So, you’re planning to start your very own restaurant. While you may already have a vision, that won’t get your restaurant up and running. What will, however, is capital.
Indeed, getting your dream started will require a hefty amount of money. To make it more complicated, there’s a wide variety of factors to consider that can swing the price one way or another.
This is why it’s important to estimate your restaurant startup costs during the planning phase. But how much exactly does it cost to get started, and what factors do you need to consider?
Table of Contents
Main Cost Factors
Before we proceed to the in-depth estimates, let’s first examine the significant factors that will most likely affect the startup costs for your restaurant.
The location of your restaurant is one of the most important factors that can affect your startup costs. Since it will greatly influence your operations, it’s fair to say that location can make or break a small business.
In addition to this, there are also other factors related to location that can affect your restaurant’s startup costs.
Accessibility refers to how easily your customers can reach your restaurant. This includes road developments, parking spaces, foot traffic, and surrounding road traffic, among others.
The more accessible a place is, the more expensive it tends to be. Clearly, opening a restaurant in high-cost and accessible areas like California and New York is going to cost a lot more than a small-town establishment.
The existence of regular competition in the area where you plan to open can be both a good thing and a bad thing. It can help with marketing, but at the same time, it can also make it easier for the competition to snatch customers away.
Another downside to opening a restaurant in a highly competitive area is the equally high costs. Locations with established competition such as business districts, marketplaces, and malls can yield many customers, which means they can command higher prices.
But while establishing your own business away from competition may cost less, you’ll have to shoulder the burden of introducing your service to the area. This could be difficult, depending on what kind of restaurant you’re thinking of opening.
The ultimate goal of every business is to one day expand and serve even more customers. Similarly, you should also remember to include future growth in your restaurant’s business plan.
It may not seem like it, but location comes into play here, as well. A good location should be able to accommodate future growth and not limit you from targeting a bigger market size, both physically and financially.
Labor costs and minimum wages can vary from city to city and state to state. It’s important to check local regulations first before you establish your restaurant. For example, the minimum wage in Texas is $7.25 per hour, but in New York City, it’s $15.
Remember, salaries are a substantial part of your restaurant expenses, so you have to make sure that they’re up to code.
Delivery costs and shipping fees can quickly accumulate. And, depending on what type of restaurant you’re planning to open, the costs can spiral just as fast. For instance, a sushi restaurant 50 miles away from the nearest dock will certainly pay higher delivery charges than one that’s only a mile away.
Regardless, you have to figure out how you will get your supplies beforehand to find the optimal price point and avoid any shipping headaches that may occur.
The crime rate in your chosen location can also incur additional costs on your part. While areas with higher crime rates may cost less, you’ll have to spend more on safety and protection, both material and non-material.
For one, you’ll have to spend more on additional security features like exterior lighting, surveillance cameras, alarms, and even motion detectors. You may also want to get insurance protection for various aspects of your business.
A big part of your business’s success relies on delivering the right product to the right target market. For a budding restaurateur, the best target market is one that has a lot of unmet demands because you can be right there to provide it for them.
However, the broader and more diverse the target market in an area is, the more expensive that location becomes. Just take a look at melting pots like big cities and tourist spots.
Without a doubt, the size of your establishment will have a large impact on your restaurant startup costs and operational expenses.
Physical size is the most obvious factor. Rent, renovation, and outfitting will understandably cost higher the larger your space is.
The operational costs of maintaining a larger establishment shouldn’t be ignored, as well. Utility bills like electricity, water, air-conditioning, and heating will be higher. Maintenance will take a longer time and will have to be performed by more people, adding to the cost.
In short, the bigger your size, the higher your costs.
The type of restaurant that you’re planning to open will significantly affect restaurant startup costs, as well. After all, it dictates crucial aspects of your restaurant like supplies, furnishings, kitchen equipment, and even the required experience level of your staff.
For instance, opening a sandwich shop will be cheaper than an upscale eatery, and a fine dining restaurant will certainly cost you more than a homey coffee shop.
If you’re feeling some hesitation, you can start your restaurateur journey by opening a pop-up restaurant. This is a much cheaper and more flexible endeavor compared to opening a brick-and-mortar shop on the first go.
Restaurant startup costs are expenses that you have to pay in order to get your establishment up and running. These include one-time costs like downpayment, as well as recurring expenses like permits, kitchen equipment, and furnishings.
A survey conducted by Restaurant Owner revealed that the average restaurant startup costs range from $175,500 on the lower side to $750,500 on the upper. The median amount is $375,500.
Business permits and licenses
Before you can start your operations, you need to acquire and pay for all the necessary permits first, like health and safety, liquor, and sign permits, among many others. You also need to pay for a business license, a food service license, and a certificate of occupancy.
