The Real Cost of Opening and Operating a Restaurant
The number is between $175,500 and $750,500. That is according to a survey from Restaurant Owner. It is indeed money, but how do you know how much money you will need to open and operate a restaurant?
Thanks to razor-thin profit margins, high operational expenses, and fierce competition. One of the best things you can do to ensure that your restaurant will eventually turn a profit is to project your startup costs and projected ongoing expenses before applying for loans and financial assistance.
In this blog, you will learn how to project the following costs for your restaurant-to-be:
According to business experts, once you carefully project each of the expenses, you will know how much it will cost to open and operate a restaurant. Let us go further.
Restaurant startup costs
While your startup costs will fluctuate depending on whether you decide to rent or own your retail space, equipment, furniture, and renovation costs, the things each restaurant needs to buy before opening its doors broadly fall into the following categories below.
Renovations and décor
Kitchen supplies and equipment
Licenses and permits
Other hidden costs
1. Commercial space
Leasing and buying are the two ways to secure commercial space for your restaurant. When you sign a commercial lease, you must commit to several years of occupancy at once and pay a refundable deposit—usually three to six months' worth—to secure your spot.
So how much should you save for a deposit? Well, that depends on where you set up shop.
For example, the average rent for a restaurant space in downtown Los Angeles is $2.95 per square foot. For a 2,000-square-foot space, this rate translates to $5,900 each month. In this scenario, you would need between $17,700 and $35,400 for a deposit.
If you are buying a commercial space, you should expect to pay a downpayment of between 15% and 35%. For example, a space valued at $1 million would require a $150,000 to $350,000 down payment.
2. Renovations and décor
Once you secure a space, it will likely need to undergo some renovations before it is ready for the public.
Renovation and decor costs vary greatly depending on your restaurant's concept, your target market, and the condition of the commercial space you inherit. Few spaces are turn-key upon purchase. Even a property that used to house a restaurant and is already set up for kitchen equipment, refrigeration, and running water may require extensive renovations to create an appropriate appearance. Renovations can cost anywhere from $5,000 in paint, window treatments, and flooring to $50,000 or more.
3. Kitchen appliances and equipment
To start a restaurant business, you must invest in several appliances and kitchen equipment. Some of them are:
Kitchen equipment: Ovens, stoves, fridges and freezers, dishwashers, and more.
Cooking equipment: Pots, pans, cutting boards, pasta cookers, strainers, ladles.
Workspaces: Counters, pre-tables, steam tables, and cold food tables.
Bar equipment: Mixers, cocktail shakers, ice cube machines, and more.
Service pieces of equipment: Serving trays, plates, tablecloths, utensils, and glassware.
It is important to distinguish between essential and non-essential kitchen appliances and equipment. Which ones do your servers, hosts, bartenders, barbacks, dishwashers, line cooks, and chefs need to do their job effectively?
Invest in the essentials from the get-go. Otherwise, your staff will run into challenges during service that may detract from your guest's dining experience.
Without ensuring every detail is accounted for, your restaurant will encounter challenges during service that compromise the diner experience. In general, expect to spend an average of $115,655 for kitchen and bar equipment. Furniture and tables can cost $40,000 alone, so plan accordingly.
4. Restaurant Technology
Modern restaurants need technology to operate efficiently. Technologies help restaurants run more smoothly and effectively by automating processes and collecting data that help optimize both front-of-house and back-of-house operations. Both software and hardware are needed to run a successful and modern restaurant.
eatOS recommend starting with this software.
The following is the hardware you need to open a restaurant:
iPads for your POS and kitchen display systems
Expect to spend at least $1,000 purchasing new hardware for your restaurant and set aside about $400 monthly for software licenses.
5. Licenses and permits
To legally operate a restaurant, you must obtain specific licenses and permits. Since licensing requirements can vary from state to state and even city by city, check your local regulations to ensure that you are covered.
Most municipalities require restaurants to have a food service license. This license is governed by the local health department, which will stop by your restaurant occasionally to ensure that your kitchen is up to code. Food service licenses cost between $100 and $1,000.
You will need a liquor license if you plan to serve alcoholic beverages at your restaurant. These licenses can take up to six months to be approved, so apply for one before the last minute. A liquor license can cost between $12,000 and $400,000, with a beer and wine license costing as little as $3,000.
Any employee who works with food in your restaurant will need a food handler's permit, which ensures that they know how to handle and store food safely. In the United States, a food handler's permit costs between $100 and $500 and can be obtained online in most municipalities. In Canada, the cost and process vary by province.
Other permits and licenses you might need to open your restaurant include a business license, certificate of occupancy, and signed permit. Apart from that, it would help if you processed a building health permit, live entertainment license, music license, resale permit, dumpster placement permit, seller's permit, and valet parking permit.
To begin commercial operations, you must form a business entity, submit fees to your state of residence, pay franchise taxes, and work with an attorney to ensure all legal needs are met.
Most companies choose to incorporate or become a corporation, a legal structure that offers significant protection. Depending on the state, its processing fees can cost $100 to $250 in filing fees. Franchise tax fees can cost an additional $800 to $1,000, with government filing fees adding an extra $50 to $100 to your expenses.
For businesses that work with an attorney to ensure all requirements are met, you will also have to pay legal fees. Legal bills can range from $1,000 to $5,000 or more, depending on the work necessary. If any other fees or filing requirements apply, your attorney can also help you navigate these.
Build it, and they will come. However, unfortunately, it is more complicated. First, your brand-new restaurant will need marketing help to draw customers on opening day and beyond.
Not setting a budget for marketing and PR is an oversight many new restaurateurs make. You will need someone who can create your restaurant's website, design your logo, manage its social media presence, respond to customer reviews, and work with influencers.
7. Other hidden costs
Beyond the obvious, there are also overlooked costs that carry a significant price tag. While it helps to be aware of what they are so you can plan better, do not let them discourage you from your goal of becoming a restaurant owner.
Hidden costs of owning a restaurant include things like construction mishaps. For example, moving unforeseen electrical or plumbing equipment can delay your restaurant opening and hurt your wallet. If severe damage was done to your property, you might also want to pay for restaurant insurance, which usually costs around $180 per month.
Another hidden cost is payments processing, as four in five restaurant owners say they are frustrated with payments processors for unclear pricing structures and hidden fees. It is crucial to ask processors what the fees are, and if they can increase throughout your contract.
Restaurant startup costs checklist
Opening a restaurant is an exciting venture and an expensive one. Use this restaurant expenses checklist to plan and create budgets for these critical investments.
Commercial space – Budget $________
Renovations and decor – Budget $________
Kitchen supplies and equipment – Budget $________
Restaurant technology – Budget $________
Licenses and permits – Budget $________
Marketing – Budget $________
Insurance – Budget $________
Labor costs – Budget $________
Rent and building fees – Budget $________
Food costs – Budget $________
Utility costs – Budget $________
Payment processing fees – Budget $________
Most restaurateurs need help to afford to start a business. Some are taking loans and other methods to make their dreams a reality, so investing in the right POS system is brilliant. It will make you run your business efficiently and successfully.