Do you have a passion for business and food? If so, then you might have thought about opening a restaurant. While it might be an enticing thought, this business venture does come with a series of questions. But no matter how many questions you have in mind, one thing rises above all: how much does it cost to open a restaurant?
This question doesn’t have one definite answer. There are different variables to consider before we can land an accurate answer. However, doing a bit of research, we found that the average startup cost for a restaurant business is about $275,000. That’s about $3,046 per seat for a leased property. If you want to own that property, you’ll need to increase your budget to $425,000 – or $3,734 per seat.
We want to help you determine the cost of your restaurant business. That’s why we came up with a checklist to break down all of the potential costs that you will need to consider to make your dream restaurant business a reality.
Breakdown of Costs for a Restaurant Startup
Starting a restaurant business comes with various costs that you will need to consider to get things going. While we did provide a rough estimate on the average startup cost of a restaurant, the actual numbers will vary. It will depend on multiple factors, namely the size and location of the restaurant, as well as the range of choices that you will make on other important details.
For instance, opening a smaller restaurant like a café or sandwich shop will have a much lesser cost than a 100-seater fine dining restaurant in a business district or upscale neighborhood. Some restaurant owners tend to test their unique ideas on a pop-up diner before transitioning to a full-fledged restaurant.
No matter what type of restaurant you want to run, it will always be relevant to break down all potential costs. In most cases, it’s broken down into two categories: one-time and recurring expenses.
As the name implies, one-time costs are the things that you will only have to spend once. However, while most of these are one-time costs, there are others that you will need to replace down the line due to natural wear and tear. With that said, here are some of the one-time costs that you will need to consider for your restaurant business:
1. Loan Down Payment or Lease Security Deposit
This cost will depend on many factors; however, it mainly varies on the size and location of the property you’re going to rent. According to our research, a lease security deposit can range from approximately $2,000 to $12,000 upfront. If you plan to take out a loan to purchase the building itself, you will need to pay at least 10% of the actual purchase price as a down payment.
2. Business Licenses and Permits
Before you start running operations for your restaurant, your local government will require you to get a business license and permit first. These documents will include costs such as city licensing fees, compliance permits like health and safety, as well as liquor permits if you’re planning to serve alcohol or strong drinks. Again, the costs will vary. Make sure you gather information about your local permits, their corresponding requirements, and potential fees. In 2021, the average cost for business permits ranges from $100 to $300.
3. Legal Processing Fees
There are tons of paperwork and lawful processing involved in creating a business. For that matter, you will need to outsource and get help from experienced professionals. Hiring a lawyer, for instance, will make sure that your business will be 100% legal. For this type of service, you will need to spend around $500 to $2,000 to hire a lawyer and have them draft or review documents on your behalf. Having an attorney on call and there at your disposal is essential, especially during contract signings.
In addition, you should also comply with your county’s Public Records Department. Take note of the number of changes in ownership, temperature, or insect infestation violations that the building may have. Conveying this information to your legal team before signing any contract will save you more money in the long run.
4. Building/Structural Improvements
This cost will apply more to building owners. However, remodeling costs are also necessary. It gets your space ready for setup, as well as secures all of your needs. Including your kitchen setup and all of the layout you’ll need to do on the main dining area, the cost to remodel a space and turn it into a functional restaurant business can go up to roughly $25,000 to $400,000.
5. Kitchen/Cooking Equipment
All of the magic happens in the kitchen. But it won’t happen unless you invest in the right tools and equipment. If you’re starting from the ground up, you can spend roughly $30,000 to $50,000 for a small-scale operation. Depending on your needs, the cost can potentially balloon up to $150,000 for a much larger setup. In addition to all the cooking equipment you will need (e.g., stoves, ranges, griddle, commercial mixers), you will also need other essentials like an industrial dishwasher and proper refrigeration systems.
Keep in mind that overspending is a common occurrence with all of the things you will need regarding equipment. However, you can save money by opting for second-hand equipment instead of brand-new ones. Look for restaurants that have just gone out of business. In most cases, they will be selling their equipment and kitchenware at the lowest price just to get rid of them. Make sure you choose quality used equipment that is in excellent working condition. Doing so will save you some money to use for other areas of your startup restaurant.