The actual costs will differ depending on your business and even your location, so it’s better to check the exact requirements in your state or city. That said, a single license or permit can cost anywhere from $50 up to a whopping $7000.
Legal and processing fees
Establishing a restaurant requires a lot of legalities, and therefore a lot of paperwork. Trying to do everything all by yourself will just end up with you drowning in forms and potentially missing crucial information that a trained attorney would’ve spotted.
Expect to pay about $500 to $2500 for a qualified lawyer to be in your team. Their job is to make sure that you undergo all the necessary steps and sign all the required legal documents. They can also advise you on things such as changes of ownership and violations, which can save you a lot of time, money, and frustration down the line.
Loan down payment or security deposit
The price you have to pay for a down payment or security deposit is heavily affected by the location and physical size of your restaurant.
If you’re using a loan to purchase an establishment, you’ll typically need at least 10% of the selling price as a down payment. If you’re renting, security deposits can range from $2,000 to $13,000, depending on your location.
If you’re planning to buy an existing establishment and remodel it to match your vision, you should expect to pay around $50,000 to $300,000. Costs associated with remodeling include design and skilled labor.
Kitchen and cooking equipment
Since your business revolves around preparing and delivering food, it’s only natural that kitchen and cooking equipment are considered important restaurant startup costs.
Make sure to invest in high-quality equipment for your restaurant. All the essentials must be there, including storage, freezers, and cooking, bar, and service equipment.
Allocate anywhere from $50,000 to $150,000, depending on your restaurant type. However, as a startup, be careful not to overspend. There’s nothing wrong with buying high-quality equipment second-hand and saving thousands of dollars in the process.
Your furnishing costs will highly depend on your restaurant size and interior design. That said, expect to pay around $80,000 on average on decor and furniture.
Opening day advertising
First impressions may not always be correct, but they do count. Your opening day is your first chance to introduce your restaurant to the world, so it’s best to get it right.
In other words, don’t skimp on advertising costs. You’ll probably have to pay around $20,000 to $30,000 for your grand opening, but if you manage to generate lots of interest on the first day alone, then this is well worth the investment.
The phrase “spend money to make money” rings true when you’re a restaurateur. Your costs don’t end after setting everything up. In fact, you’ll need to spend a lot of money regularly to make sure your restaurant is continuously operating at its best.
Lease or mortgage payments
Like down payments, this expense can vary depending on the location and size of your restaurant. Expect to spend anywhere from $2,000 to $12,000 every month for your lease or mortgage.
Your people are crucial to your operations. To make sure that they stay loyal and hardworking, it’s only fair to give them proper wages, as well as bonuses when they’re doing a good job.
Again, salaries depend on your state and city. On average though, managers are typically paid anywhere from $28,000 to $59,500 annually, head chefs are paid $31,600 to $87,000, while prep and line cooks typically get $29,900 to $33,800.
The wait staff is typically paid minimum wage, although it can increase or decrease based on prevailing wage conditions of the area. Take note that this doesn’t include the tips that they receive on the job.
You’re going to need a point-of-sale system to make your restaurant management more streamlined. A good POS will keep track of inventory and orders, as well as process payments and accounting.
POS systems usually cost around $29 to $500 monthly, with a wide variety of pricing plans and additional options.
Food and beverage costs
This expense varies greatly depending on your restaurant’s size and type, primarily due to the kind and volume of food you serve. However, expect to invest a significant amount of your budget in buying supplies, as food and beverages are your primary products, after all.
Utilities typically include electricity, water, gas, waste removal, internet, and phone services.
Once again, these expenses can vary a lot depending on your location and restaurant size. However, for a rough industry average, you should allocate around $2,500 per month on utilities.
Marketing and advertising
Marketing and advertising don’t end on opening day. In fact, it’s a never-ending battle to get your name out there.
That said, traditional advertisement routes, such as broadcasting or print, can cost you thousands of dollars. If you want to save money, you can advertise for much less, even free, on social media.
Insurance and permits
Insurance, permits, and licenses are sadly not one-time fees. On the contrary, you’ll have to renew them annually, or whenever the term ends. Depending on how large your operations are, you may have to pay around $10,000 come renewal periods.
As well-planned as your restaurant might be, there’s no doubt that you’ll eventually face some unexpected challenges. As Murphy’s Law states, if there’s anything that can go wrong, it usually will.
Therefore, in the spirit of preparedness, you should always set aside a contingency fund to tide you over if things do go wrong. Depending on your capacity and restaurant size, this can be as little as $5,000 to as much as $100,000.
Computing the Costs of Starting and Running a Restaurant
This article detailed the most important factors that can affect how much it costs to start and run a restaurant. As you can see, getting a restaurant up and running is no easy task. There are many things to plan, factors to consider, and expenses to prepare for. But with proper planning, you can make everything just a bit easier.