What would you do if we told you that startup costs for restaurants average $113 per square foot?
Did that change how you think about your dream restaurant? Take the time to calculate the cost for the square footage you’ve investigated on real estate websites.
The number you came up with can be scary. You need to understand how much it can cost to open a restaurant in the real world.
Don’t delay your dreams anymore. Keep reading, make a plan, and relieve your anxiety. You have a restaurant to open!
Startup Costs to Open a Restaurant
Have you heard the old saying that the only people who make money in the restaurant business sell the appliances?
If you work hard and make smart decisions, this doesn’t have to become a proverb. Plan for all startup costs using the sections below.
Buying or Leasing Space
Finding the right space for your restaurant can give you a dizzying number of choices you don’t want to get wrong. You may have plans for a food truck, buying an existing restaurant, or leasing commercial space. Maybe you’re pioneering a diner that doesn’t look like anything we’ve seen before!
Wherever your business lands, it’s the most crucial decision you will make during this process. There’s no pressure, right? Take the time to find a space that fits your business plan and establishes you in a growth economy.
Exact costs for budgeting depend on location, but we can rely on national statistics.
If you plan to buy a location (or existing business), you can expect anywhere between $2,000 to $12,000 per month for a lease.
Buying a location costs an average of $178 per square foot, so plan according to your business model.
Permits and Licensing
You can’t operate a restaurant without permits and licensing. Everything depends on your local city and state laws, so do your homework for your state.
Food Service License
The average cost for a food service license goes anywhere from $100 to $1,200. You apply with the local health department, and you expect inspections to ensure you’re up to code. A good number of states have laws that require businesses to post their inspection “report card” at the front of their restaurant.
If this won’t apply to your business, move on to the next section.
If you plan to serve alcoholic beverages, you have to apply for a liquor license. The more competitive the market, the higher the license cost. American restaurants spend anywhere from $12,000 to $400,000!
Food Handler’s Permit
Any employee who works with food in your restaurant needs a food handler’s permit. It’s your responsibility to guarantee they know the basics of food safety. You can expect to budget $100 to $500, and it’s easy to buy the licenses online.
Equipment and Appliances
You’re going to need two types of equipment: kitchen goods and appliances.
Budget for the following for kitchen goods:
Budget for the appliances that fit your product, but a good general list for any restaurant include:
- Ventilation hoods
- Refrigerators and freezers
- Food processors
- Prep tables
Your budget depends on how much equipment you need for your business model. In general, the total bill for the startup equipment and appliances goes anywhere from $10,000 to $400,000.
If you swear at your iPhone, this section makes you cringe, but you need modern technology to run a business. Your restaurant needs software and hardware to become a thriving business. Refusing to buy-in means you will miss out on data that can drive efficiencies, easy payment methods, and better inventory management.
Take the anxiety out of making decisions for technology by focusing on a solution that helps your kitchen hum. Start with your POS (Point of Sale, but you know you were thinking it), which will have both a startup and recurring cost.
Hardware for most systems start at $800 and go up from there depending on your needs. You also need to budget for $80 to $150 monthly fees for your POS.
For software, most restaurants start with the following:
- POS (Point of Sale) System
- Employee scheduling software
- Kitchen Display System (KDS)
- Loyalty software
- Reservation tools
For hardware, the list includes:
- Cash drawer
- Payment terminal
- Receipt printer
If you’re building a franchise restaurant, you have a corporate marketing machine to lean on.
For the rest, you can’t open a restaurant and expect people to walk in the door. You need a plan that goes keeps customers coming back for more beyond the grand opening.
Don’t make the mistake of forgetting to budget for marketing and PR. Hire (or beg) for help with creating your logo, customer reviews on Yelp, social media, and website.
Plan for a grand opening that makes your restaurant an instant success with customers and staff. You’re planting your flag and putting your name out there. It’s time to get everyone on board with your vision.
Most restaurants need to invest in a remodel before opening to the public. If you’re moving into a commercial space vacated by a previous tenant, you won’t avoid adding this to the budget.
You’re going to plan for two categories: interior and exterior finishes.
Interior finishes include fresh paint, new decor, furniture, and flooring. Don’t sweat the little details for this step. Companies like Richardson’s Furniture provide A+ furniture at a price any startup can afford.
For exterior finishes, plan for the following:
- Music system
- Phone system
Operating Costs for a Restaurant
How do you plan for cost after you’re open? What are the real-world costs that you have to plan for to succeed? Keep reading to find out.
The minimum wage dictates your budget for labor for most restaurants. Don’t fail to plan for fluctuation. Know your costs for every shift and every week.
Payment Processing Fees
Prepare for a bombardment of aggressive sales pitches, but plan for an easy choice that fits your restaurant. Your budget for payment solutions depends on who you chose, but you have three types of fees available: card brand, payment processor, and interchange.
Card Brand Fees
This fee may be simple, but it can hurt. Every transaction that you run with a card will be subject to a percentage-based fee.
