Restaurant Startup Costs: Opening and Operating a Restaurant
Restaurant startup costs can vary significantly. The range is between $175,500 and $750,000+. This means that there are a lot of factors to consider when deciding how much money you will need for your restaurant.
It’s essential to plan.
The best way to succeed in the restaurant business is by projecting your startup costs and projected ongoing expenses before applying for loans or financial assistance. What is the budget for running a restaurant?
In this post, you’ll learn how to calculate the following costs for your restaurant:
- Restaurant startup costs
- Fixed expenses
- Variable expenses
- Mixed expenses
You may not know how much it costs to open and operate a restaurant. How much does it cost to start a restaurant? Let’s take a look at the hidden expenses.
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Restaurant expenses vs. restaurant costs
It is essential to understand the difference between restaurant startup costs and expenses.
A restaurant expense is recurring, like rent and food costs. A one-time fee might be kitchen equipment or dishes.
Restaurant startup costs
When opening a restaurant, there are some things that you will need to buy before your doors open. These include the restaurant startup costs of renting or buying retail space and renovating it, what equipment is required for cooking food on-site, how much inventory you’ll have when starting out.
- Commercial space
- Renovations and decor
- Kitchen supplies and equipment
- Restaurant technology
- Licenses and permits
1. Commercial space
When opening a restaurant, there are two ways to secure commercial space: leasing and buying.
When you sign a commercial lease, it is important to commit to the long-term occupancy of your space. You will need to pay an initial deposit that can range from three months to six months worth for the landlordproperty owner to agree on your leasing terms.
A down payment can be anywhere from 10% to 50%. It all depends on where you want to live. Click To Tweet
The average rent for a restaurant space in downtown Los Angeles is $2.95 per square foot, which translates to about $5,900 each month on a 2,000-square-foot location. In this scenario, you would need your deposit between 17 and 35 thousand dollars.
If you’re looking to buy a commercial space, you’ll likely need to put down at least 15% of the purchase price in order for your offer to be accepted. For example, if an office is worth $1 million dollars and requires a 10% deposit, then thisrequiresre $150k or more upfront.
2. Renovations and decor
Once you find a space, it will need to be renovated before the public can enter.
If you want to open a restaurant, be prepared for many expenses. Renovations can range from $5,000 in paint and flooring to upwards of $50,000 if the property needs extensive work.
We suggest spending your money wisely by investing in the essentials first: seating, lighting, bar, and kitchen.
Should you buy an expensive espresso machine when you’re on a tight budget? Unless the answer is “yes”, don’t make any non-essential purchases.
When looking for property, try to find a location twiththe kitchen installed. This can cost as much as $250,000 and is often an expense new restaurant owners are not prepared for.
If you want to save money, there are plenty of inexpensive and simple ways that can help add personality and charm without spending a lot.
3. Kitchen appliances and equipment
You need to spend a lot of money on equipment for your restaurant. You will probably have to buy:
- Kitchens need ovens, stoves, refrigerators, and dishwashers.
- Equipment for cooking: pots, pans, cutting board,s, and filters.
- , The kitchen: Counters, prep tables, steam tables and cold food tables.
- When you’re setting up a bar, it’sessentialt to have the right equipment. Mixers and cocktail shakers are two of the most common items needed.
- The service equipment that is required for any food or drink event includes the plates, glasse,s, and cutlery.
To figure out what tools and appliances are essential for kitchen staff, it is important first to identify the various positions in a restaurant. From there, you can determine which things each class needs as they carry out their duties.
If you are not upfront with your staff about what is expected of them, they will struggle during service, which could ruin guests’ significant experience.
Running a restaurant without considering all the details can lead to some majorities during service. In general, you should expect your kitchen and bar equipment costs to be around $115,655 on average while furniture will cost an additional $40,000, which means that budgeting is essential.
