If you've ever wondered how to open a restaurant, more than likely the next question that comes to mind was how much does will it cost? If you're unsure where to start in your research, you've come to the right place. We're here to help you get a feel for the lie of the land, a rough idea of pricing, and also prompt you to think of all the different things you might need to keep in mind when launching a new restaurant.
Opening a restaurant of your own does not have to remain a lofty dream. Your ambition can become a reality—but it's essential to have a good idea of what you are getting into before getting started. In this article, we'll take a closer look at the costs associated with opening a restaurant, including all of the minor expenses that you may overlook.
Several different factors go into the costs of opening a restaurant. The style of dining is going to play a significant role in your opening costs, for starters. A fine dining restaurant may cost more to open than a mom-and-pop burger joint, and franchises are a different animal entirely.
Keeping that in mind, the average cost of a restaurant startup in a rented building is just over $3,000 per seat or $275,000. If you are looking to be the owner of your building, the average opening costs hike up to nearly $4,000 per seat or $475,000.
If you want to open a restaurant, you'll need to keep in mind specific sets of expense considerations. While the average cost might seem within your budget, keep in mind that several different factors go into this. That figure can vary dramatically depending on the style, size, and location of your restaurant.
Ultimately, you can break these costs down into two categories:
A one-time cost is relatively self-explanatory. These are unavoidable expenses startup restaurant owners must account for, but they only have to be paid for once.
In addition to one-time costs, restaurant owners must be prepared to account for recurring and ongoing costs they will incur with their business operation. These costs can include rent, employee salaries, replacement for wear and tear etc.
There are several one-time costs associated with launching a new restaurant, here they are at a high level:
Depending on whether you plan to lease or purchase your restaurant building, you will have to pay a one-time upfront cost in the form of a security deposit or down payment. As you can imagine, this expense can range tremendously depending on the location and size of your building.
If you plan on purchasing, you can expect to dish out a minimum of 10% of the purchase price of the building as a down payment to your loan. Otherwise, a security deposit on a leased restaurant building typically ranges anywhere from $2,000 to $12,000.
The amount you spend on tables, furniture, and tableware also varies, depending on quality and quantity. As a new restaurant, you can anticipate paying around $80,000 on things like tables, furniture, tableware, and decor.
Your kitchen and cooking equipment's one-time costs are also going to vary tremendously. Some of the expenses you might need to account for include:
If you have to build your kitchen from ground zero, you can anticipate paying $50,000 for a smaller-scale kitchen or more than $150,000 for a more extensive operation. As much as you can, avoid overspending when buying restaurant equipment.
Building improvements are a cost that pertains more to owners of the building but is worth noting nonetheless. Often, improvements might be necessary for your building to be up to standard and ready to accommodate your guests as needed. Costs of building improvements or remodels can easily add up to between $250,000 and $350,000.
Along with all of the licensing and permitting, you can anticipate nearly endless paperwork and legal formalities that come with the restaurant's opening. To stay organized and to ensure your restaurant opens legally, you should hire an experienced lawyer to guide you. Some of the processes they can help with include:
Legal fees associated with lawyers can range anywhere from $500 to $2,000, and while these fees might seem pricey, it's money well spent. Lawyers will help you save thousands upon thousands of dollars down the line, so it's worth doing it right the first time with their help.
Owning and operating a business requires an extensive amount of licensing and permitting, some of which include:
The costs associated with licensing and permitting can also vary, so it's essential to get an idea of what these will look like in your area. Be sure to check which permits and licenses are required first, then determine their costs. Individually, permits can cost anywhere from $100 up to $300.
Especially in the beginning, your signage, advertising, and marketing costs will be very high. Remember, first impressions are critical, even in the restaurant industry. Understanding this, you'll need to make sure you enter the market with a bang. Anticipate paying around $20,000 or $30,000 as a one-time cost for signage and advertising.
Ordering and payment technology are a necessity for successful restaurants today. A point-of-sale (POS) system, or something similar, can cost you around $20,000 as a one-time cost. Other, more advanced software tools, including payroll and scheduling software, can integrate with your POS and help save you costs in the long run but will cost more upfront.
Making sure your restaurant building is ADA accessible may require specific improvements for sit-down restaurants. Things such as access ramps and bathrooms must be available to accommodate all patrons of your restaurant. You don't want to overlook this cost as it can be upwards of $30,000.
In addition to all of the one-time costs, you'll always want to be mindful of the ongoing and recurring expenses as well. Some of these costs include:
Your food and beverage costs will range depending on the style of your restaurant. An option worth looking into for cost savings when applying for your liquor licensing is a satellite license. Available in some states, a satellite license will enable a licensed distillery, winery, or brewery to have a limited number of satellite facilities to sell their beverages. Check to see if this option is available in your state.
One of the most apparent ongoing payments a restaurant will have to pay is the lease or mortgage payment. Usually, these costs range from $2,000 to $12,000 depending on the size, location, and other details outlined in the agreement of your restaurant building. For owners, you must remember that it will be your responsibility to pay taxes for the building and the land it sits on, which are added costs.
Employees will keep your restaurant up and running, so you'll need to pay them regularly to ensure you keep your doors open. Employees of varying positions have differing wages. On average, you can expect to pay the following monthly amounts for each position:
Insurance and permitting can add up when it's time to renew. Think of insurance fees like building, liability, and inventory, and permitting ADA compliance, music, sign, food handlers, etc. These costs can quickly add up to $10,000.
You must also pay for workforce management and payroll systems every month. Some of these payments can include:
Budget for around 2.5% of your monthly revenue to spend on monthly technology payments.
Similar to your home, you'll have monthly utilities you'll have to pay in your restaurant. Some of these payments will include:
Combined, you can expect to pay around $2,500 per month on utilities.
You'll need to maintain a constant presence to keep your restaurant successful. One way of supporting this is through extensive marketing and advertising. Some of your marketing efforts might include:
While some forms of marketing can be free, including social media, you should still budget for monthly expenses. You can anticipate these costs being anywhere from 3% to 6% of your monthly sales.
As a restaurant owner, always expect the unexpected, and costs are no different. Undoubtedly you will experience additional costs that are either variable or unexpected. These might be things like:
If you're looking to open a restaurant but are lacking the funding, you still have options. Check out a few different ideas on how to open a restaurant with no money:
Ready to take the leap? Here are a few different options you have to seek out financing for your new restaurant:
Since the costs of opening a restaurant can vary so drastically, some startup owners test out their concepts before opening up as a full-fledged restaurant. Pop-up restaurants are becoming increasingly popular and can provide powerful insight into figuring out whether or not your restaurant concept will be a success at a fraction of the cost and risk of loss.
Purchasing equipment is an area that many restaurants tend to overspend on before opening. To help save in this area, you can look to purchase second-hand equipment. Look for sales put on by other restaurants that have recently gone out of business and are looking to salvage any cash possible. Make sure you inspect the equipment in person to determine it is in good working condition.
Opening a restaurant of your very own is a fun and exciting time, but be sure you have done your fair share of research before diving in. Hopefully, you now have a better idea of some of the costs you can anticipate and how to seek the necessary funding.
“In the labor numbers, we were reporting about a $300 to $400 difference than what we were getting through Push!”
-Tara Hardie, ZZA Hospitality Group, 16 locations