6. Seats, Tables, and Other Furniture
Of course, you also need to acknowledge the comfort of your customers. That’s why investing in high-quality furniture is also essential. As reiterated a couple of times in this article, this cost can vary. However, it will depend on the quantity and quality that you plan to offer your customers. However, our research found that, on average, you can expect to spend at least $80,000 on internal décor, chairs, and more.
7. Point-On-Sale (POS) Systems/Ordering and Payment Tech
If you want to stay open, you will need a way to be paid and get paid. If you’re going to keep track of orders, as well as your inventory, expect to pay roughly $20,000 for a high-end POS system or other similar types of technologies.
8. Advertising and Signage
Once everything is set, you want to make sure that everyone comes during your grand opening. That’s why you need to splurge a bit on promotions. If you’re going to make it count, you will need to spend at least $15,000 to $25,000 upfront.
Recurring and Ongoing Costs
To keep your restaurant running, you also need to acknowledge the recurring or ongoing costs that you will need to consider as your business operates. Like one-time costs, several recurring costs will come along with your restaurant business. If you want to thrive, you must ensure that all of these costs are met and settled regularly. After all, you will have to spend money to make money. With that said, here are the main areas that you will be spending on regularly:
1. Lease/Rental/Mortgage Payments
The first and most apparent recurring/ongoing cost is your monthly lease or mortgage payment. The rate can vary according to a couple of factors. The location and the terms of the agreement during negotiation are some of them. You will be spending as little as $1,500. But from there, it can potentially go up to about $12,000 per month for your rented space.
If you opt to purchase your restaurant location, you will have to pay taxes on both the property and the land. On the other hand, leasing the property can limit the number of years you will stay in a particular location. However, you can always negotiate a renewal of your lease contract.
You can also opt to renew with a slight increase in your monthly or even annual leasing rate as long as you stay open. Whether you choose to buy or continue, keep in mind that you will still be responsible for your insurance.
2. Employee Compensation
Your workforce plays an integral role in your daily operations. That’s why you need to make sure they are happy with their jobs by paying them their salaries. To give you an idea of the actual numbers, here are some nuggets that we found:
- For the restaurant manager, you’re looking at a $29,000 to $56,000 annual salary.
- For the head chef, you’ll be paying $1,300 to $2,000 weekly.
- Your line of prep cooks will net a $575 to $660 weekly pay.
- As for the others – the wait staff, janitor, and the rest of the crew, you will be paying them the minimum wage.
3. Food and Beverage
What’s a restaurant without its food and refreshments? If you want to keep people coming, you need to satisfy them by offering the best meals and drinks. Of course, you will eventually run out of supplies. That means you’ll need to make sure that you stock up on all the ingredients and materials that you need to feed your customers.
As for the cost, it will depend on the kind of food and drinks your restaurant is serving. Again, if you’re serving alcohol, you need to secure a liquor permit. An excellent way to keep costs low when pursuing one is to consider a satellite license. In some states around the country, restaurants can obtain a satellite license from a brewing company.
A satellite license will allow a licensed distillery, winery, or brewery to supply a specified number of restaurants or bars to serve as a satellite facility. Doing so will allow that restaurant or bar to sell their alcoholic beverages as long as they’re in the same state as the supplier.
Just like owning a home, it’s your responsibility to keep the lights. Having electricity will also keep the ovens cooking and your dining area bustling. When you factor in other utilities like gas, water, garbage removal, phone, and internet bills, you’re looking at utility costs that can go up to $250,000 per month.
5. Advertising and Marketing
Success requires persistent promotion, which means you’ll need to spend a lot on marketing and advertising. If you choose either printing or broadcasting, ad space will be expensive. That’s why you should try web advertising. It’s less expensive or even accessible if you opt for social media.
6. Permits and Insurance
You will need to have three insurances: building, liability, and inventory insurance. In addition, you also need licenses and permits for your actual business, sign, food handlers, music, and ADA compliance. Calculating all of the permits and insurances that you need; you are potentially looking at a cost that can go up at roughly $10,000 when they’re up for renewal.