4. Restaurant technology
With the ever-changing landscape of restaurants, it is essential to implement technology into your restaurant’s operations. A successful modern restaurant will need both software and hardware that can automate processes as well as collect data which can help optimize front-of
We recommend using this software in the beginning.
- The point of sale system is a monthly subscription service that starts at $69month.
- The kitchen display system (KDS) is a program used for marketing purposes. KDS helps customers see the products on their screens and then order them.
- There are some software packages that will allow you to create an employee schedule. For $17.99 a month, it might be worth looking into.
- This tool is free to use, but you will have to purchase the license for it.
- The loyalty program software is a great way to reward customers for their continued patronage. It starts at $39month and includes everything you need to keep your business thriving.
In order to run a restaurant, you need this hardware:
- There are now iPads can be used as a point of sale system or for display in your kitchen. The starting price is $329.
- A payment terminal is a machine that handles transactions and, the prices can vary greatly.
- Receipt printer – $100+
- Cash drawer – $20+
Setting up a restaurant can be expensive. You should plan to spend at least $1,000 on new hardware and about $400 per month for software licenses.
5. Licenses and permits
It is essential to make sure that you are operating legally by checking your local regulations. For example, there might be different requirements for opening a restaurant in one state than another.
A food service license is required by most municipalities. This is governed by the local health department, which will stop by your restaurant from time to time and make sure that everything is up-to-code. This type of license ranges between $100-$1,000.
If you plan to serve alcohol at your restaurant, be sure that the necessary permits are obtained. It can take up to six months for a liquor license application, and these licenses can cost between $12,000-$400,000, depending on what type of beverage is being served. Beer and wine applications will only set you back about $3k.
Any person who works with food in your restaurant will need a Food Handler’s Permit to safely handle and store food. In the United States, these permits can be obtained online for between $100-$500 depending on where you live; in Canada, costs vary by province.
Opening a restaurant is not just about the permits and licenses you need. Other things that can be important are getting certificates of occupancy, selliticketsits, live entertainment license,sessee valet pkingng.
To start a business, you need to file for your state’s incorporation fees and pay taxes on any franchising. You will also want an attorney who can help with the start of a company with the legalities essential
When setting up a business, it is essential to be aware of the different company structures available. Some are more expensive than others depending on where you live and what type they are. For example, incorporating or becoming a corporation will cost $100-$250 I,n filing fees but, franchise tax fees can range from $800-1,000 with government registration adding Hiring an attorney for businesses that want to do everything by the book
Hiring an attorney for businesses that want to do everything by the book is necessary. Legal fees can range from $1,000-$5,000 depending on how much work needs to be done and what other requirements are in place.
When you open a new restaurant, it’s not enough to just build the place. You need to make sure that people know about your opening and come in on day one.
New restaurateurs often mistake not setting a budget for marketing and PR. They need someone who can design their website, create logos, manage social media accounts, resp,and to custo mer reviews from sites like Yelp or social media is a great way to reach potential customers for small businesses without the budget for extensive marketing and advertising
Marketing on a buSocial mebiosocial great way to reach potential customers for small businesses without the budget for great marketing and advertising
For small businesses without the budget for great marketing and advertising, social media is a great way to reach potential customers. Social Media can be very affordable and cost as little as $200 per month.
Having a digital presence for your restaurant is an integral part of marketingEnsurere that you have the right website, which should be responsive and built with SEO in mind. If writing content isn’t something you’re comfortable doing yourself, hiring someone who specializes in this area will allow you to focus on other aspects of building your business.
If you want to use more traditional marketing methods, like radio and TV ads, your budget will need to be much higher. Radio spots can cost $20-$80 per ad spot on the airwaves while a costly 30-second television commercial could require as much as $200-$1,500 for local stations.
Restaurant fixed expenses
The most important thing to think about when it comes to your restaurant’s fixed costs is that they are the only ones that don’t change. Here’s what you need for a budget:
- Rent and building fees
- License fees
- Insurance coverage
- Ongoing marketing
1. Rent and building fees
When you sign a commercial lease, the monthly rent and building fees are set in stone. The price of your space is determined by where it’s located and how much square footage there is.
