Starting a restaurant is a great feat, one that needs accurate planning and budgeting. To be a successful restaurant owner, you need to know how the restaurant industry works and the required startup costs.

So, if you are hoping to open your own restaurant, this blog post is for you. We've put into detail the cost involved in opening a restaurant, and of course, tips that'll help your restaurant business and enable you to save money along the way.

How Much Does It Cost To Open A Restaurant?

Depending on your location, the average cost of opening a new restaurant is between $190,000 to $800,000. Also, your average restaurant startup costs depend on your range of choices and the concept you are trying to achieve.

What Are The Estimated Startup Costs Involved In Opening A Restaurant?

When opening a restaurant business, there are some startup costs you need to factor in, so you don't run into a dilemma. One of the most common mistakes restaurant owners make is not budgeting for "every" aspect of opening a restaurant, including operating expenses.

Here's an overview of how we've analyzed a restaurant startup costs;

Commercial Space

To launch your restaurant, you need a space for it, right? The two most obvious ways to secure a commercial space for your restaurant are either by buying or leasing unless, of course, you plan to operate a food truck.

Leasing

It's always better to rent an already existing commercial space with a similar plan to yours, so you don't end up spending more money on remodeling.

The only downside to leasing is that it limits the number of years you can stay at the location. However, you can always renew, but with a small percentage increase.

Renting a physical space for your restaurant will cost you between $5,000 - $13,000 for a monthly lease, and that's about $160 per square foot if you are leasing your space.

Buying

Buying a restaurant space means you are responsible for the taxes of both the restaurant and the land it sits on. Most times, you'll be required a make a down payment of between 15% to 35%.

The cost of buying a kitchen space can range from $1,000,000 and above, depending on the size and location, plus it costs about $175 per square foot.

Location

You can do your planning right, but if you position your restaurant in a location that has no need for one, you are bound to run down your business before it even starts.

A good location will give you more return on investment over time. It helps to situate your restaurant in a place that has lots of food traffic, and in a spot that's easily accessible, and don't forget a "good parking space" as well.

You have the option to convert an existing space into your restaurant, buy a property and build your restaurant from the ground up, or even take over an existing restaurant.

Whatever you do, make sure it's an informed decision, and accurate research is done.

Loan Down Payment Or Lease Security Deposit

If you are buying your kitchen space, you'll be expected to make a down payment of 15% to 35%. For instance, if you are buying a property that's valued at $2million, you'll need to make a down payment of $300,000 to $700,000.

Also, your lease security deposit depends on the location of your restaurant. Ideally, you are expected to pay a refundable deposit of at least six months to secure your space.

The average rent for a space is $3.00 per square foot. So, for a 3000 square foot space, you need a security deposit of $9,000 for every month and $54,000 for six months.

How To Save On Security Deposit Costs?

Start out your kitchen probably in a food truck and build your following before renting a brick-and-mortar location.

When you decide to rent a space, you can opt for a food hall first, as this will be cheaper, and you can build your earning.

Business Registration

When you have sorted out rent and building fees, you'll need to register your business to operate it legally. The requirements for registering a restaurant will vary based on state, so, be sure to check in with the local health department in charge.

Business Licenses And Permits

The most glamorous thing isn't opening a restaurant, but having a business license to run it. If you are starting a restaurant, there are some licenses and permits you need, so be sure you have all of that covered.

Food Service Licenses: A food service license can cost anywhere from $200 to $1000. After you obtain this license, the food health department will drop by your restaurant from time to time to check if you are complying with all their rules.

Food Handling Service License: The cost of this license will vary based on country. It can be anywhere from $100 to $500. Food handlers in charge of serving food in your restaurant require this license to prove they are perfectly capable of handling and storing food.

Liquor License: A liquor license might take about 3 to 6 months to get approved, and that's why you need to apply for it even before the opening period, unless, you don't plan to serve alcohol in your restaurant. To get liquor permits, you should budget about $10,000 to $30,000 depending on your country.

Satellite License: For your restaurant to serve as a satellite facility, you'll need a satellite license that permits a licensed winery or brewing company to supply you with their alcoholic beverages.

Music License: If you intend to play recorded music to attract potential customers, then you'll need to get a license. A music license will cost about $10 to $200, depending on your country.

Other licenses and fees you might need to budget for include, fire department licenses, city licensing fees, certificates of occupancy, signage permits, zoning permits, and compliance permits. So, you'll need to keep aside $3,000 to $150,000 for these extra expenses.

How To Save On Licensing Costs?

