Although starting a restaurant is a gratifying and exciting enterprise, several obstacles and factors must be considered. The expense associated with beginning their culinary passion is one of the crucial factors that aspiring restaurateurs must carefully assess.
The restaurant business is dynamic and constantly changing, with location, concept, size, menu, and restaurant industry trends all playing a role. Therefore, understanding the financial ramifications of opening a restaurant and the numerous elements that go into its ultimate cost is crucial as we move into 2024.
In this blog post, we will explore the question that weighs on the minds of many aspiring restaurant owners: “How much does it cost to open a restaurant?” We will delve into the expenses involved and shed light on the financial considerations that can significantly impact the total investment required.
What are the startup costs of opening a restaurant?
When opening a restaurant, several startup costs aspiring restaurateurs need to consider. Of course, the specific expenses can vary depending on factors such as the size and location of the restaurant, the concept and cuisine, and the local market conditions. However, here are some common restaurant costs to keep in mind:
- Lease or Purchase Costs: This includes expenses related to securing a location for your restaurant, such as lease deposits, rent and building fees, or down payments if you decide to purchase the property.
- Renovation and Interior Design: If the chosen dining room requires renovations or updates, you must budget for construction, remodeling, interior design, and decor costs to create an inviting and functional dining environment.
- Licenses and Permits: Obtaining necessary licenses and permits from local authorities is crucial. Licensing costs may include health department permits, liquor licenses, food handling certifications, etc.
- Equipment and Furnishings: This encompasses the purchase or lease of kitchen equipment (such as ovens, refrigerators, and cooking appliances), dining furniture, bar equipment, online ordering POS systems, and other operational essentials.
- Staffing: Budget for hiring staff, including salaries or wages, payroll taxes, and employee benefits.
- Marketing and Advertising: Allocating funds for marketing and advertising efforts is essential to create awareness and attract customers. This may involve developing a restaurant website, implementing online marketing campaigns, designing menus and promotional materials, and utilizing social media platforms.
- Utilities and Operating Expenses: Consider ongoing operational costs such as utility bills (electricity, water, gas), restaurant insurance premiums, rental fees for equipment, waste management, and other necessary services.
Lease or Purchase Costs
Depending on the location, size, status of the space, and situation of the local real estate market, the cost to lease or buy a restaurant can vary greatly. In addition, commercial real estate markets can fluctuate, so it’s crucial to research and consider the current market conditions in your specific area.
Working with a commercial real estate agent or consultant can help you navigate the leasing or purchasing process and negotiate favorable terms. Here are some of the more common leases every restaurant owner should bear in mind:
- Lease Deposits: Typically, commercial leases require a security deposit equal to one to three months’ rent. Depending on the location and lease terms, this can range from $5,000 to $50,000.
- Rent or Mortgage: The cost of rent can vary significantly based on factors such as location, size of the space, and local market conditions. Monthly rent for a restaurant can range from $2,000 to $15,000 or more, depending on the region and the desirability of the location. Prime locations in major cities tend to have higher rental costs.
- Other Lease Expenses: Landlords may provide a tenant improvement allowance to cover a portion of the costs for leasehold improvements, as well as common area expenses, which cover expenses such as landscaping, parking lot maintenance, and shared utilities.
If you decide to purchase a property instead of leasing, the costs will depend on the real estate market in your area. Property prices for restaurant spaces can vary widely and can range from hundreds of thousands to millions of dollars, depending on the location and size of the property.
Renovation and Interior Design
Renovations and interior design are essential to creating a visually beautiful and practical restaurant space but require major expenses. The expenses related to these aspects can differ significantly based on parameters, including the restaurant’s size, location, the amount of necessary repairs, and the intended design elements for each square foot.
It’s important to note that renovation and interior design costs can vary significantly based on factors such as the size and condition of the space, the desired level of customization and luxury, the scope of the project, and the location. Obtaining multiple quotes from contractors, interior designers, and suppliers can provide a more accurate estimate for your specific needs. Additionally, working closely with professionals in the construction and design industry can ensure that your vision aligns with your budget and regulatory requirements.
- Construction and Remodeling: If significant structural changes are required, or it’s a new restaurant being built from the ground up, it may be necessary to build partitions, and install new plumbing and electrical systems, for you can expect to pay roughly $10,000 to $50,000 for each job, depending on the extent of the work and the size of the space.
