurances you might need, go to our article on How to Open Your Restaurant.
2. Food Truck
A food truck is a popular choice nowadays, with every city proliferated with them during lunch rush. Food trucks can be a good step towards opening a full brick and mortar restaurant without the price. The startup costs for a food truck vary widely, but can start as low as $10,000. Once you have bought, rented or leased your truck, gotten your equipment ready, filed for all of the licenses, permits and insurance you will need, created your menu, and parked in your spot, you can start serving your hungry customers. With food trucks it is important to know what areas receive a lot of foot-traffic. Especially when starting out, it can be easy for would-be customers to miss your food truck, or not even know if you are open. Having an online presence is essential for bringing in new customers, and to give your customers an opportunity to show off that they are part of your journey by frequenting your restaurant. You may want to talk to local businesses that are in a good location, and ask if you can partner with them to use their lot for your truck. You will likely have to pay a fee for this, and you can get creative on how you pay them based on what works well for your business plan. If you bring more customers into their store, and establish 1 or 2 consistent locations, you can make a profitable relationship. This will give your customers consistency, so they know where to find you and what to expect.
3. Pop-up
Think of a pop-up like a disappearing food truck. It’s here one day and gone the next. The nature of pop-ups make them appealing choices when considering how to test your restaurant concept. You can have a pop-up at a local food event, as a seasonal attachment to another business, or pop-up every Friday night near your nightlife area to offer an exclusive treat for your target market. There are a variety of ways you can create a temporary restaurant, and having a solid business plan will be key in deciding where you will plant roots, and when. Get this right, and most of the risk will be losing operational costs for that time. You will also get decent profits because you can choose to only be in operation during your busiest times in your busiest areas. You might already see a potential pitfall with this method: logistics. Having a business that is temporarily running, then not, can be difficult to coordinate. If you are opening more often than once a year, maybe twice a week, then you will want to do your homework beforehand to avoid chaos. Some things to consider could include: who is working and when? Can you run it by yourself based on your projected customer numbers? How quickly do you have to open? How quickly do you have to clean up and close? What will you have to bring? How will you market to bring in new customers? If you are changing locations, how will your loyal fans know where you are? What is the purpose of the pop-up? Knowing answers to all of the operational questions that will arise will help set you on the path towards your goal. AKA why you opened the pop-up. If it is profitable enough, do you plan on making a permanent restaurant?
4. Subletting Another Space
This is similar to the pop-up concept, but more long-term. Subletting another space is common in convenience stores, and can work well for everyone involved. The area that you are subletting from will have to have all of the equipment you need, or the ability to set that equipment up. If you plan on having dine-in guests, it must have seating as well. This is one reason many subletter restaurants do takeaway or delivery. The space you are using would ideally appeal to your target market as well, and be in an ideal location for that customer to conveniently get to your restaurant.Â
5. Private Chef
Becoming a private chef can also be lucrative. Similar to any restaurant, but most closely related to
the pop-up, you decide your own hours and when you are opening. Make sure to focus on your strengths with this, and stick to menus or offerings that you can confidently execute. Varying too much because of customer requests could cost you in the long run. You will want to have somewhat of a name built for your food before becoming a private chef because people need a reason to want to hire you. They did not decide to go to a restaurant, they are bringing the restaurant to them. This is an important distinction, and requires class in execution. If you are a long-term private chef or a one-time special occasion chef, market yourself and include menus that customers can easily access. Like every other method, online presence is integral to success here. A classical training or experience in higher-end restaurants can also be helpful depending on how you are advertising yourself and what your target market is. This is a relatively low-cost option. One thing you will want to ask your customer is what they expect from the experience. If you are bringing your own equipment there are less questions, and if you are using theirs and cleaning afterwards ask them if they have what you need. You would not want to arrive to make a stew and have no large pots available.Â
6. Event Restaurant Pop-up/Catering
A restaurant that is only around for an event. Similar to the pop-up in more than name, this restaurant exists for special events, catering, or very large parties. Think of the caterer you used for your wedding, a restaurant that temporarily opens next to a soccer tournament, or the one that brings the food to your company's New Year’s party. This restaurant can exist year-round as a normal pop-up, or only open for these special events or spaces. If it exists year-round, it will bring in more total revenue, however, the operating costs and logistics will be more closely linked to the recurring pop-up concept. On the other hand, if it is only open for special events, or for catering then you can plan each order out ahead of time as a single project, and close up shop when it is
completed. Think about what kind of restaurant you want to run, and what your time and other capacities are. This will aid in deciding what kind of pop-up concept you would like to opt for. Pop-ups, however you decide to run them, have the added benefit of more variability in your menu. Some pop-ups change their menu every month, not only as a seasonal menu, but also to test out different restaurant and menu concepts if they are planning on a more permanent restaurant in the future. If you are unsure of exactly what kind of restaurant you want to have, and are stuck between a few different ideas, the pop-up may be exactly what you need to sort that out.
7. Failing Restaurant Acquisition and Redesign
Acquiring a failing restaurant that is selling can be a good part of your startup plan if you do not have enough to start with your own fresh space yet, and you are ready to go bigger than a food truck. Now you can see what businesses are available for sale in your area. This has the added benefit of having equipment and a menu already in place. Each sale varies, so this is general advice for taking over a failing restaurant. There is also a similar method for food trucks because people sell those as well, so if that is your plan then just adapt this section to acquiring a food truck for sale. The first thing to do is check that the price is more-or-less accurate for the space, location, amenities, equipment that runs with the property, relative success of the business compared to similar restaurants in your area, etc. If the price is far higher than it should be, the owner may not be serious about selling. If it is far lower, there may be other issues than what you can see at first glance. Ask the owner or their agent about this when you talk to them if you are serious about acquiring it. Next, look at the location. The importance of location cannot be overstated, if the location is far off from where you want it to be for your target market, then carefully consider if that location would be right for you. If the location makes sense for your business plan, it is time to look at the menu. The restaurant is failing for a reason, and the food must play some role in that. If you want to create a whole new concept and menu, do a complete remodel, or make any other changes, have your lawyer or Realtor check the language of the agreement to make sure that you can do everything you want to. If you are leasing, for example, you may not be able to do a full-gut remodel. If everything there does work for you, then this may be a good way to start with a restaurant that can function, maybe even keep some of the staff depending on your plan, and get into action for less than it would cost to do it all from scratch.
Starting a Full Restaurant
We know, these are 7 ways to test a restaurant with low cash. This is a bonus. Now you have started a low cash concept, you sold food out of your home, started a pop-up that gave you enough cash to buy your first food truck, and sub-leased another space. After a few years, you have enough to start your very own permanent restaurant. When you know how you want to scale and what the end goal for your restaurant is, remember that you came from that low cash model and grew into the successful business that you are. We focused on independent concepts here, and if you want to start a franchise, make sure to check out our article on You Won’t Believe What You Need to Start a Franchise Restaurant. When you are ready to open your very own restaurant, check our article on How to Open Your Restaurant. We will see you there.
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DISCLAIMER: The information herein is provided for general informational purposes only, and is not to be construed as business consultant advice, real estate advice, wealth advice, financial advice, tax advice, or any other kind of advice. Xylo does not guarantee that you will have any specific results by following this information, and does not warrant the completeness or accuracy of any of the information. Make sure you consult with a professional, like a licensed business consultant, Realtor, wealth advisor, financial advisor, tax advisor or other professional that suits your particular situation before making any decision pertaining to those areas.