Given the considerable risks and long hours, operating a restaurant is among the most gratifying experiences you can have. Plus, the industry has almost no limitations with how big you can grow.
With all that in mind, you might decide to go for it and open your own restaurant. But, you may discover you have a lot of questions.
You might be wondering: “how much does it cost to start a restaurant?” Or “how much capital is required to start a restaurant in Boston or a pizza shop in Houston?” amongst several more.
There are a number of initial expenditures to take into account, and also a good deal of factors, making this a difficult subject to address. We'll go through how much it costs to start a restaurant and how you can optimize your restaurant costs!
How Much Does It Cost to Start a Restaurant?
The solution isn't simple and depends on a variety of things, including the sort of restaurant you want to create, where and how you want to operate, and how big of a restaurant you want to open. Do you want to launch a sit-and-dine restaurant or do you only want takeaway and delivery? Or perhaps you want to start a ghost kitchen?
You can navigate how much it costs to start a restaurant by narrowing down these factors and understanding the costs of founding and maintaining a restaurant. Let’s consider each of these factors first!
1. Inventory Expenses
You’d agree on one thing with us: your inventory is literally the bread and butter of your restaurant. Running out of inventory stock would be the last thing you’d want, especially when you’ve just launched.
Thus, a well-stocked inventory assures that the back-end has all it needs to deliver consistent service.
Food accounts for somewhere around 28% to 35% of your restaurant’s recurring costs. The cost of food varies depending on the menu items you intend to provide. A steakhouse, for example, may have food expenses of up to 40%, whereas a pizza deli may have food costs of closer to 28%.
Moreover, rather than focusing just on reduced food prices, it is best to consider a menu based on the item's gross profit contribution.
Lastly, don't forget to consider food waste. There's a fine line between not having enough of something and having too much. It has been found that about 6 out of 10 restaurants fail to effectively manage their inventory and order too many foodstuffs, squandering both money and food.
Pro Tip: Ghost Financial offers you 1% cash back when you use our charge card to stock up your inventory. This way you can keep a check on overstocking and also earn cash back with every purchase. Get Pre Approved now!
2. Location & Rent/ Lease
The location of your business is one of the most crucial considerations you'll have to make. The expense of opening a large restaurant with a large dining room will be substantially more than opening a small restaurant with simple takeout and delivery operations.
You may also be able to examine the following choices, depending on your concept:
Investing in a new building and starting from the scratch
Purchasing an operational restaurant and opening in an existing kitchen
Creating a restaurant out of an existing business area
Starting a Ghost Kitchen
The security deposit for your restaurant lease might vary from $2,000 up to $12,000, depending on which city or location you choose. If you want to buy the property with a loan, you'll need a minimum of one-tenth of the cost as the down payment.
3. Point-of-Sale (POS) System
Staying on top of trends that may impact the company and help increase revenue is vital in the consumer-driven hospitality industry.
Not only can sophisticated software make management, waiters, and hostesses more efficient, but it also elevates the dining experience. As a matter of fact, almost eight out of ten restaurant owners feel that restaurant technology enhances their sales as well as efficiency.
You jeopardize your relationship with your clients and provide them with inferior experiences, which may significantly cut profitability. When making technological plans, keep the following in mind:
Nearly a quarter of restaurants claim they spend three or more hours a day working on employee calendars. This is why a scheduling system is so important.
To deliver a consistent client experience, a robust POS (point-of-sale) system is essential. Furthermore, 70% of restaurant operators say that having access to data from their POS system helps them increase earnings.
If you provide delivery services, it's critical that your system integrates with numerous providers to establish a unified process.
The price of your tech will vary depending on the tools you choose. Regardless, use systems that allow you to gain insights. These insights will allow you to have a comprehensive understanding of the numerous aspects that drive sales.
A Point-of-Sale (POS) system or related technology should cost around $20,000.
Consider how many people you'll need at the front of house, as well as in the kitchen. What levels of salary will you pay, and what kinds of perks would you wish to provide to your employees?
Hourly salaries, vacation compensation, sick leave, employee compensation, payroll tax, and other labor expenditures make up a major portion of your operational costs.
Restaurants aim to maintain labor expenses between 25% and 30% of total revenue.
Your labor cost is influenced by market factors and new legislation. New minimum wage legislation, for instance, might have a major influence on your labor expenditures.
Did You Know?
The yearly turnover rate for restaurants is 72.9 percent, as per the National Restaurant Association. So, don't forget to factor in the time it will take to educate your employees and cheer them up effectively.
