Restaurant Startup Costs: Capital Breakdown for Opening
Restaurant Startup Costs: Breakdown of Opening & Ongoing Costs
Starting a restaurant can be a daunting venture, but if the growing number of restaurant entrepreneurs in the U.S. is anything to go by, it’s a doable venture. Fulfilling even, especially if you’re turning a passion for food into a business.
One of the biggest obstacles that budding restaurateurs face is restaurant startup costs. The most common question for people who want to get into the business is, “How much does it cost to open a restaurant?” One survey placed the average restaurant start-up capital at $375,500.
But no two concepts are the same: Service style, decor, size, location, and more determine the startup budget. Here is a restaurant startup cost breakdown that should provide a good baseline for your planning.
Securing a space is one of the first steps to getting a restaurant up and running. This category in a restaurant startup costs breakdown consists of both one-time and ongoing costs. Here are some examples of one-time costs:
- The lease security deposit: This cost will vary by location and size of the space, but a security deposit is usually three to six months’ worth of rent and is usually refundable.
- A down payment: If you’re buying the space, you should expect to pay between 15% to 35% of the total space cost.
Looking at the average commercial rent in the area you hope to open in gives you a good estimate of how much you need to set aside for your deposit or downpayment.
In parallel, rent is an ongoing cost to open a restaurant. This, along with your lease or mortgage payments, make up a big quota of recurring costs.
Renovations and Decor
When analyzing the cost to start a restaurant, renovations and decor are one of the main concerns. This makes sense as once space is secured, the next step is to start building up your dream space.
Remodeling is a significant cost, which will vary based on numerous factors. For example, a space that was not previously set up for a public eatery will cost more to remodel than one that was previously a restaurant. Renovations usually include items such as building improvements, setting up a kitchen, dining area, bathrooms, and often overlooked changes such as creating accessibility to disabled persons.
Decorating is a costly expense that can quickly ride up the budget: From the furniture and tableware to lighting and the floors. As much as achieving the perfect ambiance is important, startups would do well to be as austere as possible in their decor selections. Costs can go up or down based on the size of the space and choices made. In addition to the decor, it is important to budget for labor and miscellaneous expenses in this category.
Kitchen Supplies and Equipment
Kitchen and cooking equipment is another big startup cost for budding restaurant entrepreneurs. The cost of restaurant equipment should be budgeted to include the essential kitchen fit-outs such as:
- Appliances: ovens, stoves, refrigeration, etc.
- Cooking equipment: pots, pans, cutting boards, etc.
- Kitchen workspaces
- Bar equipment
- Service equipment
It is important to budget for commercial equipment, especially with appliances. Many save restaurant startup capital by purchasing second-hand equipment. Look for any recently closed restaurants online and in the area, who may be selling off quality, used equipment in good working condition to recover costs. The average cost for restaurant equipment varies mainly by the size of the kitchen and seating. This is one area where startups can overspend, but having the right equipment from the get-go is essential, especially in the kitchen. If you find yourself short, it’s worth it to look at restaurant equipment financing options from your bank.
Running a restaurant is no easy task, but thankfully today’s technology greatly improves efficiency by automating processes that would otherwise be labor-intensive and prone to human error.
Point of sale (POS) systems are one of the most important technology systems, from helping with payments and keeping track of orders, all the way to keeping track of inventory in the backend. Investing in a quality, reliable restaurant POS system that’s easy to use is important.
In addition to a POS system, other software and hardware that a restaurant relies on include:
- A reservation tool
- iPads for your iPad POS and kitchen display systems
- Receipt printer
- A cash drawer and till
- Barcode scanners
- Payment devices
- Wifi routers
Licenses and Permits
As with starting any business, sorting out paperwork and legal issues are required of a startup restaurant. To legally operate, most licensing requirements include:
- A food service license from the local health department
- A liquor license if you plan to serve alcoholic beverages at your restaurant
- A food handler’s permit for any employee who works with food in your restaurant
- A building health permit
Aside from the specificities of a food-handling business, there are also several business licenses and permits required. This can include a business license, music license, live entertainment license, resale permit, seller’s permit, and dumpster placement permit. These requirements vary from state to state and even across cities, so make sure to check your local regulations. You’ll most likely need help from an experienced lawyer to make sure your operation is legal, so leave some room for legal fees in your budget. Though it is an additional cost, it could save you money in the long haul.
Remember to include some of these permits in your expected ongoing costs as they usually need to be renewed every few months or annually.
Insurance is critical for restaurants with all the guests that come in and the busy kitchens full of dangerous equipment. Aside from taking precautionary measures in the space, protecting against liabilities is important. A restaurant should have:
- General liability insurance covering everyday accidents and incidents
- Product and equipment liability
- Liquor liability
- Workers’ compensation policies
- Insurance that takes into account industry-specific risks
You’re all set to open your doors, but unfortunately there won’t be any eager prospective patrons on the other side if you haven’t put the word out of your opening.
You’ll want to whet their appetites with good signage and advertising, which includes everything from branding and design to mounting. Costs will depend on the mode of advertising you choose, whether it’s handing out flyers, or buying ad space in the media. Setting up your website and other digital platforms is also a cost to include.
One cost restaurant owners forget to budget for is the ongoing marketing efforts needed to keep the word about their business circulating. In most cases, it’s not enough to rely on word of mouth. A business needs to have a marketing strategy to apply beyond the early days.
Labor costs will make up an important share of any business cost. Estimating the number of staff you will need and the desired payment range for each will help to arrive at a fairly accurate estimate of what to budget for this category.
A restaurant’s staff will usually include kitchen staff such as the chefs and line cooks; dining room staff such as hosts, servers and bus persons; and other staff like a receptionist, administrative assistants, and the cleaning and maintenance staff. Your staffing needs will depend on service style and the restaurant seating size. A good rule of thumb is to go by professional recommendations on how many front and back staff your type of restaurant needs per number of guests.
Remember to budget for the period before your restaurant starts to make profits.
Food and Beverage Costs
These ongoing costs vary according to the type of cuisine served and preparation. Food for a fine-dining eatery will be more expensive than a fast-food joint, for example. The cost of food is important as it will also impact the menu pricing and ultimately your restaurant’s bottom line. One way to maximize profits is by working directly with suppliers to negotiate bulk discounts.
The same goes for your liquor suppliers. In addition to liquor costs, renewing your liquor licenses will also fall into this category. If your state allows, you can also save costs by obtaining a satellite license from a brewing company. A satellite license allows you to sell their alcoholic beverages as a designated satellite facility without having to obtain an individual license for your restaurant.
If utilities like electricity and water aren’t included in your costs, you will need to add them to your other monthly bills such as gas, trash removal, phone, and Internet. Finding out what previous tenants or other occupants of the building are paying can give a good benchmark of what to expect. You could also get an estimate by looking at the utility costs of other restaurants similar to the one you’re budgeting for. The bigger your restaurant, the more you will pay.
Whatever the budget, any answer to “How much to open a restaurant?” should factor in unexpected costs. Leave some room in the budget for the “what-ifs” such as unexpected repairs or decor changes.
Starting and running a restaurant can be a costly and strenuous affair. Revel Systems’ cloud-based POS and business management solution is designed to make things easier for both single-site and chain restaurants. Achieve your ambitions as you save time and money with our powerful and efficient tools. Contact us to learn more and find out how other restaurant owners are succeeding with Revel.