This guide will review some typical costs associated with opening a new restaurant. It includes ballpark estimates and explanations of what factors could influence those estimates. We’ll also discuss some ways to save money.
What is the average cost to start a restaurant?
What is the cost of opening a restaurant in your area? There is no definitive answer to this question. The cost of opening a restaurant can vary dramatically, depending on many factors.
- Your restaurant’s needs/style (mostly related to your concept).
- Stock and Equipment
- You can use an existing venue or build a new one.
You should expect to spend between $175,500 and $750,500 to launch your restaurant. Plan to estimate your costs by $200-$500 a square foot.
Financial considerations when starting a new restaurant
It would help to consider all factors when estimating the cost of starting a restaurant.
Location is one of the critical decisions you will make when planning your restaurant. The location of your restaurant determines many things, including its visibility, whether you will pay a premium to secure prime real estate, how easily it can be reached by foot traffic, whether parking is easy for guests, and whether or not competitors surround you.
You have three choices when choosing a location.
- Create a brand new venue.
- Buy or lease a location that is already equipped for restaurant service
- You can convert an existing space into a restaurant
Building from scratch can be costly, but the result is in your hands. The most cost-effective option is to purchase or lease an existing restaurant, but the floor plan of the previous owner could be a hindrance. It is possible to convert an existing building into a kitchen and a restaurant.
Licenses and permits
Before a restaurant can open, it must have the necessary licenses and permits. The exact documentation required varies from state to state.
The permits and licenses required to open a new restaurant include a combination of these:
- Business License
- Certificate of occupancy
- Food Service License
- Permit to handle food
- Building health permit
- Sign permits
- Seller’s Permit
- Resale permit
- Food vendor license
- Liquor license
- Dumpster Permit
- Entertainment license
All licenses cost money. Some rights and permits may be charged a once-off fee, while others must be renewed regularly. You can check the requirements and costs with your local and state municipalities.
When it comes to purchasing equipment, there are two significant considerations.
You should first consider the type of restaurant that you are creating. Are you going to need grills or fryers? Fryers? Two or three walk-in refrigerators? You should consider the kind of food you plan to serve and how much prep work you will do on-site versus the items you order pre-prepared.
Second, you must decide whether to buy an existing restaurant space or outfit a brand-new one. Before committing to a purchase or lease, you should audit existing restaurant spaces. You may find that some of the equipment needs to be updated or has already failed. The replacement costs can be a significant factor in your budget.
Interior design and furnishings
Every aspect of interior design, including wall color, lighting, furniture height, and booth seating or free-moving chairs and tables, can affect the aesthetics and functionality of your restaurant. For example, red, orange, and yellow accents can help stimulate diners’ appetites. Strategic accent lighting can draw attention away from operational detail and towards “wow factor” items such as artwork or food displays.
Restaurant owners have to balance their vision and functionality within the budget they are given. If you love designer chairs but pay $100 for each, will it provide a higher value than a chair that costs half as much?
Consider the longevity of your choices in addition to form and function. Any trendy item could be outdated in a matter of months, while classic pieces are a better investment.
To create a seamless experience for your diners, you’ll want to reflect on your interior design decisions outside your restaurant. Exterior enhancements such as patios, dining areas, signage, and upgraded landscaping can incur additional costs. Some additions, such as sidewalk dining and a deck, may require separate permits and licenses. This will add to the paperwork and expenses listed above.
Many startups start without a customer base. You’ll have to spend money to attract customers. Develop a marketing plan and pay for digital ads, email blasts, and direct mail to increase visibility and interest in your restaurant.
The marketing costs will vary based on your strategy, target audience, and complexity. Prioritizing low-cost marketing methods can help you keep costs down. These methods include local SEO services, hashtags, email marketing campaigns, and features in community papers. They can also have blogging and social media campaigns. The cost of TV ads, influencer marketing, and search engine advertising is usually higher.
It is challenging to estimate utility costs because they vary depending on your geographical area and other factors such as appliance efficiency and idle time. They also fluctuate according to fuel prices, seasonality, and fluctuations in demand. Gas, water, electricity, and trash collection are the minimum costs.
You can estimate utilities based on the size of your facility. Still, it is essential to know that restaurants use up to seven times as much energy per square foot as other commercial enterprises in similar-sized buildings due to increased electricity consumption for refrigeration, lighting, and cooling.
In today’s connected world, restaurants depend on technology to remain competitive, provide guests with prompt service, increase revenue streams via curbside pickup and deliveries, and achieve operational excellence. POS Systems can help with anything from managing customer orders to scheduling staff and generating and analyzing profit and loss reports.
Software and equipment that enhances customer service and increases efficiency can be beneficial. Your estimate of tech costs should include everything, from POS station and mobile devices at the table to accounting software and third-party order platforms.
Perishables are the last thing you need to buy before opening your restaurant. Perishables include produce, meats, pantry items, and spices.
You’ll eventually learn to calculate food costs based on food sales. The two numbers are tightly connected. When preparing to launch your restaurant, the food costs may seem isolated. Based on your estimates of the first week’s sales, you must guess how much food you need. Many restaurants start with a small menu and then expand their offerings.
Capital & contingency funding
It can be exciting to open a new restaurant, but it can take some time to succeed. Even if your restaurant is immediately successful and you generate sales on day one, it is wise to reserve six months’ worth of capital for an unexpected event. Rainy days can be literal, as bad weather or natural disasters could prevent customers from eating out. Or you may have unforeseen costs for operations that exceed revenue.