Are you a professional cook hoping to branch out on your own? Maybe an aspiring chef ready to take the next step, or an investor looking to make some money. For many, the allure of opening a great restaurant calls. But opening a restaurant can be a challenge. The initial and ongoing cost to open and operate a restaurant is pretty steep. Like most big purchases, financial assistance may be required in order to start from scratch. The cost to opening a restaurant can be daunting to some.
On average, the cost to opening a restaurant in the USA is around $275,000. That number can jump even higher if you’re planning on purchasing the space instead of leasing, up to an average of $425,000. Obviously the numbers can also change depending on the area. Expect a much higher cost basis for cities, and lower for more rural areas. So expect a pretty sizable investment to get your restaurant up and running.
But don’t worry! We’ll help breakdown the financial considerations for all angles of the restaurant, and help give a clear idea of how you can prep and budget. Let’s make your culinary dream a reality.
1. Securing the Space
A food truck is a great way to save money on space, and test a proof of concept
Deciding on the space of your restaurant is the first step, and cost, to tackle. To buy a location outright, you’ll be looking at a down payment of 10%.
The cost of real estate is completely dependent on location. Most great restaurants also have a great location, and you’ll likely be paying a premium for that kind of exposure. Location is key, so expect a hefty upfront expense.
The same goes for renting a location. You’ll want to secure a loan to take care of the first few months to a year of rent.
Estimated Expense: $12,500-$40,000
If you decide to lease a commercial kitchen space rather than buying a property, you’ll only be responsible for the security deposit and first month’s rent. But it could take you some time to get comfortable, so try to have a couple extra months rent at the ready.
Food halls are great, highly visible spaces to test your restaurants proof of concept before branching out and incurring more challenges.
A food truck has lower expenses and debt obligations, and can lead to higher margins by saving on space and staff.
2. Construction or Renovation
Whether you’re building from scratch or taking over an established spot, construction costs can be pretty steep. Plumbing, support, walls, and electrical can make for a complicated situation. The cost will build depending on what needs to be done.
Try to buy a space that’s easily convertible for your needs instead of building from scratch.
An existing restaurant is ideal, since it will already have a solid layout, and will be set up with plumbing and electrical.
3. Kitchen Equipment
Once you’ve secured and set up the space, it’s time to build a professional kitchen. Kitchen equipment can also incur a pretty heavy initial expense. Outfitting a capable kitchen requires cooking ranges, grills, refrigeration, and sanitation equipment. Despite the expense, it’s vital to invest in topnotch products that can last a long time. In addition to the machinery, you’ll also have to grab pots, pans, silverware and glassware as well.
If you’re planning on having a bar, additional investments will include a tap system, display cases, and bar installation/organization. need to invest in a tap system, liquor displays, and underbar organization.
Estimated Expense: $75,000-$115,000
If the initial investment for all of this seems too steep, leasing the equipment can be a great idea. This won’t incur such heavy initial expenses, and oftentimes the company that you are leasing from can provide support and maintenance.
This expense is tethered to your own personal tastes and concept. Smaller, more intimate spaces may require less furniture, while larger and more industrial spaces will end up more expensive.
Opening an upscale restaurant probably requires more fancy and high end furnishings. But a more no-frills, casual spot can be decorated on a tighter budget. Some folks might also decide to consult with an interior designer to prefect the aesthetic.
Estimated Expense: $20,000-$50,000
Keep an eye out for restaurants that may be closing, or for estate sales. You can snag some decent inventory and can often find some pretty good deals on fixtures and decor.
5. POS System
In order to open a successful restaurant, things have to run smoothly. The key to efficiency restaurant lies in a good POS system. Point of sales systems helps to streamline customer ordering, manages inventory and employee management, and keep on top of sales and financials.
The installation of these systems should include touchscreen monitors, receipt printers, and credit card scanners. They also should have a component that organizes ticket printers and display screens for the cooks in the back. Don’t skimp on these systems – the short term money you’ll save by not getting one will result in a massive time suck down the line.
How to Save:
Don’t feel like you have to spring for the fanciest option right off the bat. Most features and services can be added to your system down the line, once you have a better feel for what your restaurant needs.
Get training sessions for the staff. This will help to reduce learning curves that come with new technology.
Although it will always be a reoccurring expense, stocking your kitchen might be more expensive at the start, before you know your customer base, trends and needs. This will also include nonperishable items that you can keep for longer periods of time before reordering. These include condiments, spices and garnishes, cooking oils, and beverages.
To calculate an initial expense projection for food, start by analyzing your menu and pricing out each ingredient, and trying to figure out what kind of volume you might expect in the initial weeks..
Estimated Expense: $5,000-$25,000
Have an idea of how much of each food item is needed per dish. This can give you a basic guideline for how much each meal costs to make.
Always buy in bulk. Cost breaks are a real thing, and you can start to build relationships with suppliers to leverage costs for the future.
7. Fees and Licenses
Bars will incur a higher expense
Licensing is a fee that you’ll have to prep around before you even open your doors to the public. You’ll have to file for a business license, obtain a certificate of occupancy, get licensed to sell food, health and sign permits, and acquire insurance.
If you’re hoping to serve alcohol, you’ll also need to acquire a liquor license. This can be costly, and in some instances downright impossible. If you live in a “quota” state, certain towns may have limited numbers to sell, which can make the price wildly expensive.
There’s no way around the fees for most permits, but only insurance is an annual expense.
Skip the liquor license if possible! BYOB places are cozy and trendy, and avoid the upfront expense of a license in tough areas.
Marketing your new restaurant is vital. Theres a ton of ways to get the word out, and you’ll want to bust open your wallet in order to drive hype and people through the doors. Ad agencies both digital and print are available to help run campaigns. You can also chose to handle it in house, but be prepared to spend time on marketing projects.
The cost for marketing is going to depend on what kind of media you use to market, and if you’ll outsource any services. Signage, branding, and menus are also a marketing expense that you’ll incur off the bat.
Estimated Expense: $6,000-$30,000
Cut down on the marketing cost dramatically by using free mediums like social media to promote your restaurant.
Instead of paying top dollar for a website, use facebook and instagram to promote, share photos and menus, and announce news.
Listings on Google and Yelp can help with awareness.
Don’t be scared to rely on good old fashioned word of mouth. News travels fast, especially when the food is good.
You can always ramp up marketing once you have a better understanding of your situation and needs.
Staffing a restaurant will be an ongoing, high level expense
Investing in good staff is an expensive yet crucial final step. Before you can open, you’ll need cooks, servers, and busboys to keep everything running smoothly. Hiring experienced professionals and spending money on training will help smooth out issues as you scale.
Cost can vary depending on experience, minimum wage, and capacity. Hiring highly esteemed cooks, and retaining key members can also ramp up the expense ratio over time, as can investing in benefits for employees.
Estimated Salaries, Wages and Benefits: Completely unique to certain areas.
Don’t overstaff to start! Hire when the need arises.
Work on your business to save a buck. Do some of the dirty work, or cooking (as qualified) while your business ramps.
Whether you’re opening a gourmet, upscale restaurant or simple eatery, the cost can vary pretty dramatically to start. But regardless of what kind of joint that you choose, there are plenty of avenues to become a massive success, and ultimately turn a nice profit. Getting a good sense of your initial cost basis is the best way to build a path to success. With some hard work, smart budgeting, and great food, opening a restaurant can be a real dream come true.