You can't really save money on licensing fees; the best you can do is to take some of the permits out of the equation. For instance, music permits and liquor permits can be removed to reduce expenses.

Legal Processing Fees

Many new restaurant owners get into trouble because they don't follow due process legally, and that's why it's important to get an experienced lawyer to oversee certain aspects. When it comes to signing of contracts that involve transfer of ownership, purchase of property, or reviewing of documents, you'll need to run it by your legal team, as this will save you more money in the long run, and prevent legal mistakes.

Interior And Exterior Decor And Finishes

Your business plan needs to contain a budget for decor as well. Decor costs depend on the concept you are trying to achieve.

The interior design of your restaurant needs to reflect your restaurant's concept; you might need to employ the help of professional services for design ideas. Interior finishes range from flooring to window treatments.

Your restaurant shouldn't just look amazing on the inside, it should reflect on the exterior as well. The exterior finishes are just as important as the interior.

How Much Should Be Budgeted For Renovating And Designing The Restaurant's Interior?

There's no need to go overboard when decorating your restaurant. Most restaurants that have high-end decor have already been in operation for decades. For the interior of your restaurant, it should cost about $30,000 to $350,000.

Even if you decide to rent an existing building, you'll have to budget for remodelling costs, as you might need to change the theme to reflect yours. To save on construction costs, purchase an existing kitchen space with similar Decor as yours.

Renovations can cost between $5,000 to $12,000, depending on what needs to be changed.

Kitchen Appliances And Equipment

For kitchen equipment, if you want to cut down on unnecessary costs, go for quality used equipment, as they are a lot cheaper. Be sure that your kitchen has all culinary equipment and purchase only what's required.

Kitchen Equipment

Important kitchen equipment for full-service restaurants include;

• Range refrigerator
• Dishwasher
• Ranges and ovens
• Food processor

You should budget $20,000 to $50,000 for kitchen equipment. Here is a complete list of all restaurant kitchen equipment you might need.

How Much Should Be Allocated For Storage And Refrigeration Equipment?

You can get quality refrigerators and freezers for $10,000 to $60,000. Your choice should depend on how many customers your restaurant caters to.

If you are running an upscale restaurant that engages in the daily preparation of meals, then you'll need a heavy-duty refrigerator.

What Are the Costs Of Setting Up The Restaurant's Kitchen, Including Appliances, Cookware, And Utensils?

The cost of setting up a commercial kitchen will vary depending based on your business model and menu items.

Ideally, you should budget about $50,000 to $200,000 for kitchen appliances and cooking equipment. You can save cost on second-hand equipment, but be sure it is in perfect condition.

Cooking Equipment

Cooking equipment like pots, cutting boards, utensils, and pasta cookers are one-time costs, and you should budget between $3,000 to $10,000.

Workspaces

Your restaurant's workspace needs to have prep tables, steam tables, cold food tables, counters, and a steam table. The budget for this should be about $3,000 to $5,000.

Bar Equipment

If you plan on having a bar in your restaurant, you need to have a mixer, ice cube machines, etc. This equipment can cost between $2,000 to $10,000.

Service Equipment

You should budget $5,000 to $15,000 for service equipment. Some necessary equipment you'll need to purchase includes utensils, glassware, plates, trays, etc.

How To Save On Equipment Costs?

While it's true that you need to spend money to make money, you need to be wise about it. When purchasing equipment for your kitchen, you can go for thrift equipment that will help reduce restaurant expenses.

Also, you can decide to lease restaurant equipment, and that way you can save money from your much-needed capital and channel it into other aspects of your restaurant business.

Seats, Tables, And Other Furniture

Put in a budget for seats and tables in the initial cost of starting a restaurant. If you have enough money, make provision for outdoor seating as well, especially if your restaurant is in an upscale neighborhood.

What Are the Costs For Furniture, Fixtures, And Equipment?

On average, you might need to spend about $80,000 on furniture and interior fixtures.

How To Save On Furniture and Tableware Costs?

To save on tableware, invest in tabletops instead of tablecloths. You should also try buying inventory from restaurants that are packing up or relocating. But, if you are going for quality China dinnerware, you'll spend significantly more.

Restaurant Technology

A full-fledged restaurant will need technology to run smoothly. To keep your restaurant running without issues, you'll have to invest in a technology system that can automate all the processes of collecting and optimizing data, including keeping track of daily sales records.

Point Of Sale (POS) System

POS systems cost between $80 to $150 monthly. A POS system will include receipt printers, front-of-house and back-of-house stations with touchscreen monitors, and credit card scanners.

