Tips

How Much Does it Cost to Start a Restaurant?

Cost to Start a Restaurant business startup

Starting any business requires money, time, and effort. However, finance is the most crucial, or probably the primary resource that is quite important to organize well in advance when planning a restaurant. Restaurants are unique in nature, and you need quite a few things and a lot of effort to get it started. And, given to its nature, you cannot start a good restaurant without a significant investment. One must plan properly and make sure the process goes according to the plan.

You have to know the cost of a start-up restaurant. Understanding the breakdown of an average start-up cost is very important, for it will determine your financial strategies for the coming years. Make sure no stone goes unturned when budgeting. We have tried to make things easier for you by breaking down the cost of the restaurant. This estimation will suit most restaurants in your city. You may have to alter a bit here and there for perfect figures.

Start with the Salary

It is a great idea to draw a salary for yourself even if you are going to be a business owner. You have to pay for your needs and wants, and that is the primary intention of opening a restaurant. Your restaurant should support you financially first and then look after other things. However, the salary you set for yourself may affect the money that you set aside for investment in the business.

You can achieve this in two ways. You can either take a percentage of expected sales or take the bare minimum required to fulfill your needs or make ends meet. A successful restaurant definitely provides a stable income. You shouldn’t set your goals to get rich quickly, which most restaurants do, but rather climb the ladder slowly to the top and maintain the same.

If you are successful at planning the rest of the things, you will be making between $36,000 and $72,000 in the first 4 years.

It is important to turn a great business plan into a functional operation. Several costs are associated with a new restaurant and you need to know about all of them. We have mentioned below the different estimations of business cost.

Administration Cost

The first thing you need to form is a business entity. If you want to run your business operations legally, you will have to give it a structure and apply for a license. While doing so you will incur different costs, such as pay fees to the state corporation, pay for tax licensing work, and charges of attorney. You must hire an attorney to ensure all legal works are carried perfectly.

A legal structure gives protection to your business. You can either incorporate a partnership business or a Limited Liability Company or become a corporation. The cost of incorporation totally depends upon the country and state you are living in. On average, the processing fee should fall anywhere between $100 and $250. Government filing fee and franchising tax fees may cost you an additional $1000 to $1200. Since you will be paying legal fees, make sure you utilize the services of your attorney completely and double check to see all requirements are duly met.

If your attorney is an expert, he will be able to navigate most of the additional filing fees and requirements for you. You will incur additional licensing charges if you plan to install a bar in your restaurant as well. You need a license and permits to sell hard liquors in your city. All in all, your legal bill should range between $1000 to $5000, depending upon the amount of work to be done.

Cost of Equipment

Equipment, supplies, and inventory will take up 60% to 70% of your investment cost. Kitchen appliances, cutlery,and furniture can be very costly, which can make a restaurant expensive than most other start-up companies. Even if it is small and petite, you really need to invest in the supplies and equipment.

Here is a list of things that go into most well-equipped restaurants:

  • Cooking Tools: Ovens, stoves, barbeques, grills, cookers, broilers, fryers, griddles, pans, steamers etc
  • Kitchen Appliances: Refrigerator, cold storage, freezers, dishwashers, mixer & grinder, juicer, heat lamps, tea and coffee machines, ice machines, soda fountains, condensation hoods, blenders, etc
  • Cookware: Baking trays, saucepans, iron pans, knives, chopping board, choppers, ladles, brushes, spatulas, containers, jars etc
  • Workspace: Counters, food coolers, prep tables, steam tables,and storage spaces
  • Serving Dishes and Supplies: Glassware, silverware, table cloth, placemats, napkins, and a toothpick
  • Furniture: Tables, chair, stools, booth, reception counter, cash counter, etc.
  • BarTools and Equipment if you want to incorporate a bar as well: Liquor, glasses, napkins, shaker etc.

Apart from these, you may also incur supply costs, such as the cost of ingredients and beverages. You don’t want your restaurant to run into challenges while serving the customer. Food service is a critical business, and quality and quantity are the two main factors that determine success. By making sure every detail is accounted for, you will enhance the diner experience.

Therefore, your cost of equipment for the kitchen and bar should be approximately around $1, 50,000 and the cost of furniture should be between $32, 000 to $40,000. The amount will vary depending upon the type of restaurant, its size, and services provided.

Cost of Rent and Refurbish

The location is as important as your service quality and food quantity. One of the important factors that heavily contribute to the rate of success of a restaurant is its location. It will also impact your day-to-day operations. If you choose to set your restaurant in an upscale or very busy location, space can be expensive to rent or buy. And if that’s the case, your food sales should create a sizable cost to support the space. On the other hand, if you choose a laid-back area, you may not have to spend a lot on renting the space. However, you may not receive as many customers as you wish to.