- Interior Design and Decor: The initial cost of dining tables, chairs, bar stools, booths, and other furniture items can range from $10,000 to $50,000 or more, depending on the size and style of the restaurant. Installing lighting fixtures can cost between $5,000 and $20,000.
Licenses and Permits
A vital step in starting and running a restaurant is obtaining the required licenses and permissions. Depending on the location, restaurant business model, and local laws, different licenses and permissions could be needed.
It’s important to note that licensing and permit costs can vary significantly depending on the location, jurisdiction, and specific requirements. Therefore, it’s advisable to consult with local government agencies, health departments, and licensing authorities to understand the specific licenses and permits needed for your restaurant and the associated costs. They can provide accurate information on your area’s fees and requirements.
- Business License: The cost of a business license can vary depending on the jurisdiction and the type of license required. Typically, the median cost for business license fees ranges from $50 to $500 or more annually, depending on the restaurant’s location and size.
- Food Service Permit: This permit ensures compliance with health and safety regulations related to food handling, storage, and preparation. The cost can range from $100 to $500, depending on the local health department and the size of the establishment.
- Liquor License: The cost of a liquor license varies significantly depending on the location, type of license (e.g., beer and wine, full liquor), and local regulations. Prices can range from a few thousand to tens of thousands. In some cases, license holders may need to purchase an existing license from another establishment, which can significantly increase the cost.
- Entertainment and Music Licensing: If you plan to have live music, DJs, or play copyrighted music in your restaurant, you may need to obtain licenses from PROs such as ASCAP or SESAC. The cost will depend on factors such as the seating capacity and usage of copyrighted music.
Equipment and Furnishings
Depending on the size of the business, the type of cuisine, the degree of service, and the desired ambiance, the expenses of equipment and furnishings for a restaurant can change. However, it is essential to note that restaurant equipment can be costly, which is why one of the best money-saving tips is to purchase used equipment or seek financial assistance.
To ascertain the most precise equipment and furnishings costs, it is advisable to create a restaurant equipment list, conduct supplier research, request estimates, and consider your restaurant’s unique needs and financial constraints. Making informed judgments can also be aided by consulting with experts in the field or asking restaurant equipment providers for advice. Here’s a breakdown of the equipment and furnishings you can expect to add to your restaurant expenses:
- Kitchen Equipment: Installing equipment such as ovens, ranges, grills, fryers, steamers, walk-in coolers, reach-in refrigerators, freezers, and refrigerated prep tables ranges from $10,000 to $50,000 or more, depending on the restaurant’s size. Other equipment, such as slicers, mixers, food processors, blenders, and other equipment used for food preparation, can range from a few hundred dollars to several thousand dollars per piece.
- Dining Furniture: dining tables and chairs, depending on the style, material, and quality, can range from $100 to $500 per chair and $200 to $1,000 per table.
- Online Ordering System: Costs of online ordering system may vary from $49 to $10,000 monthly depending which model you choose; to have your own online ordering or to be listed on third-party food delivery platforms.
- POS System: The restaurant pos system cost, including touch screen terminals, receipt printers, cash drawers, and credit card readers, can range from $1,000 to $5,000 or more, depending on the number of terminals and the features required. POS software can vary depending on the provider and the features offered. Monthly subscription fees can range from $50 to $300 per terminal.
- Website Builders: Restaurant website builder software helps business owners create and manage their own restaurant website with the help of website templates, drag-and-drop editing, and built-in online ordering option. Website builders can have upfront costs from $50 to $3000 to design and activate.
- Food Ordering App: A restaurant mobile app allows restaurant owners to build their own app, which guests can download and use to place food orders with the business. Ordering apps can cost anywhere from $100 per month and up.
- Reporting Software: Restaurant analytics software is used to collect data pertaining to earned revenue, food orders, customer loyalty, etc., which helps track the business’ performance.
- Other Equipment and Furnishings: Kitchen utensils, service equipment, pots and pans, knives, cutting boards, and other essential tools can vary in price depending on the quantity and quality of the items needed. Estimates for utensils and smallwares can range from $1,000 to $5,000 or more.
