Restaurant startup costs: how much do you need to cover

One of the biggest obstacles to starting your own restaurant, if you’re one of the chefs, foodies, or entrepreneurs who has always wanted to do it, may be the restaurant startup costs.

An expensive initial cost may be needed to open a restaurant. How much cash are we talking about?

It takes courage and is not recommended for the weak of heart to open a new restaurant. The hospitality sector is competitive. You have a creative imagination and a love of eating.

But if you go ahead and open your own restaurant, a lot of questions come up. The most important question is “How much does it cost to open and operate a restaurant?” Or perhaps you’re curious about how much it costs to open a deli or a pizza parlor. Or “How much does it cost to open a high-end restaurant with distinctive fare?”

These questions have a variety of responses. For a leased building, the typical launch cost in the restaurant industry is $275,000, or $3,046 per seat. If you want to purchase the facility, increase that to $425,000, which works out to $3,734 per seat.

All the costs you’ll need to take into account to turn your dream into reality are in our checklist for restaurant startup costs breakdown.

A survey by a restaurant owner found that the restaurant startup costs might be anywhere from $175,500 and $750,500. That’s a substantial sum of money, but how can you determine how much you will actually require?

There are unique costs to consider when opening a restaurant. Keep in mind that the average cost of opening a restaurant varies depending on its size, location, and the variety of decisions you’ll have to make.

For instance, launching a deli, pop-up restaurant, or other takeaway restaurant like one delivering pizza, for example, will be significantly less expensive than building a restaurant with 200 seats in a posh neighborhood.

Before creating a permanent location, some restaurant startups tested their ideas as pop-up eateries.

No matter what kind of restaurant you plan to open, it’s initially helpful to separate the expenses into two groups: one-time charges and recurrent costs.

The most significant restaurant startup costs that a prospective restaurateur needs to account for when creating a budget

Rent

The general practice is to set aside 5–10% of your anticipated sales as rent and utilities when leasing a restaurant facility.

Your monthly lease or mortgage payment, the most evident continuous cost in the restaurant industry, can change depending on a variety of factors, such as location and deal negotiating. The monthly cost of your apartment could range from $2,000 to $12,000.

When you purchase a spot, you are responsible for paying taxes on both the property and the surrounding area. The number of years you can stay in a location under a lease, on the other hand, may be limited, but you can always agree to an option to renew, with a modest percentage rise for each month or year you remain open.

You will be in charge of purchasing or renewing your insurance on your own, whichever you choose.

For instance, you can anticipate the expense to be closer to the low end of the spectrum, at roughly 5-8%, if you’re situated in a suburban neighborhood or small town.

On the other side, you may have to pay up to 13% of your restaurant’s sales if it is situated in a pricey neighborhood like downtown New York City.

Equipment

Prior to beginning your budget, identify the equipment you’ll require. Your restaurant’s idea will decide the equipment needs.

Costs for kitchen equipment, furnishings, small wares, and cooking equipment typically vary from $100,000 to $300,000.

Large appliances including fryers, stoves, refrigerators, and freezers can cost up to $100,000.

Dinnerware, glassware, utensils, and more compact restaurant supplies are all considered small wares. Typically, these restaurant expenses total around $80,000.

You might start from scratch for as little as $50,000 for a small enterprise or as much as $150,000 for a larger establishment.

You’ll need sufficient refrigeration, a commercial dishwasher, and your cooking tools (stoves, commercial mixers, grills, etc.).

When it comes to buying kitchen equipment, many new restaurants tend to overpay. A cost-effective choice is to look for used equipment. To recoup costs, certain restaurants that may have just gone out of business frequently sell their products online. You can save money by looking for high-quality used machinery that is still functional.

Here are some of the equipment you will most likely need:

Ovens, stoves, refrigerators & freezers, dishwashers, and other kitchen equipment.
Cooking utensils include pots, pans, chopping boards, pasta pots, strainers, ladles, and other items.
Workspaces include countertops, prep tables, steam tables, cold food tables, and so on.
Equipment used in bars includes mixers and blenders, cocktail shakers, ice makers, etc.
Utensils, glasses, tablecloths, and serving trays are examples of service equipment.

Licenses and permits

There are a lot of licensing costs new restaurant owners need to consider. You must obtain a restaurant business license first. You should verify your local laws for exact amounts as fees differ from state to state. However, the budget can vary anywhere from $50 and $500.

Most of the time, you’ll need to provide evidence of restaurant insurance in order to obtain a license.

A liquor license is required if you want to serve alcohol in your restaurant, but getting one can be expensive, particularly if your state puts a cap on the number of licenses that can be issued.

A liquor license may cost as little as $50 or as much as tens of thousands of dollars, depending on your state and the type of alcohol you intend to sell.

Additional permits are required, such as the following:

Use and occupancy permits for your building
Permits for food managers and food services from your local health department
Dumpster permission for restaurants

A good option is to have a lawyer evaluate your documents for you. This might increase by $500 to $2,000, or more. Find out more information on restaurant permits and licenses here.

A food handler’s permit is required for any employee who deals with food in your establishment, ensuring that they understand how to handle and keep food securely.

A food handler’s permit in the US costs between $100 and $500 and is often available online from most localities. The price and procedure differ per province in Canada.

The majority of towns demand a food service license from restaurants. The local health agency, which oversees this license, will occasionally visit your restaurant to make sure that your kitchen complies with regulations. The price of a food service license ranges from $100 to $1,000.

Utility

You must keep the lights turned on and the ovens cooking. You’re looking at monthly utility costs of roughly $2,500 when gas, electric, water, garbage removal, phone, and Internet are taken into account.