If you have extra cash in your technology budget, invest in a handheld pos system as it helps with faster turnover.

You might eventually need other software Kitchen Display System (KDS) and editing software for social media posts.

How To Save On Pos System Costs?

You need to compare prices from different POS service providers and figure out the cheapest option. Plus, you don't need to add every feature to your POS system. Use the basic option in the initial stages of your business, then upgrade later if necessary.

Employee Scheduling Software

This software will help in creating and managing the schedules of all your employees. The pricing of ESS starts from $29.99.

Reservation Tool

This tool helps you manage all reservations of your restaurants, and it costs about $29.99 per month.

Loyalty Program Software

This software will help you track and manage customers' loyalty programs. The budget for the loyalty program software is about $29.99 per month.

Payment Terminal

A payment terminal is hardware that's built to accept credit and debit cards that are equipped with NFC technology. Many restaurants make use of a payment terminal because not all customers are ready to pay with cash.

The price of a payment terminal is between $500 to $2,500.

Receipt Printer

You should budget $200 to $400 for a receipt printer, as customers will need to see a receipt for their food purchase.

Cash Drawer

A cash drawer is important, and it's better to purchase a model that comes with high-end security, so you are certain your cash is secure. You can purchase a quality cash drawer for $50.

Music

You need to invest in a music system if you are situated in your restaurant in the city. Many people love dining in a restaurant with subtle music, so you might want to consider that.

A music system can cost $10,000 to $20,000.

Renovation Or Redesign

The total restaurant startup costs can be drastically reduced when you buy an already existing restaurant with the same concept as yours.

However, you'll need to make some modifications no matter how little, but it'll never be compared to the cost of designing a brand-new restaurant.

You can budget $40,000 to $100,000 on renovations depending on what needs to be upgraded and updated.

Insurance

You need to budget for liability, inventory, and building insurance before you open a restaurant. Insurance costs can be between $1,000 to $15,000 annually.

Branding

Branding your restaurant before the grand opening is important, as you don't want anyone to steal your identity or style. To even build a social media presence, you need to have a brand name for your restaurant.

You can make use of any reputable marketing agency and keep your budget at $2,500 to $5,000.

Advertising And Signage

Advertising your restaurant is what helps you reach a wider target market. The success of any business lies with customers, and if you aren't capable, allow professionals to handle this aspect because it can make or mar your business.

Taking expert advice from professionals and paying extra dollars for the help of a professional will be worth it. Your grand opening needs to hit the public with a bang, so the budget is about $15,000.

Menu Development

If you aren't a chef yourself, you'll need the help of a chef for your menu curation. You need to garner traffic by curating a menu that'll appeal to those within the vicinity of your restaurant.

What Are the Costs Of Developing And Designing The Restaurant's Menu?

When designing your menu item, it's best to go for locally grown foods to cut down on food expenses. Also, you can opt for online chefs rather than in-person chefs, as they are cheaper.

Administrative Charges

If you decide to use a professional attorney to review documents that ensure all legal requirements are met, you'll need to pay legal fees of about $1,000 to $5,000 depending on the work that needs to be done.

What Are Fixed Costs in A Restaurant?

Fixed costs are easy to work into your budget because they are one-time costs and rarely change.

Lease/Rental/Mortgage Fees

Your lease or rental fees aren't likely to change overnight. Be sure that whatever amount you decide on fits into your budget, and have your accountant look it over before you sign.

License Fees

License fees are usually fixed, and they are one-time payments. Make research on all the local permits you need to settle, and be sure your payment is documented with the county's public records department.

Insurance Coverage

Insurance coverage is important for even a small-scale operation. Any business that involves the gathering of people, most especially quick service restaurants needs general liability insurance. Like with all fixed costs, you'll most likely pay for insurance only once a year.

Ongoing Marketing

To market your brand effectively; set aside a fixed monthly budget for social media ads, marketing costs, PR outreach, etc.

What Are The Variable Costs Of Restaurants?

Variable costs rarely fit into the initial budget because they fluctuate with season and other factors. They are also referred to as ongoing costs or recurring costs because you'll have to keep doing them.

Cost Of Goods Sold

For your restaurant to stay open and keep operating, you need to always buy food ingredients. So, you'll need to make sure you stock up on supplies so you never run out. The cost will vary greatly depending on your menu items.

Prime Cost

Prime costs involve labor costs and the cost of ingredients and materials used in preparing the menu for your kitchen. Strive to keep your prime cost under 60% and you'll see gradual sales growth eventually.