Staffing
When creating a budget for your restaurant, it is essential to consider staffing expenditures, which might be substantial. Labor cost, benefits, taxes, and other costs associated with hiring and managing employees are included in staffing costs.
It’s important to note that staffing and training costs can vary significantly depending on factors such as the size of the restaurant, the level of service provided, the local labor market, restaurant’s concept (full-service restaurants, quick-service restaurants, etc.), and the specific wage rates and regulations in your area. Conducting thorough research, seeking guidance from restaurant industry professionals, and considering local employment laws will help you estimate and plan for your restaurant’s staffing and training costs.
- Staff Wages: The cost of staff wages will depend on the number of employees, their roles, and the local minimum wage laws. Estimate the number of staff members needed for various positions such as chefs, cooks, servers, bartenders, hosts, and dishwashers, and calculate the monthly payroll expenses based on the anticipated hourly rates.
- Additional Costs: In addition to wages, you’ll need to account for payroll taxes, including social security, Medicare, and unemployment taxes.
Marketing and Advertising
To promote a restaurant and attain gradual sales growth, a restaurant requires marketing and advertising. However, marketing expenses can vary greatly depending on the tactics and distribution methods you decide to use.
It’s important to note that marketing costs and advertising costs can vary significantly depending on factors such as the size of your target market, location, competition, and marketing goals. Allocating a portion of your overall marketing budget and regularly evaluating your marketing strategies’ effectiveness will help optimize your marketing investments and drive customer engagement for your restaurant.
- Website Development: Costs for restaurant website development can vary depending on the complexity, functionality, and design requirements. However, an advanced restaurant website builder can cost roughly $50 to $100 monthly. Hiring a professional web developer or using a website builder platform, however, can range from $1,000 to $10,000 or more, depending on your specific needs.
- Search Engine Optimization (SEO): Investing in restaurant SEO to improve your restaurant’s visibility in search engine results can cost anywhere from $500 to $5,000 per month, depending on the competition level and the SEO campaign’s scope.
- Social Media Marketing: Allocate a budget for social media marketing campaigns, including content creation, scheduling, and advertising on platforms like Facebook, Instagram, and Twitter. Costs can range from a few hundred to several thousand dollars per month, depending on the scale and objectives of the campaign.
- Email and SMS Marketing: Building an restaurant SMS marketing and restaurant email marketing strategy and utilizing marketing tools may cost between $60 and $500 per month, depending on the size of your email list and the features included in the software.
- Online Advertising: This includes pay-per-click (PPC) advertising on platforms like Google Ads and social media advertising on platforms like Facebook Ads. Costs for online advertising can vary significantly depending on factors such as your target audience, location, competition, and advertising objectives. It’s advisable to allocate a monthly budget for online advertising based on your marketing goals. To effectively manage your online advertising spend, you should track key PPC benchmarks.
- Loyalty Programs: These programs are built to manage customer loyalty, which ties clients to a restaurant. Restaurant owners use this tool to reward customers with points and stamps for each purchase, which can be redeemed for discounts and even free meals.
- Print Materials: Costs for designing and printing menus, flyers, brochures, business cards, and other promotional materials can range from a few hundred to a few thousand dollars, depending on the quantity and quality.
- Local Advertising: Consider advertising in local newspapers, magazines, radio, or television. Costs will vary depending on the media outlet, circulation, and reach. Allocate a budget based on the advertising rates and target audience.
- Community Events and Sponsorships: Participating in community events or sponsoring local organizations can help increase brand visibility. Allocate a budget for event registration fees, booth setup, signage, and any sponsorships you wish to pursue.
Utilities and Operating Expenses
Utilities and operating expenses are necessary for the day-to-day functioning of a restaurant. Utility costs can include various essential services and expenses, and it’s important to note that the actual costs of utilities and operating expenses can vary based on factors such as the size of your restaurant, location, usage patterns, and specific vendor rates.
Obtaining quotes from utility providers, waste management companies, insurance agents, and maintenance service providers will help you estimate the most accurate costs for your restaurant’s utilities and operating expenses.
- Electricity: Estimate the monthly cost of electricity based on the size of your restaurant, the number of electrical appliances and equipment, and the local utility rates. On average, electricity costs for a restaurant can range from $500 to $2,000 or more per month.