Accessibility for people with disabilities

Depending on your area, you could have to shell out a sizable sum if you manage a sit-down restaurant to make sure it has an accessible ramp and restrooms for customers with disabilities.

Building upgrades

It’s likely that you’ll need to alter the physical space of your new restaurant, especially if it has never been used as a dining room.

The initial construction costs will vary depending on the scope of the work that needs to be done, such as whether you only need to add a few finishing touches or whether you also need to install a new kitchen and install new plumbing.

The majority of the cost of any renovation will go into your kitchen. Depending on the location, vendors, and pre-existing infrastructure, you might have to spend between $250 and $750 per square foot to rebuild your kitchen and between $100 and $500 per square foot to remodel your dining area.

The concept of your restaurant, your target audience, and the state of the retail property you inherit all influence how much it will cost to renovate and decorate.

When purchased, few units are fully furnished. Even a building that once served as a restaurant and is equipped with a kitchen, refrigerator, and running water could need significant remodeling to give it a presentable appearance.

Paint, window coverings, and flooring for renovations can run anywhere from $5,000 to $50,000 or more.

Our recommendation is to only make initial investments in the necessities: seating, lights, a bar, and the kitchen service area.

Although you would want an Italian-made espresso machine, is the price tag reasonable? Consider delaying non-essential restaurant expenses until you are confident you can take them on without compromising liquidity unless the response is an unequivocal yes.

Establish a renovation budget that you can live with and stick to it. If you’re feeling frugal, there are several DIY restaurant décor ideas that really can help you spruce up your area without spending a fortune.

Employing a designer can cost anything between tens of thousands and hundreds of thousands of dollars.

Remember that after the restaurant is open, it may be difficult to make changes to the interior, so it’s crucial to do it perfectly the first time.

Tables, furniture, and serving utensils

Depending on the number and grade you choose, this fee may change. However, you should budget $80,000 on average for tables, chairs, decor, and other items.

While the food is the most crucial aspect of your restaurant, the atmosphere and eating experience is created by the interior design.

For certain restaurants, the simpler the furniture, the better, therefore there is no need to spend a lot on it. However, it could be worthwhile to work with a restaurant designer to make sure that the environment of your establishment is both appealing and well-planned.

The ratio of supplies (Beverages and Food costs)

The ratio of your predicted revenue to your beverage and food costs should be between 25% and 40%. This cost ratio will be impacted by your restaurant’s idea.

For instance, a tiny pizza may have a cost ratio as low as 20% whereas an upmarket restaurant selling steak carpaccio and caviar may have a cost ratio of 40%.

You’ll be liable for the continuing expenditures of maintaining your restaurant once you’ve covered the initial startup expenses. These include the rent or mortgage, staff wages, raw materials, supplies, utilities, marketing costs, upkeep, and insurance for restaurants.

If you obtained a restaurant loan to pay for your start-up expenses, you would also be required to repay it. Your restaurant must generate enough revenue to pay for these expenses and still leave you with enough profit to support yourself.

Staffing

Although a restaurant’s recommended labor ratio ranges from 25% to 35% of gross sales, the concept of your establishment will have a big impact on this number.

In comparison to quick-service restaurants, where it is normal to budget between 25% and 30% of gross sales, full-service, sit-down restaurants can anticipate a labor ratio of 30% to 35%.

Management pay typically accounts for approximately 10% of the labor ratio in a restaurant startup.

You must ensure that your employees are paid because they are essential to your restaurant business. A salaried manager who can keep things organized will cost you between $28,000 and $55,000.

Your head chefs will receive a weekly salary of $1,300 to $1,800, while your line and prep cooks will receive a salary of $575 to $650.

The standard pay rate for wait personnel is minimum wage, and tips are kept.

Pre-opening and marketing expenses

Keep in mind that there are costs associated with the restaurant’s real opening. You should start a carefully thought-out marketing effort to spread the word, recruit and train staff, and more.

Expect to spend between $5,000 and $20,000 here.

The success of your restaurant is significantly influenced by marketing and advertising, particularly in the early stages.

There is no one method that works for everyone, so use the channels that are available in your neighborhood: Facebook advertising, flyers, community partners, and social media.

The normal range for a marketing budget is 25–35% of your total yearly profit. Since your startup’s revenue is going to vary greatly, you should reevaluate every three months.

A restaurant company can very easily overpay on advertising and marketing particularly if this is not their area of expertise. Think carefully about whether you need outside assistance with your advertising activities right away.

To cut costs, many promotional efforts can be done internally. By registering for social media sites, distributing inexpensive digital ads on social media platforms and blogs, and promoting your company through blog posts and forums, you can quickly take advantage of the internet.

Additionally, you can distribute flyers at neighborhood shops and community centers.

A rent security deposit or down payment for a loan

The location and the size of your restaurant play a large role in how much this cost fluctuates. The average security deposit for a lease is between $2,000 and $12,000.

You must have a down payment of at least 10% of the buying price if you intend to buy the building with a loan.

Technology for ordering and paying (POS system)

You’ll need a mechanism to receive payments, keep track of orders, and manage your inventory if you want to remain in the restaurant business.

For a point-of-sale (POS) system or comparable technologies, the costs differ, depending on the option you’ll choose.

Conclusion on restaurant startup costs

The cost of starting a restaurant is high. It’s difficult to exaggerate how crucial it is that you are fully informed of the startup costs for restaurants and all of the significant, minor, and unforeseen expenses involved.

Before you open, keep your expenditures as low as you can, and periodically review your spending to make sure you’re still on target.

Success as a new restaurant is achievable with caution and an eye on your metrics.

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