7. Miscellaneous expenses
This budget includes anything and everything that you might not anticipate. Emergencies like equipment repairs or replacing broken fixtures can escalate and get costly. That’s why you should always make sure you have some ‘wiggle room’ in your budget to spend for unexpected expenses.
Common Mistakes of Opening a Restaurant
The thought of starting a restaurant business is an exciting experience. However, calculating the total restaurant startup costs while formulating winning strategies can be a lot to navigate. For that matter, there’s also potential for getting stuck in preconceived notions of what should or shouldn’t be done. That’s why we compiled some of the most common mistakes and misconceptions new restaurant owners make to help prevent frustrations or spending on unnecessary costs.
1. Overspending on Equipment
As said earlier, with all of the stuff that a restaurant business needs, it’s easy to overspend on equipment. That’s why this is the number one mistake that you should avoid. It’s very easy to overestimate and go overboard when outfitting your kitchen. Yes, it’s tempting to go the extreme and get the newest kitchenware. But always make sure that you are sticking with your budget. For all of your necessities, make sure you stop and look around instead of going for the first one that you come across. Look for the best deals. Also, don’t be afraid to purchase used equipment. High-quality second-hand equipment can perform the same way as new ones yet can potentially save you thousands in the long run.
2. Going Overboard with Remodeling
Yes, the looks and appearance of your restaurant play an essential role in attracting customers. But that doesn’t mean you should splurge on your remodeling ideas. Just like equipment costs, remodeling costs can also add up quickly if left unchecked. Instead of going the extra mile with your interior design and exterior design, you can opt for a more modest and resourceful approach. Make good use of the internet for any design ideas, and make sure you leave some room in your budget for contingencies. You should already have a solution for any potential problem that may come. It may not be the most glamorous thing, but the peace of mind you get from it is non-negotiable.
3. Overspending on Food Expenses
You might already see a trend here. Yes, it’s all about the potential to overspend, which can also happen to your food expenses. When it comes to the supplies you need, make sure you look around for the best deals. Don’t just go for the one you come across. Also, never skimp on quality as it will reflect on the food that you serve to your customers. If you’re constantly buying in bulk, some vendors tend to negotiate money-saving deals to keep in steady business with you. You can also make partnerships with co-ops and local farmers for fresh, locally-grown foods. Reevaluate your portions from time to time. Determine what gets wasted to make sure you will only buy what you need.
4. Not Paying Attention to the Contract Agreement.
If you are purchasing a restaurant, make sure you review every line of the contract. It’s even better if you do this with the guidance of an experienced lawyer. Make sure you assess every statement and question anything unclear before you sign the dotted line. Get as much info about the restaurant you’re about to purchase to make sure you have all the information you need. In some cases, the seller will tend to mask issues to make the deal more enticing. That’s why it’s your job to determine these flaws to make sure there won’t be any problems with your acquisition.
5. Not Putting Much Effort into Marketing
Some people think that marketing isn’t as important. But that’s far from the truth. Marketing plays an integral role in the success of your restaurant business. Without a sound marketing strategy, you won’t be able to advertise your restaurant. As a result, you’ll have a hard time finding potential customers. For startups, marketing can be a bit pricey. But there are always low-cost avenues that you can take, such as promoting your restaurant on the internet via social media. As a startup, it’s essential to take advantage of these free platforms or other internet advertising routes with much lower rates.
Final Notes – Why Having a Billing Software is Essential
Once your restaurant grows, you might want to venture towards other offers such as catering or a function venue. It’s always important to keep adding new things to your business to increase your influence and earning potential. With that said, you also need to make sure that you get paid for these additional services. That’s why billing software makes much sense if you’re looking to take your restaurant business to the next level.
Your area can automate your billing process by having restaurant billing software and making it ten times as fast to get paid. Plus, your customers and business partners will love your efficiency in sending in the invoice. That way, they can settle their bill, and you will get paid – everyone is happy and satisfied!
If you’re looking for a solid invoicing system, you need to give ReliaBills a try. It’s an amazing online software that makes invoicing a breeze. From creating your invoice, sending it to your clients, and tracking its progress, ReliaBills has all the tools and features to get you paid fast. All you need is to create a FREE account, and you’re all set. Plus, if you want more features, you can upgrade to ReliaBills Plus for a monthly payment of only $24,95.