How Much Does It Cost to Open a Restaurant in 2020
January 06, 2020
Opening a new restaurant can be very exciting, and often times it’s the culmination of a lifelong dream. For those planning to open a new restaurant, it is important to be prepared for many challenges, including startup and operational costs. It all may have started with a dream, but success requires a serious plan — reaching profitability needs to be a priority.
What is the typical cost of opening a new restaurant?
Restaurant startup costs typically range between $175,500 and $750,500, with the median cost at $375,500. After startup, restaurant owners will need to anticipate a number of regular expenses and set some extra money aside for potentially unexpected costs along the way.
It is also important to note that the average length of time it takes for a casual dining restaurant to break even is 18 months. For these reasons, creating a specific, detailed, and realistic budget can make the difference between success and failure. If you are seeking investors, you will need this information right off the bat as well.
As soon as you begin planning to open your new restaurant, costs will start popping up. Opening a new restaurant requires start-up costs like building costs, POS systems, and staffing, in addition to all the regular expenses that go into actually running a restaurant. A solid budget will help you keep track of which expenses are one-time or long-term purchases, and which will be ongoing. It can also keep you preemptively aware of which costs are fixed and which ones are variable.
If you have a team in place already, let them help you! Having a planning crew with different experiences and knowledge bases can be extremely helpful. You may even want to enlist the temporary help of an accountant as you get things off the ground.
To get you started thinking about all the different costs that will go into opening your new restaurant, we’ve put together this list of the seven most critical types of restaurant start-up costs.
6 Important Restaurant Start-Up Costs to Expect
Here are the 6 most costly expenses when opening a new restaurant:
1. Building Expenses
There can be quite a lot of start-up costs associated with the location of your new restaurant depending on a few different factors. Are you renting or buying? Do you need to do a full rehab of the restaurant floor plan layout or will you just be redecorating?
- Occupancy Costs: The amount you pay for rent can vary wildly depending on the location, the size of your space, and the concept of your restaurant. According to Restaurant Real Estate Advisors, your restaurant’s total occupancy cost should not exceed 6-10% of your gross sales. Total occupancy cost is made up of rent in addition to things like property taxes, and insurance.
- Decor and Remodeling: It can be very tempting to overspend on interior design when opening a new restaurant. It’s definitely okay to invest in a couple of aesthetically pleasing or eye-catching pieces, but you can most likely find the rest of your furniture and decor at bargain prices. Remember, you can always make bigger decor purchases and investments as you become more profitable.
Operational costs are basic costs of keeping things functioning — not always the most exciting purchases, but they keep the gears of your business oiled and turning.
- Equipment: Buying second-hand equipment is always an option. It can be exciting to see what kind of state-of-the-art commercial equipment is on the market, but you most likely don’t need it all for your business. Shop around for the best deal and avoid buying more than you need. You can always upgrade later on, when you have some extra money to spend. What will be worth your while is preventative maintenance for your equipment. This will be an important measure to take to avoid the need for larger repairs.
- Licenses & Fees: Opening a new restaurant will require you to get a number of different licenses including a business license, a food service license, and a liquor license. Even the music you play in your dining room will need to be licensed! Do your homework and make sure you know which types of licenses your particular restaurant will need to stay open, how much they will cost, and whether they need to be renewed.
- Utilities: Utilities are things like gas, electricity, and water. Keep in mind that you can often negotiate rates and package deals. You can also save money by canceling bills for services while they’re not in use and being generally mindful of consumption.
- Organizational Costs: This would include things like insurance or services if you hire externally for things like accounting or payroll.
- Janitorial costs: Your entire restaurant should be clean, your appliances in working order, and your staff well-kept. If your business and budget are large enough, it might make sense to invest in laundry, cleaning, or maintenance services as well.
You’ll want to hire well across your entire business, whether it’s front of house staff, kitchen personnel, or a management team.
- Invest in your permanent staff: Hiring and training are expensive endeavors and it will be worth it to make sure your team receives the training and support they need to make sure they stick around.
- Start-up services: At least initially, you may also need to hire insurance agents, attorneys, financial advisors, or contractors for marketing, sales, and social media. These types of contractors can help you get the ball rolling in the right direction.