Before signing a lease, be sure to consult with an attorney and accountant. They will help you find any potential red flags that may cause problems for your monthly budget.
2. License fees
Licenses and permits have an initial cost, but you may need to renew them annually. When deciding which licenses or permits are necessary for your business, factor in the upfront costs and any annual renewal fees.
3. Insurance Coverage
General liability insurance is a type of coverage that protects against injuries, damages, and losses,s from accidents.
- When any equipment malfunctions and causes injury, the manufacturer is responsible for compensation.
- Restaurants that serve alcohol are liable for the consequences of intoxication. Liquor liability insurance is a special policy that can protect them from these costs.
- Workers’ compensation policies are in place to protect employees who have been injured on the job.
- Any restaurant that offers delivery should be getting commercial vehicle insurance.
- When it comes to the restaurant industry, which is risky for many reasons, specific insurance types can help protect a business.
- Loss of income insurance is a specialty policy that can provide coverage if you are forced to close temporarily due to an unforeseen event, such as fire or robbery.
Insurance for restaurants varies based on size, function, and location. But most restaurant startups can expect costs of around $6,000 a year. The best option is to have low principal plans with high deductibles so that if something like the kitchen catching fire due to product malfunction closes your restaurant or injures employees,s you are able
4. Ongoing marketing
Along with the upfroWithf getting your brand off the ground, you may want to budget a certain amount each month for ongoing marketing.
It’s impossible to know what will work for your business, so I’ve found that it helps to have a monthly marketing budget. You can use social media ads, influencer marketing, or events – but just make sure you stick with one thing.
One of the best ways to get customers is by providing fantastic customer service. Nielson found that 77% of people are likely to visit a restaurant they were recommended if their friends and family have been there before. If you provide excellent customer service, your business will be more successful because these happy customers would come back again as recommended it.
If you want to grow your restaurant, focus on customer satisfaction and retention.
Restaurant variable expenses
Variable costs are more difficult to predict since they vary according to the number of units produced. These three items need consideration:
- Cost of goods sold
- Utility costs
- Payment processing fees
1. Cost of goods sold
The cost of goods sold (COGS) refers to the price tag on all ingredients and materials used in a dish. Restaurants that sell expensive items, like Ahi tuna steak, have higher COGS than those who serve inexpensive containers such as cheeseburgers.
To be profitable, a restaurant should aim for gross profits of 70%. This means that every $100 spent in the restaurant results in $70 worth of profit.
When determining menu prices, it is essential to consider the restaurant’s COGS; higher costs should be reflected in higher-priced items.
When you’re thinking about the prices of your menu items, don’t forget to take into account your monthly fixed costs. Your goal is to make enough money each month that will cover both variable and fixed expenses (like labor and rent) and have a net profit left over. To do this, it’s important that you understand so that you can manage profitability.
If you’re having trouble figuring out how to price your menu items, it might be worth hiring a restaurant consultant with experience in the field. This is one area that directly impacts your bottom line long-term; getting this right from the get-go will help keep profits steady.
2. Utility costs
When signing a commercial lease, make sure to ask if utilities like electricity and water are included in your costs. If not, use the average utility cost of previous tenants as an estimate for what you might be paying.
Restaurants have several bills that they must pay for. For example, gas and electricity can cost around $3.75 per square foot annually on average. The bigger the space you are renting or buying will mean more utility costs.
3. Payment processing fees
Fees for payment processing can vary depending on your provider and their rates. There are usually three fees (percentage of the transaction) that you’ll pay per transaction:
- Credit card companies charge a percentage-based fee to merchants for every credit transaction.
- A card brand fee is a percentage-based transaction to the credit card company.
- For card processing, there are payment processors who charged hat flat or percentage-based markup fees. This means that for every transaction, the customer’s bank pays some amount to the merchant, which is passed on in turn through their owners.