- Gas: If your restaurant utilizes gas for cooking or heating, estimate the monthly cost based on the type of equipment and local gas rates. Costs for gas can range from $200 to $1,000 or more per month, depending on your usage.
- Water and Sewer: Estimate the monthly water and sewer costs based on the size of your restaurant, the number of seats, and the local water and sewer rates. Costs can range from $100 to $500 or more per month.
- Garbage Collection: Estimate the monthly cost of garbage collection and disposal services. The cost can vary depending on the frequency of pickups and the size of your establishment. Typically, garbage collection costs can range from $100 to $300 or more per month.
- Recycling: If you plan to implement recycling programs, additional costs may be incurred for separate recycling bins and collection services. Costs can range from $50 to $200 or more per month, depending on the volume of recycling materials generated.
- General Liability Insurance: This covers potential accidents, injuries, or property damage. The cost will depend on factors such as the size of your establishment, location, and coverage limits. Estimates for general liability insurance can range from $1,000 to $5,000 or more annually.
- Workers’ Compensation Insurance: Workers’ compensation insurance is typically required if you have employees. The cost will depend on the number of employees, their job duties, and your location. Estimates for workers’ compensation insurance can range from a few hundred dollars to several thousand dollars annually.
Total Estimated Cost of Opening a Restaurant
Depending on several variables, including location, size, idea, level of customization, and local market conditions, the overall anticipated cost of opening a restaurant might vary dramatically. Giving a precise number is difficult because prices might vary greatly depending on a person’s situation. The entire anticipated cost of operating a restaurant can range from $75,000 to several hundred thousand dollars. Here’s an overall breakdown:
Key Takeaways
- When going over estimated restaurant startup costs, it’s essential not to omit software systems.
- Most marketing activities can be performed with the help of digital solutions.
- When looking to open a restaurant, make sure to find a suitable location that doesn’t require huge investments such as construction and remodeling.
- Purchasing equipment and making renovations are the most expensive investments when opening a restaurant.
- Building your website with a restaurant website builder can not only help you save money but also allows you to add any necessary changes whenever you see fit.
Frequently Asked Questions (FAQ)
How much does it cost to run a restaurant per month?
Depending on several variables, including the type of restaurant, location, size, concept, menu, staffing, and operating costs, the cost of managing a restaurant can vary dramatically.
- Rent: Depending on the location and size of the restaurant, the cost of renting or leasing the space might be a significant outlay of money.
- Labor expenses: This sums up the pay for all staff employees, including cooks, servers, bartenders, hosts and hostesses, and others. Expenses like payroll taxes, employee perks, and workers’ compensation can also be included in labor costs.
- Food Costs: This includes the price of the supplies, beverages, and materials required to prepare the menu items. Typically, a sizable amount of a restaurant’s expenses come from food costs.
- Utilities: Costs for running a restaurant, including those for power, water, gas, and internet services, should be considered.
- Equipment and Maintenance: Restaurants need various equipment, including POS (Point of Sale) systems, kitchen appliances, refrigeration units, ovens, and stoves. These things need routine upkeep, fixes, or replacements.
How much does it cost to open a small takeout restaurant?
Opening a small takeaway business can be very expensive, depending on several variables, including the cost of rent, staffing, food, utilities and many more. To open a small takeout restaurant can cost anywhere from $50,000 to $200,000 or more.
How much does it cost to open a fast food restaurant?
Opening a fast-food restaurant can cost between $200,000 and $500,000, depending on several factors, such as construction costs, cooking equipment, legal fees, renting a commercial space, or purchasing an existing building. However, it’s crucial to remember that these numbers are only approximations, and the actual expenses may differ significantly based on various factors unique to your company.
What is the highest cost in operating a restaurant?
A large number of personnel are often needed in restaurants to execute various tasks and functions, assuring efficient operations and top-notch client care. Given the labor-intensive nature of the restaurant sector and the demand for qualified staff, wages, and related expenditures can pile up quickly.
Is it necessary to hire a restaurant consultant or professional accountant to help with financial planning for a new restaurant?
While it’s not mandatory, hiring a restaurant consultant or professional accountant can be highly beneficial when opening a new restaurant. They can provide expert guidance in creating a realistic budget, forecasting revenue and expenses, and identifying cost-saving opportunities. Their experience can help you make informed financial decisions and increase your chances of success.