- Pay Yourself: Many restaurant owners choose not to take a salary until their business is off the ground, but eventually, you can expect to be taking something home. The median salary for restaurant owners is about $60,000 per year.
- Labor Management Software: It will likely be an additional cost, but there are a number of affordable restaurant scheduling software solutions on the market that make it easy for restaurant managers and owners to oversee their staffing and human resources needs.
4. Technology and Software
Today, there is a software available to address just about every business need in the book. The thing is, not every business needs to use every one of those solutions. To avoid going overboard, prioritize. You will most likely need a point of sale system, but maybe you can do without tablets for every table.
- How much bang can you get for your buck?: When researching restaurant POS systems, you may be able to find one that covers most of your other restaurant management needs. Many have additional features like online ordering, customer analytics, and more. This could eliminate the need to find additional software.
- Accounting and Bookkeeping Software: It may be helpful to have an account set this up initially, but for a smaller-scale restaurant, you may be able to handle most of your accounting needs with a program like QuickBooks or TouchBistro, or one of the many popular restaurant accounting software tools.
- Staff Management Software: We mentioned this previously, but you’ll find a variety of scheduling and staff management software designed specifically for the food and beverage industry. Many of these solutions include features like payroll management, schedule coordination, and onboarding.
- Online Ordering: There are a number of online ordering systems out there that enable restaurants to enter their menu information into this program which then allows customers to place orders and provide payment all online. A lot of the time these solutions can be integrated into your restaurant’s website.
- The Basics: Don’t forget about your run-of-the-mill phone and internet needs! Will you need separate wifi networks for management and employees? Will you be getting wifi for your patrons to use while they’re dining? You’ll also need to determine how many phone lines you’ll need. It may be more if you take a high volume of orders by phone.
5. Advertising and Marketing
An essential component of ensuring your new restaurant is successful is making sure people know about it. Marketing and advertising your business well can make a huge difference as your new business gets off the ground, but it’s not difficult to get swept up in the jargon and trendiness of certain aspects. You may suddenly find yourself spending too much on a grand opening or general marketing campaigns, especially if you’re not well-versed in the industry or haven’t taken enough time to consider your actual needs.
- Low-cost options: If your digital marketing and social media needs aren’t so extensive, it can be really effective to increase a particularly social-media-savvy employee’s pay to have them handle it for you. You can invest in a bit of training to make sure your search engine ads and social media campaigns will put you on the right track.
- No need to reinvent the wheel: If paper materials are working, go with it! For certain types of small businesses, traditional advertising tactics can still work wonders. If you know your restaurant gets new customers from radio ads or paper flyers, there’s no need to eliminate those efforts just because we’re living in the digital age. It’s likely still worth it to invest in digital marketing, but find a balance that works for your business.
- Hire an agency: If you’ve got it in your budget to pay an agency to handle your efforts on your behalf, make sure you’re really getting what you’re paying for. A quality agency will be able to take your public presence to the next level with thoughtful and relevant campaigns.
Perhaps the most crucial aspect of your budget is your food. When you open your new business, you will need to stock and maintain your inventory and monitor your actual costs as business gets going.
- Build Local Relationships: Food costs can vary for many different reasons, but make sure you’re not paying more just because you’ve gone with a big, expensive vendor. Shop around and get to know your local farmers and vendors. You may be able to save some money in the long run by making deals with those smaller, local vendors as well.
- How big is your menu?: The more specific your menu, the fewer items you will need to keep stocked in your inventory. A smaller menu presents a clear restaurant concept to your patrons in addition to saving you time and money.
- Keep your menu prices realistic: As you’re planning your menu, make sure your ingredients and portion sizes are manageable in the long term. You can adjust your prices to make up for rising or seasonal ingredient prices.
- Inventory Management: Many POS systems have inventory management features that make it easy to know which items you need to order, and when.
Operating a Successful (and Cash-Positive) Restaurant
There’s clearly a lot to consider when putting together the plan for your new restaurant, but staying on top of budgeting and planning will put you on the track to success. Keep these costs and expenses in mind as you move closer to achieving your dream of starting your very own restaurant business.
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