Payment Processor Fees
You’re charged this fee for the processors to route the money where it needs to go after the transaction. Most companies charge a percentage-based or flat fee for this service.
Each credit card company also has an interchange fee that’s charged when customers use a credit card. Expect a percentage-based charge for this from vendors.
Costs of Goods Sold (COGS)
Your cost of goods sold depends on the type of food you serve. If you’re opening a burger joint, your bills won’t come close to a steak house.
Planning for COGS means planning for the cost of materials and ingredients to make every item on the menu. Profitable restaurants plan for 70% gross profit, so you need to make $70 for every $100 your customers spend.
Restaurant profit margins remain the subject of intense debate, but everyone agrees that you need to budget for monthly costs. You have to know your monthly fixed and variable expenses like the back of your hand to find the right balance.
Are you starting your dream out of your own pockets? Or do you have investors? Either way, you have to save money to keep your margins.
The first few years remain critical to your survival. Use these proven money-saving tips to keep your restaurant lean:
- Consider leasing commercial space in a food hall to test your concept in the real world
- Buying a food truck has its costs, but it’s much cheaper than buying or leasing physical space
- If you’re planning to buy, reconsider a lease because your only financial responsibility will be the rent
- Avoid the hard sales pitch and go direct to a local wholesaler for iPads
- Go to local repair shops and strike a deal for used iPads
- Big wholesale stores offer discounts to businesses
- Remember that you have the power to negotiate with vendors
- Be conservative with technology to start, but pick plans that allow for growth
- Add your restaurant to Google My Business
- Don’t underestimate the power of the free buzz on social media
Common Mistakes to Avoid
Opening a restaurant became famous for having so many financial pitfalls to avoid.
You need a comprehensive list to prevent costly mistakes. Don’t get overwhelmed with your earliest ideas about what’s necessary and what’s not. Avoid these common mistakes and spare yourself future migraines.
Don’t Overspend on Equipment
This mistake gets the first spot because it’s the number one mistake made by new restaurant owners.
When you start your dream, you’re going to experience the temptation to grab the latest and greatest. Even if you’re shaking your frugal head at this moment, you will experience this emotion. Keep yourself in check and remember your budget.
Take time to shop around for second-hand equipment. eBay or Craigslist could have options that save you thousands of dollars on new equipment you didn’t have to buy.
Don’t Overspend on Food
Don’t skimp too hard, either. Don’t sacrifice quality and don’t fall for the marketing hype from good companies. You can’t underestimate the temptation to spend more on food when you’re opening.
Take the time to shop around for vendors. A great alternative: make friends with local co-ops and farmers for locally-grown food.
As your business continues, continue to check your portions. Know what gets wasted and only buy the food you will need.
Don’t Give Into Marketing Temptation
Marketing costs don’t have to strain your budget each month. Establish a plan that fits your allotment and stick to it like glue.
Advertising costs an arm and a leg, so don’t try to compete when you don’t have the bank for a long campaign. Get comfortable with social media and search for advertising at reduced rates. A creative Google search can yield more low-cost options than you may believe at this moment.
Don’t Forget to Read the Fine Print
In an ideal world, you hire an attorney to read the fine print of your contracts. Make this a top priority. Get a close examination of the expectations when you buy a restaurant or franchise license.
You can find plenty of public information about any restaurant you want to open. Seek those numbers out and scan them as if your financial life depends on it (because it does). You don’t know what the seller isn’t telling you that will appear in public records for compliance issues or infestations.
Don’t Go Overboard With Your Remodel
Do you know why so many people died on the Titanic? Yes, they hit an iceberg. But do you know the real reason why so many passed away in the tragedy?
There weren’t enough lifeboats for everyone. For all the money that they spent on the boat, they neglected to cover basic safety needs.
Don’t overspend on the shiny objects and put yourself into an early bind. Choose a modest remodel that fits your vibe and make plans for your dream space along the way.
How Much Does It Cost to Open a Restaurant?
Most costs people associate with opening a restaurant involve heavy startup investment. Most businesses don’t have such enormous overhead to get off the ground, and the costs grow with your business. It can be intimidating to plan for buying furniture for the dining room or kitchen equipment, but it doesn’t have to be torture.
Your budget will depend on your local market and your business plan. But these numbers come from over 350 independent restaurant owners:
- Startup costs range from $175,500 to $750,500
- Startup costs per sq. foot for commercial space goes from $59 to $220
- Average construction costs went from $70,000 to $472,000
- Kitchen and bar equipment ranged from $40,000 to $196,250
- The startup costs per sq. foot for equipment goes from $50 to $177
Guess What? There’s Still More to Do
For you, it’s more important to plan for the type of restaurant you want to open. Depending on the food you plan to serve, renting space inside a building may make just as much sense as a food truck. The cost to open a restaurant depends on your plan, but now you have the tools to make it a reality.
Did you find this post helpful? Come back every day for more ways to build a successful business!
You may also like: Starting A New Business: Here’s How To Keep Costs Low
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