Employee retention is crucial since hiring and training a new employee can cost over $3,500.
Don’t forget to take into account your own salary as well.
Every employee of your restaurant is critical to the organization. So you must assure that each one of them is well compensated.
A full-time manager will cost between $28,000 and $55,000 per year to keep things operating properly. Head chefs and sous chefs will be paid $1,300 to $1,800 on a weekly basis, while line and prep cooks will be paid somewhere around $575 to $650 every week. Waiters and waitresses often make minimum pay and pocket their tips.
5. Miscellaneous Costs
There are a few additional areas to explore when you evaluate the possible expenditures of operating your business. Some of these are recurring costs, and some are one-time costs. Let’s take a look!
This part is dependent on the type of restaurant you're operating. Your promotion may be taken care of if you launch a franchised shop. However, in a crowded market, a new restaurant may need to spend a lot of money on advertising and marketing across several platforms and venues.
When you're building an expensive restaurant in a bustling city, you could hire a public relations firm or be contacted by a news outlet seeking information for a feature about the restaurant.
You may also begin by utilizing the power of social media, and then go on to email marketing after your client list has grown.
Price Range: You'll need to be present on a regular basis to be successful. If you want to advertise in print or on television, ad space is limited. When you use social media to advertise on the web, it is usually less expensive or even free.
Restaurant insurance, which covers you in the case of litigation, employee injuries, and other possible liabilities, is one method to safeguard your restaurant against unanticipated damages.
Evaluating the particular insurance coverage required for your restaurant necessitates a detailed examination of the hazards involved with operating your business and the many types of coverages that may assist minimize those threats.
For some, opening a restaurant is a creative venture, therefore they like to collaborate on the design with their general contractor, designer, or artist. Sometimes smaller ventures, such as a café, may not require the services of a restaurant designer.
Price Range: Renovation charges are sometimes required to have your place set up for your specific requirements. The cost of remodeling a restaurant, including the kitchen, can range from $250,000 to $350,000.
All of the tiny things start to mount up at this point.
You are aware that you will require kitchen equipment as well as major kitchen appliances. To bring your restaurant's branding to life for your customers, you'll also require furnishings and décor.
Kitchen equipment and furnishings, which are mostly dependent on the size of your cooking and dining area, are the primary price drivers here.
Price Range: Building from scratch, you may spend as little as $50,000 for a smaller business or as much as $150,000 for a bigger restaurant. You'll also need sufficient refrigeration and commercial dishwashing in addition to your culinary machinery (stoves, commercial blender, skillet, etc.).
License & Regulation
Your restaurant might be shut down if you don't have all of the necessary papers, so don't scrimp here. A business license is required for any restaurant. Lastly, you'll need a liquor license if you'll be providing alcohol (make sure you take a look at the Alcohol Beverage Control Board for state-wise details).
Price Range: Depending on your region and municipal restrictions, a company license might cost anywhere from $75 to $7,000 or more. When it's time to renew your licenses and permits (commercial, food handling practices, branding, and ADA compliance), you can expect to pay around $10,000.
Ghost Financial: Restaurant Financing Solutions
Dedicated fintech platforms, such as Ghost Financial, make it simple to optimize the expenses of your restaurant.
Ghost Financial's 1% cash back charge cards, loans, insurance, and even payroll services will help you run your business with ease, allowing you to focus more on customers and cuisine!
By this point it is clear that the question, “how much does it cost to start a restaurant?” does not have a one-size-fits-all answer.
Many decisions have to be made when launching a restaurant, and one of the most crucial is your business strategy. The restaurant business is undergoing significant changes. You may build a firm that is prepared for continued prospects with more efficiency and fewer upfront expenses by embracing trends like delivery services, investing in customer satisfaction, and preparing for any unforeseen circumstances.
FAQs on How Much It Costs to Start a Restaurant
1. How much does it cost to start a restaurant?
The restaurant business is undergoing significant change. You may build a firm that is prepared for continued prospects with more efficiency and fewer upfront expenses by embracing trends like demand for delivery services, investing in customer satisfaction, and preparing for any unforeseen circumstances.
2. What are the fixed costs for a restaurant?
Lease, mortgage, salary, loan payments, license fees, and insurance premiums are all fixed expenditures. Because these prices don't change significantly month to month, they're easier to budget for when starting a restaurant. Food, hourly salaries, and utilities are examples of variable expenses.