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Starting a Restaurant
Last Verified:
2006-03-09
T he following is intended to provide an understanding of potential license, permit or registration requirements when considering the establishment of a restaurant in Canada. This document was prepared by Canada Business and contains a series of possible steps and issues to consider in carrying out your project. The extent to which the information will apply to you will depend on the circumstances related to your situation.
For further information on individual topics identified herein, contact your local Canada Business service centre. Because this document is only meant as a guide, the Canada Business service centres will not accept responsibility for business decisions made based on the information provided.
A customized guide on starting a restaurant is available for the following provinces or territories.
Provincial/territorial government, municipal and non-government information may be included, depending on the subject and the region.
BASICS TO GETTING STARTED
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Before proceeding, reference should be made to the Business Start-up Info-Guide for your region which offers 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
Checklists for Going Into Business.
The following is additional information to consider.
INDUSTRY OVERVIEW
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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
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cater to a variety of customers
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must excel in service, food preparation and inventory control due to lengthy menus
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popular in tourist areas, but declining in general
Ethnic
Specialty
Coffee Shop
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offer a wide variety of quick, pre-prepared dishes
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heavy traffic flow is needed for high customer turnover
Fast Food
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normally franchise operations offering limited menu. For more information regarding a franchise, see the document
Checklists for Franchisees
- attractive to beginning operators
Cafeteria
Self-serve
Choosing Your Location (see document
Store Location - "Little Things" Mean a Lot)
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:
- determine desired profit—convert to percentage of sales to get sales required;
- determine number of operating days—divide number of days into sales to get average daily sales;
- estimate volume percentages for meal periods (breakfast, lunch, dinner);
- multiply figures in step 3 by average sales per day to get dollar volume per period;
- determine average check per meal period;
- divide dollar volumes in step 4 by average check for the number of patrons per period;
- estimate a) average seat occupation per meal period; and b) time per meal period;
- divide time per period by average occupation to get seat turnover per period;
- divide possible seat turnover into number of patrons to get number of seats required per period;
- 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.
LICENSES, PERMITS AND REGULATIONS
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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
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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 Provincial/Territorial Web site.
BizPaL
BizPaL provides Canadian businesses with one-stop access to permit and licence information from all levels of government. This online service is offered by Industry Canada in partnership with provincial, territorial, and municipal governments.
MANAGING YOUR OPERATION
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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.
Guide to Market Research and Analysis
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.
Basic 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 the 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 the Canadian Furniture Industry.
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.
Checklist for 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.
ASSOCIATIONS
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There are many associations that may be of use to restaurant owners. Although it is not necessary to join a restaurant association, there can be advantages in becoming a member because they:
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promote and exchange marketing and promotional ideas among members;
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establish and encourage high standards of quality and professionalism;
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represent and advocate on behalf of members.
Examples of associations include, but are not limited to:
RESOURCES
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Additional resources which may help restaurant owners include, but are not limited to:
Publications
You may find books, magazines and other relevant print material at any Canada Business service centre and/or business service organizations in your community that provide Canada Business information. Contact the local Canada Business service centre in your region for the location nearest you.
Food services competition in the 1990s— this article examines how food service providers and food stores competed for Canadian's food dollars in the 1990s
Canadian Food Inspection Agency— Bureau of Food Safety and Consumer Protection -Information for Restauranteurs and Food Service Operators— this information is an aid in interpreting the requirements of Section 5 of the federal Food and Drugs Act, and other federal legislation which impacts on the advertising and labelling of food.
Saving Energy Dollars in Hotels, Motels and Restaurants— offers information on how to calculate your energy costs and consumption, compare with other facilities, determine where you use energy, invest in energy efficiency retrofits and calculate your savings.
Statistics
Statistics Canada
Canadian Restaurant and Foodservices Association
- Research—Provides an overview of the Foodservice Industry
- Industry Issues—Provides information on Industry issues by province or topic
Related Web Sites
Restaurant.ca is a Canadian restaurant guide searchable by area, cuisine, price range, and features.
Supplier e-source a Canadian foodservice industry shopping source.
Canadian Culinary Federation has a job bank where employers can post a job offer.
e-Buyers Guide an online source of products and services devoted to the Canadian restaurant and foodservices industry.
Food Service World highlights both North American and international resources for owners and managers for the foodservice, hospitality and tourism industry.
ADDITIONAL INFORMATION
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When seeking business information, feel free to visit the Web sites for the Business Start-Up Assistant and the Online Small Business Workshop. You may also want to check with your local library, the major chartered banks, your local Chamber of Commerce, educational institutions and business development organizations— some of which offer courses, seminars and workshops.
For general business information, you may contact your local Canada Business service centre by:
- Telephone: Call our toll-free telecentres and speak to a business information officer who will direct you to the best sources of information or refer you to programs and services relevant to your business situation. Some centres have optional recorded answers to frequently asked questions to speed up service.
- E-mail: You can also send your questions via e-mail from the Web site.
- In-Person: Canada Business offers an extensive collection of business-related publications, directories, leading-edge business products (e.g., videos, CD-ROMs) and access to external databases. Business clients can use these materials on their own or with the help of a business information officer. The Canada Business service centres have arrangements with existing business service organizations in communities across Canada to provide Canada Business information. Contact the Canada Business service centre in your region for the location nearest you.
BIBLIOGRAPHY
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Start and Run a Profitable Restaurant, Brian Cooper, Brian Floody and Gina McNeill, First Edition 2000, Self-Counsel Press, USA, Canada
DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.
Links Policy
Some of the hypertext links lead to non-federal government sites which are not subject to the Official Languages Act and the material is available in one language only.
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