Feasibility Study Checklist: 10 Questions Before You Open a Restaurant

Why a Feasibility Study Matters

Opening a restaurant is one of the most capital-intensive small business ventures you can undertake. Build-out costs, equipment, inventory, licensing, and pre-opening labor can easily exceed $500,000 for a full-service concept — and that is before you serve a single guest.

A feasibility study is your insurance policy against a costly mistake. It answers one critical question: Should you move forward with this concept, in this location, at this time?

Before you sign a lease, hire a contractor, or pitch an investor, make sure you can answer these 10 questions with data — not gut feeling.

1. Is There Sufficient Market Demand in Your Trade Area?

Your trade area is the geographic radius from which you will draw the majority of your customers. For most restaurants, this is a 5-10 mile radius in suburban areas and 1-3 miles in urban markets.

Research the population within your trade area, median household income, dining-out frequency, and per-capita restaurant spending. The U.S. Bureau of Labor Statistics Consumer Expenditure Survey reports that the average American household spends approximately $3,600 per year on food away from home. Multiply that by the number of households in your trade area to estimate total available dining spend.

If total demand does not comfortably support your projected revenue plus existing competition, reconsider the location.

2. What Does the Competitive Landscape Look Like?

Identify every restaurant within your trade area that competes for the same customer. This includes direct competitors (same cuisine, similar price point) and indirect competitors (different cuisine but similar occasion — casual dinner out, business lunch, date night).

For each competitor, document:

• Concept and cuisine type
• Average check price
• Seating capacity and hours of operation
• Online reviews and reputation (Google, Yelp)
• How long they have been in business

Look for gaps. If every restaurant in the area is a fast-casual chain, there may be demand for an upscale independent concept. If the market is saturated with Italian restaurants, a different cuisine type may have better positioning.

3. Is Your Proposed Site Zoned for Restaurant Use?

Zoning laws vary by municipality and can make or break your timeline. Before signing a lease, confirm:

• The property is zoned for restaurant or food service use
• Whether you need a special use permit or conditional use approval
• Parking requirements (many municipalities require 1 space per 3-4 seats)
• Signage restrictions and outdoor seating allowances
• Whether alcohol service requires additional zoning approval

A zoning denial can delay your opening by 6-12 months or kill the project entirely. Check with the local planning department before committing to a site.

4. What Are the Realistic Build-Out Costs?

Restaurant build-out costs vary dramatically based on the condition of the space and the concept. Industry benchmarks:

• Second-generation restaurant space (previously a restaurant): $150-$300 per square foot
• First-generation space (new construction or conversion): $250-$500+ per square foot
• Fast-casual with minimal kitchen: $100-$200 per square foot
• Full-service with full kitchen and bar: $300-$450 per square foot

Get at least three contractor estimates before committing. Budget an additional 10-15% contingency for unexpected costs — they always arise during build-out.

5. What Permits and Licenses Will You Need?

The permitting process for a restaurant is extensive. At minimum, you will need:

• Business license from your city or county
• Food service establishment permit from the health department
• Building permit for any construction or renovation
• Fire department inspection and occupancy permit
• Liquor license (if applicable — these can take 3-12 months depending on the state)
• Sign permit
• Sales tax permit
• Employer Identification Number (EIN) from the IRS

Create a permit timeline and start the longest-lead items first. In many states, the liquor license application should begin 6+ months before your target opening date.

6. What Is Your Projected Revenue Based on Seat Count and Turns?

Revenue projection for a restaurant starts with a simple formula:

Seats x Turns per Day x Average Check x Operating Days per Year = Annual Revenue

Example: 100 seats x 1.5 turns (lunch) + 100 seats x 2.0 turns (dinner) = 350 daily covers. At a $32 average check and 310 operating days: 350 x $32 x 310 = $3,472,000 annual revenue.

Be conservative with your turn estimates. A new restaurant in its first year typically operates at 60-70% of its stabilized capacity. Your Year 1 projection should reflect a ramp-up period of 3-6 months.

7. Can You Achieve Break-Even Within 18 Months?

Most lenders and investors expect a restaurant to reach monthly break-even within 12-18 months of opening. If your financial model shows break-even at Month 24 or later, the risk profile increases significantly.

Calculate your monthly break-even point:

Monthly Fixed Costs / (1 - Variable Cost Percentage) = Break-Even Revenue

If your fixed costs are $45,000/month and your variable costs (food + hourly labor + supplies) are 55% of revenue, your break-even revenue is: $45,000 / (1 - 0.55) = $100,000/month.

If your revenue projections do not reach $100,000/month within the first year, you need to re-examine your concept, pricing, or cost structure.

8. What Are the Labor Market Conditions in Your Area?

Labor is the single largest controllable cost in a restaurant, typically 25-35% of revenue. Before committing to a location, research:

• Local unemployment rate and availability of hospitality workers
• Prevailing wages for line cooks, servers, bartenders, and managers in your market
• Minimum wage laws and any upcoming increases
• Competition for labor from other restaurants and hospitality businesses
• Seasonal labor fluctuations (resort and tourist markets are especially vulnerable)

If the labor market is extremely tight, factor in higher wages, signing bonuses, and longer training timelines into your financial model.

9. Who Is Your Target Demographic and How Large Is It?

Define your core customer with specificity. "Everyone who likes good food" is not a target demographic. A useful customer profile includes:

• Age range (e.g., 28-45)
• Household income ($75,000+)
• Dining occasion (weeknight dinner, weekend brunch, business lunch, special occasion)
• Frequency (once a week, twice a month)
• Spending behavior (average check tolerance, alcohol spending)

Use Census data and consumer spending reports to quantify how many people in your trade area match this profile. If your concept targets households earning $100,000+ and only 8% of households in your trade area meet that threshold, you may have a demographic mismatch.

10. What Is Your Exit Strategy If the Concept Does Not Perform?

No investor wants to hear that failure is not an option. What they do want is a plan for managing downside risk:

• Lease terms: Can you negotiate an early termination clause or sublease rights?
• Equipment: Are you buying or leasing? Leased equipment is easier to return.
• Concept pivot: Can the space and equipment support a different concept if the original one underperforms?
• Asset liquidation: What is the resale value of your equipment and improvements?

Having an exit strategy does not signal doubt — it signals business maturity. Investors respect operators who think about risk management.

How Virtu Venture Group Can Help

Our feasibility studies cover all 10 of these questions — and more. We deliver a comprehensive go/no-go analysis with market data, competitive research, financial modeling, and site assessment so you can make an informed decision before committing capital.

Every study includes a detailed report with our recommendation, supporting data, and a clear summary of risks and opportunities.

This article is for informational purposes only and does not constitute legal, financial, or investment advice.