Opening a restaurant is often the culmination of years of planning, lots of financial investment, and hours upon hours of hard work. With that said, though, it’s important to know your restaurant startup costs and have a plan in place.
Understanding Restaurant Startup Costs
So — how much does it cost to open a restaurant? There are a lot of factors that’ll play into what each individual restaurant’s startup costs are that ultimately means you’ll need to be prepared for variance.
What Are Restaurant Startup Costs?
Restaurant startup costs are, as the name may imply, the cost(s) that you’ll incur by opening a restaurant. This includes everything from staffing and inventory to rent, utilities, and more; but the important thing to understand is how to plan for them.
Importance of Planning for Startup Costs
Planning for restaurant startup costs is arguably the most important thing you can do when opening a restaurant. While the menu and staff are all clearly important, having money available for all of your inevitable costs is absolutely crucial. Equipment fails, people quit, and things go wrong; it’s just a fact of life. But that doesn’t mean that you should operate without a plan.
If you planned properly, your loan(s) and/or investors should have provided enough capital for a bit of runway, allowing you the flexibility to do what you need. If not, it’s time to do some math.
Initial Costs to Consider
There are quite a few up-front costs to account for when planning for restaurant startup costs.
Business Licenses and Permits
Licensing and permits are a necessary part of opening a restaurant. You’ll need to be actually registered as a business first and foremost; from there, you’ll need to worry about licensing and permits from your local health department and, if you sell liquor, your local liquor board.
You will need to prove that you’ve done the legwork to get things going. This means that you’ll need to have the physical space and, importantly, you’ll need to get it set up properly.
Location and Lease
The next part of our equation is the aforementioned physical space. Running a restaurant requires a location and, more likely than not, a lease. Once you’ve nailed down your location, you’ll be able to plan for your recurring costs like rent. This is incredibly important, because a proper restaurant budget will allow you to plan ahead (ideally at least six months) and have a bit of cushion for when things inevitably don’t go your way.
Equipment and Supplies
One of your largest up-front restaurant startup costs will be equipment and supplies. While this is a bit of a loose term, equipment and supplies covers a variety of tools that you’ll need. From your range, oven, and fryer to the to-go boxes, silverware, and dishes, you’ll need quite a bit to get started.
Because of this, it’s important to take a bit of time to plan out your kitchen after finding a space. Taking the time to measure carefully and plan your kitchen’s setup and refine a restaurant equipment list that is unique to your restaurant concept will make your life so much easier. This is made even easier if you’ve already got an idea of the equipment you’ll need to execute your menu.
Inventory and Stock
Shortly before opening, you’ll need to begin ordering food. This will be one of your largest regular costs (tied with labor, of course), so getting the hang of what you need before you open is really important. Take a week ahead of your opening to see how long produce lasts, how much you’ll need for a few day’s worth of the same dish, and begin to iron out the kinks.
Operational Costs
Beyond the initial restaurant startup costs of inventory, equipment, space, and licensing, you’ll need to worry about the daily costs that you’ll incur over time.
Staffing and Labor Costs
To run any business, you need staff. Staff will cost you labor, obviously, and having an idea of your recurring labor costs ahead of opening will be crucial to establishing a proper budget.
In short, though, know that you’ll need to have roughly three to six months of payroll on layaway to be able to comfortably operate a restaurant. While this isn’t always possible, it’s a goal that should be on your list.
Marketing and Advertising
Marketing and advertising are crucial for any business, but when opening a new restaurant, they can become a make-or-break asset. While potential guests will certainly see your business setting up and getting ready to launch, we want more than happenstance when it comes to motivation for guests to come in.
This, for better and for worse, means that you’ll need to plan for restaurant marketing and advertising. Whether that means hiring an agency or finding a way to market on your own, get your name out there! Social media is the name of the game nowadays, so get started with that and move on from there.
Technology Solutions
Technology is an ever-growing part of the restaurant industry, and as such, it’s important to plan for it when calculating your restaurant startup costs. Most businesses will opt for a Point of Sale (POS) system, but beyond that, there are plenty of resources that can make your life infinitely easier — especially during startup.
Whether that means that you use a third-party software for scheduling, payroll, inventory management, or all of the above, it’s good to get out there and see what you can do to improve your restaurant’s daily operations.
If you’re planning to use third-party delivery services like GrubHub, DoorDash or Uber Eats at the same time, third party delivery aggregators like Cuboh are an excellent tool to consolidate all of them into one, easy to navigate tablet.
Ongoing Expenses
Restaurant startup costs aren’t limited to one-time things, which means that you’ll need to plan for recurring costs, too.
Utilities and Maintenance
Two of the most important things to plan for, beyond rent, inventory, and labor, are your utilities and general maintenance. Utilities are what allow you to cook, so they’ll need to be paid. Beyond that, though, equipment fails (especially if it’s bought used), and nobody wants to be stuck without an oven, fryer, or other tool because the repairs are too expensive.
Instead, plan to keep a small emergency fund in case of failure of equipment. This doubles for your rent and, by extension, utilities.
Insurance and Legal Fees
Business insurance is a requirement in most jurisdictions to protect against injuries in your restaurant. As such, it should be among your “must-have” items on the to-do list. Beyond insurance, though, it’s important to remember that you very well may need to pay an attorney and accountant to help manage your business. While keeping a lawyer on retainer isn’t a necessity, it’s important to know who to call if things go poorly.
Miscellaneous Costs
By their very nature, miscellaneous costs aren’t easy to predict; maybe you need to buy decorations for an event, or wrap your company van for a catering event — no matter the cost, it’s always better to have a budget for miscellaneous costs than to scramble to make ends meet last-minute.
Financial Planning and Budgeting
Nobody likes to get caught off guard, and planning ahead makes your restaurant startup costs far easier to wrap your head around.
Creating a Detailed Budget
Creating a budget requires a good deal of awareness of what you’ll have to handle in the coming months. This means research and, importantly, time to figure out what’s necessary and what isn’t. Before your doors open, make sure that you have a concrete budget in place and, if possible, consult with an accountant ahead of time.
Funding Options for Your Restaurant
There are a few avenues to getting funding for a restaurant. The most common will be bank loans, though it’s also possible to find private investors. Both work, but it’s important to know that private investors will often have a bit more involvement in your business than the bank — so it’s important to trust them.
Beyond the common options, some areas will offer state or federal funding to open a restaurant in the form of a grant. These situations aren’t incredibly common, but if you find that you may qualify it’s definitely an avenue to investigate.
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