The cost of opening a new restaurant can leave some reluctant restaurateurs on the fence. Industry statistics report the average startup cost for a restaurant is $494,888. While this number seems exorbitant, it can vary depending on the type and size of restaurant you plan on opening.
Recent industry trends indicate restaurants are no longer limited to fast, casual or fine dining. Newer concepts such as “fast casual,” food trucks, gastropubs and pop-ups have become commonplace for many restaurateurs. These restaurant concepts vary in startup costs and encourage business owners to explore different routes within food service.
Owning a restaurant is not a one-size-fits-all endeavor—the recipe isn’t exact, but the key ingredients are the same. From food trucks to five-star dining, this guide will inform small business owners of the financial checkpoints for opening a new restaurant.
Having a general idea of startup costs can help restaurateurs source the necessary funds to launch their new business. Small business loans, private investments and equity firms are a few types of funding.
Many restaurateurs also seek partners to split the upfront cost. Typically, partners desire an active role in decision-making to ensure the profitability of their investment. Crowdfunding has also become a popular choice recently, which draws in the support of local consumers. To see your options when it comes to raising investments, see our Finance & Funding for Small Business.
Land acquisition, location improvement and kitchen equipment consumes a large portion of the initial capital. According to a survey by RestaurantOwner.com, the average cost of construction for a new restaurant is $279,807, or roughly 47% of the total budget.
Moving into a former restaurant space rather than creating one from the ground up can reduce the startup cost by more than half. Doing so also reduces the risk of construction complications, which can lead to a postponed grand opening. Depending on your restaurant’s location and city ordinances, alcohol permits are sometimes grandfathered in and remain intact with the location.
If you’re leasing the restaurant’s location, consider the costs of the security deposit, first month’s rent and first month’s utilities as part of initial capital. Rent can range between $3,000 to $12,000 per month, based on location and square footage. The combination of taxes, permits, insurance and building-related costs are considered part of the occupancy cost not including rent. These expenses add upward of $15,000.
Also consider the cost of furniture, such as tables, chairs and decor, which costs around $40,000. Dishes, utensils and kitchen and bar equipment can easily add up to $80,000. Select tableware and dishes that are durable to avoid replacing them often.
Consumers often choose restaurants based on ambiance and the overall dining experience. Hire an interior design or consulting group to select the appropriate decor aesthetic, and allow them to design an inviting space that encourages loyal clientele.
Going the mobile route? Food trucks are an excellent opportunity for restaurateurs to launch a concept at comparatively minimal startup costs. Food trucks can range anywhere from $30,000 to $250,000. Startup costs and overhead are typically lower than a traditional brick-and-mortar restaurant, but can still provide an equivalent level of profitability.
Restaurant technology ensures that your front- and back-of-house teams communicate effectively. It also ensures your restaurant is running at its fullest capacity. Discover a point-of-sale system that best suits your staff – one that is cloud based will get you up to speed with current technology. Cloud-based software runs on an iPad, which allows servers to send orders directly from the table to the kitchen. This allows for more accurate ordering and can eliminate errors. In the event of a power outage or slow internet, the “Always On Mode” still allows the user to take payment.
Consumers are becoming more aware of their digital options when dining. Online and mobile-based ordering increases convenience and encourages consumers to dine out or order takeout more often.
Inventory and Cost Management
A comprehensive POS system will be able to track inventory levels in real time and allow you to enter recipes so that ingredient levels are tracked as dishes are ordered. Ordering as needed allows you to provide fresher ingredients and subsequently eliminate waste, which can equate to a huge loss of revenue and one of the biggest factors when it comes to cost management.
Learn the 80/20 rule when creating your menu and tracking inventory levels. The National Restaurant Association advises that “80% of your food costs come from 20% of your items.” Join a large purchasing group, and negotiate prices on the 20% that create the most revenue. By signing a contract with a large purchasing group, you’ll avoid sudden price increases caused by weather patterns or transportation costs.
Keep your first order lean to eliminate waste. This initial supply should hover around $8,000. Once you develop more cash flow, order greater volume to accommodate your growing business. Assess the quality of ingredients you are ordering. Sometimes, featuring different cuts of meat and seasonal produce allows you to ensure quality while keeping costs at a minimum.
It’s commonplace for restaurants to provide meals for their staff. Ensure your crew is accurately tracking their meals to account for inventory.
See our tips on how to improve your inventory management.
Advertising and Marketing
Account for signage and menus in your marketing costs. Restaurants that change their menus often choose disposable menus printed on high-quality paper, durable enough to withstand a few uses. Consider a single-page, double-sided menu rather than a multiple-page menu that can be become costly, not to mention overwhelming for customers. Hire a graphic designer to craft a well-designed menu that is not only easy to read but is also aesthetically pleasing.
Ads and coupons can run upward of $5,000 to $10,000. Many of these ads and coupons are digital and can be integrated into online platforms such as Yelp and Groupon.
Social media has become more prevalent in recent years as a way to promote your restaurant by directly interacting with potential customers. The popularity of social media apps like Instagram, which has more than 400 million users, allows people to share photos of their food. The influence of active bloggers and food critics via Instagram is essentially free PR and marketing.
Build a social media following to reach a wider audience. Engage your audience by sharing photos regularly and replying to comments. Get your executive chef and sous chefs active on social media to share photos and daily specials. Customers are more inclined to visit your restaurant when you can set their expectations visually.
If you own a food truck, social media is incredibly important and essentially creates the bread and butter of your business. Update customers regularly to share your location for the day.
If you’re starting a restaurant, you know there are many key financial points to hammer out before a successful launch. Keep your vision, your budget and your level head as your top priorities.