Rent cost will hugely vary from city to city, even area to area. Therefore, we may not be able to exactly point out how much it would be for you. You should do some rough calculations in your mind to get the figures and note it down in your business plan. Before you figure out your rent cost, make sure you calculate for a restaurant of at least 2000 sq. ft. in size.

You may also have to calculate the additional costs that are associated with a property, such as utility cost, insurance, and property tax. Rent is a recurring expense. However, you will have to pay a one-time security deposit to the owner of the property at the time of signing the agreement.

Along with recurring fixed cost, you may also incur several variable costs, such as electricity, water, gas, plumbing etc. Leasing may be cost effective for some of you, but the variable cost will nonetheless be an additional expense that you need to account for.

This was all about rent and utility expenses. Some of you may also require spending money on repairing and refurbishing the space to suit a restaurant. Renovation may include interiors, architecture, electrical, plumbing, flooring, painting, water-proofing, deep cleaning, painting, window treatment, pest control, etc.

Depending upon the space you choose, your restaurant renovation can easily shoot up to $50,000 and sometimes even more. Henceforth, try to fund a space that is already built for a food service company. Better yet, buy an old restaurant. Most restaurants have customized built-in kitchen, which can cost a start-up a lot. So, plan accordingly to accommodate your financial goals.

Cost of Insurance Policy

If you want to be fully protected from liabilities, make insurance an essential part of your business. In fact, most countries have made it mandatory for businesses to own insurance policy. Although a lucrative business, restaurants is quite risky too. In a place where too many guests are served at a time, and where several electrical appliances and burners work simultaneously, the risk of injuries and accidents are definitely higher than other businesses. That’s why adequate protection is indeed necessary in a restaurant.

Based on the restaurant size, organizational structure, service provided, location and operation, your start-up insurance will vary in price. All in all, you may have to spend around $500 per month on your insurance premium. While choosing aplan, make sure you select something that allows multiple deductibles.

You may need some or all of the following insurance coverages to run your restaurant worry-free:-

  • General limited liability business insurance to provide comprehensive protection to your business
  • Worker’s compensation insurance policies to protect employees from injuries and accidents
  • Liquor liability insurance if your restaurant serves hard liquor
  • Commercial vehicle insurance if you offer delivery service
  • Restaurant insurance for industry-specific risk (this is optional or depends upon your state regulations)
  • Loss of income insurance, if your restaurant is closed temporarily due to theft and fire, or another unforeseen incident, such as murder

Permits and Licenses Cost

The food and beverage industry is highly and strictly regulated. No restaurant can operate without permits.Failure to apply for and obtain the required licenses and permits may lead to heavy fines and even untimely shut down of the restaurant. Most of the permits can be obtained against a fee, so you will have to set a special budget for that as well.

We have mentioned the common licenses that most state requires the owners to obtain. However, for exact details contact your state corporation administration and enquire. Here is the list:

  • Food Service Permit: Can cost you between $100 and $1000 based on your location. This permit lets you serve food to customers. The license is received from the state’s department of health.
  • EIN: Employee Identification Number is required to file taxes, open a bank account and for employees. It can be obtained from the IRS for free.
  • Liquor License and Permit: Can cost you anywhere between $3000 (beer and wine) and $12000 (full service). This permit allows you to serve hard liquor in your restaurant bar. The process of application changes from city to city and can be costlier than above projection.
  • Zoning Permit: It will not cost you more than a hundred dollars. The permit allows you to set up a restaurant in your chosen locality. For more information, contact your local corporation.
  • Food Safety and Hygiene Permit: This license may cost you around $100 to $500. This license makes sure you meet the food safety and hygiene regulation laid by the FDA.
  • Sign Permit: A sign permit lets owners hang a sign of the restaurant in and around your city. The fee could be as less as $50. You need to obtain the rights from your city corporation office.

Marketing Cost

With the advent of social media marketing and digital strategies, start-ups need not have to spend thousands on their marketing. Digital marketing will not cost you more than a few hundred dollars, yet give you a bunch of benefits. You can also use traditional options like Radio, Newspaper, and TV for promotion and advertising. This medium may cost you between $50 (radio) per ad campaign and $200 to $1000 (for TV commercials). All in all, it should not go above $1500.

Payroll and Accounting Cost

An accounting and bookkeeping system is inevitably important for restaurant business with the number of customers visiting and the supply chain management you need to take care of. Therefore, instead of hiring staffs and doing everything manually, we believe investing in Accounting software will prove beneficial to you. It will not break your budget either. QuickBooks is a popular accounting and bookkeeping software that can streamline processes and boost accounting efficiency. It can easily integrate with your POS System that lets you automatically feed data, minimizing the chances errors.

POS system will systemize processes like sales tracking, inventory management, sales trend analysis, and product orders. You can invest in a small-scale Point of Sale System and save thousands on significant expenses.

Try to develop a concrete financial plan to ensure restaurant success. Post your doubts in comments below and we shall answer with suitable solutions.