Staffing And Training Costs

Your employee wages need to be met monthly. The salary of your head chef should be between $5,000 to $15,000 monthly, based on experience. Every other employee on your payroll should be paid based on experience and role.

Utility Costs

Utility costs about $4 per square foot annually, that's if it isn't included in your commercial lease. So, the bigger your space, the more your utility bills.

Payment Processing Fees

There's no escape from processing fees unless you'll accept cash only as a mode of payment. But note that this will limit your customer base. Your processing fee will vary depending on your service provider.

What Are The Restaurant's Mixed Expenses?

These are the top mixed expenses a restaurant owner should expect to face;

Employee Compensation

You need to pay your staff and this could be salaried, hourly wages, or overtime. There are cases where you can also include performance-based bonuses.

What Are The Expenses Associated With Hiring And Training Staff For The Restaurant?

Some of the expenses you could incur when hiring and training staff include the cost of training equipment, turnover-related expenses, onboarding expenses for orientation materials and training programs, and advertising and background checks.

How Much Should Be Budgeted For Salaries, Wages, And Benefits?

Labor costs usually take up a significant portion of the overall expenses. You should budget about 25% to 35% to ensure it covers wages as well as benefits like paid time off and health insurance.

How To Save On Salaries And Wages Costs?

You can wait till your business is profitable before you pay yourself, which is what a lot of restaurant owners do. Also, ensure you hire staff as needed and not all at once.

Food And Beverage

The amount of money you spend on food and beverage changes in line with your customer's demands. This is because the cost of ingredients is linked to the amount of dishes sold.

How Do You Calculate Food Costs?

If you want to calculate your food cost percentage, then you need to get the total cost of ingredients and divide it by the menu price, then multiply by 100.

How To Save On Food And Beverages Costs

Try to buy your ingredients in bulk and also in the right quantity to reduce wastage.

Advertising And Marketing

Based on how much you wish to advertise your brand and attract customers, you would see your advertisement and marketing expenses fluctuate.

What Are The Costs Of Marketing And Advertising The Restaurant Before And After The Opening?

Marketing and advertising costs for a restaurant are dependent on the strategies, channels, and timeline used. These costs include the pre-opening marketing and the ongoing marketing costs. They include expenses like print materials, event marketing, social media management, and many more.

How To Save On Marketing Costs?

You can cut down on marketing costs by making use of some social media platforms that offer free advertisements like Instagram and Twitter. Be sure to build your social media presence properly.

Maintenance

Regardless of usage, you would need to take care of the equipment in your restaurant regularly. These maintenance and repair expenses could vary based on the condition and age of the equipment.

How Much Should Be Budgeted For Ongoing Operational Costs For Maintenance?

The maintenance of a restaurant is certainly no pushover. A good practice would be to budget about one to three percent of sales for maintenance and repairs.

What Are Common Mistakes Which Raise The Cost Of Opening A Restaurant?

These are some of the common mistakes that could see the cost to open a restaurant to rise unexpectedly;

• Not having a dedicated business plan.
• Too much spending on the Décor and an overly complicated menu.
• Onboarding more staff than needed.
• Insufficient promotion and marketing strategies.

How To Calculate The Restaurant Opening Costs?

To get an estimate of the opening costs of a restaurant, you will need to have information about the following;

• Get the size and concept.
• Map out a business plan.
• Figure out the startup costs and also research supplier costs.
• Make an estimate of the labor costs and expenses to be made for pre-opening events.
• Then you add up all the costs and expenses.

Conclusion

Opening a restaurant is great but you need to be knowledgeable about all the costs that come with achieving this milestone. The tips and information in this post will serve as a guide for you when opening your restaurant.

FAQs

1. How Long Will It Take For The Restaurant To Reach The Break-Even Point, Considering The Startup Costs And Expected Revenue? 

Typically, it should take a new restaurant about two to three years to break even and then start making profits, depending on the startup costs.

2. What Is The Biggest Expense For A Restaurant?

Food and labor costs are the biggest expenses for a restaurant.

3. What Is The Average Restaurant Opening Cost By Square Foot?

Based on average, it should cost about $100 to $800 per square footage, this is accounting for all expenses.

4. How Much Does It Cost To Open A Bar?

Depending on whether you are renting or buying, it should cost anywhere from $110,000 to $850,000 to open a bar.

5. How Much Money Should You Have To Open A Small Restaurant?

The average startup cost you should expect to pay for a small restaurant is about $175,000.