A 2017 report from TSYS found that 81% of money spent at restaurants in the United States was charged to a card. As for cash-only establishments, this can drastically reduce how many customers they serve.
The best way to deal with payment processing providers is by doing research and comparing rates.
Restaurant mixed expenses
The highest mixed cost that restaurants have to deal with is labor. With the variable and fixed components, owners need to predict how much they’re going to end up spending.
Depending on the type of employee, labor costs can fluctuate. However, when planning your budget for staff pay per week or hour-based Wagan e plan, you should consider how many employees are needed to complete a task and stay within that budget.
What’s essential is to know how much you spend on labor each month and save up your safety payroll before opening. Remember, your restaurant won’t be profitable right away, so save beforehand in order to avoid problems.
With a staffing shortage, how many people to hire from the outset is not always clear. Click To Tweet
You need to take into account the size of your dining room.
When it comes to back-of-house, they are usually more of them than front-of-house staff wh. When it comes to back-of-house staffs, one FOH employee per shift for every dozen tables and one BOH employee per shift for every dozen customers at this type of venue.
Nestle recommends that one waiter or waitress be assigned for every five to six tables double it up with two waiters per twelve-table section for fine dining establishments where the focus is on personal service and attentive staff
Defining your salary
Many business owners choose not to take a salary when they first start their own company, but it’s important vital consider your income and what you need for the future. If you don’t make enough money now, then there will be less money available in the future.
The way restaurant owners are paid is often based on the expected sales, which can be risky many also do not make much in their first few years of operation due to low expectations and high expenses. But eventually, they may start-making between $36k-72k per year.
How to raise funds for restaurant startup costs
The cost of opening a restaurant varies depending on the type and location, but it’s clear that there are many expenses. Do you have enough money to open your dream restaurant?
One of the most complex parts of opening a restaurant can be expensive. You need to raise money creatively because most people don’t have several hundred thousand dollars saved up for such an endeavor.
- Friends and family are a great way to get funds for your business. You may not need interest, or if you do, it is likely much lower than what banks would charge. The downside of using friends and family as an investor is they can cause tension in relationships.
- The U.S. Small Business Administration is a government agency that helps small business owners find the capital they need to start their company or grow it by providing lenders with low-risk, high potential returns.
- Partner up with someone who has more cash and skills in areas where you are lacking. You may not have enough money to start a restaurant, but partnering could give the business some much-needed capital.
- Seek investors: You can find them in your local community and at investment that have backed other restaurants you admire. Have a rock-solid business plan, pitch deck ready to go before approaching an investor with your idea because they will know you are serious about running the restaurant.
- Create a Kickstarter page and offer incentives to investors who fund your restaurant.
Starting a restaurant is very expensive. Most restaurateurs need to find creative ways of raising money in order to get started.
Restaurant startup costs checklist
Opening a restaurant is an exciting venture, but it can also be costly. This checklist will help you make budgets for each of the critical investments.
- The budget for commercial space is $ _________.
- If you are looking to start a kitchen, budget $__________ for the supplies and equipment.
- I would recommend that the average restaurant budget about $________ for their technology.
- If you’re not sure about permits and licenses, budget $________.
- Marketing – Budget $________
- Insurance – Budget $________
- When I first started hiring salespeople, my budget was about $_____.
- Rent and building fees are always something to be prepared for. When starting out, you should budget at least $__________ per month.
- As a small business owner, it is important to keep food costs low. I suggest budgeting $ _________.
- Utility costs are something that many people don’t consider when budgeting. When you have an idea of how much your bills will be, then it’s easier to know what is a reasonable amount for spending.
- Essential to understand that payment processing fees can range from 1% – to 3%.
If you need money to open your restaurant, there are many ways that may be available. Talk with friends and family members for help or apply for a small business loan. If you’re looking at crowdfunding options, talk to one of our point-of-sale experts.