The cost to open a restaurant can fluctuate anywhere from $250,000 and $2 million. That’s quite the range. How do you figure out where your dream restaurant falls on that spectrum?
Before the fun of becoming a restaurateur starts, there is a lot of planning to do. Realistically, it will be a while before you’re making money, and even longer before you’re making a profit. However, if you go into your venture planning for that, you stand a better chance of being around for the long haul.
This may sound overwhelming, (and, let’s be honest, a little discouraging), but it doesn’t have to be. The best thing you can do to make your restaurant a success is prepare yourself for the cost of opening a restaurant, and estimate as realistically as possible what it will cost to operate it.
So how much money do you need to open a restaurant?
Well, it all depends on your costs, of course. The good thing is that you can figure out costs with a very a detailed business plan.
There are a lot of tools online that can help you write your business plan. Whichever tools you use, start with a very clear vision of your dream, with as many specifics as possible. The more specific and realistic you are right from the start, the better. Going through this will not only give you a realistic idea of how much money you need to raise, it also helps you go out and find that capital you’ll need to raise. Once live, make sure you’re tracking your expenses with a POS system, and matching that against your business plan.
What to Keep in Mind While Writing Your Business Plan
Food cost needs to be a tremendous consideration. Based on a wide range of research, food and beverage costs can range anywhere between 25 to 40 percent of your total startup costs. If you plan on offering a broad, diner-style menu, anticipate you’ll be on the higher end of this distribution.
Just remember, a broader menu means more inventory. And more product means the potential for more loss—losses that definitely factor into restaurant startup expenses, as well. It helps to have a clear idea of what you’d like the menu to be, and spend some time researching those ingredients and suppliers in your area. This helps you see current costs, and will help you figure out what your prices would be. All this helps to project your future profits.
This includes all the items you’ll need to keep things running smoothly, like kitchen equipment, linens, dishes and glasses. It may also involve laundry services for tablecloths and napkins, or valet services if your location doesn’t have parking.
Ask yourself how much staff you’ll need in both front-of-house and the kitchen. What types of salaries will you be paying, and what types of benefits you would like to offer your employees? Don’t forget to include what it will involve to train your staff and keep them happy and successful.
Manage your restaurant’s money with our Restaurant Expenses Tracker.
4. Administrative Costs
These costs can easily be overlooked and can quickly eat into your profits. Don’t be taken by surprise; plan for them from the start. These costs include things like credit card fees, a point-of-sale system, menu printing. Also, what are the costs for your monthly rent, the permits you’ll need in your city, advertising, and general bookkeeping?
5. Hidden Costs
Beyond the obvious food, labor, and administrative costs, there are also overlooked costs that carry a significant price tag. While it helps to be aware of what they are so you can plan better, don’t let them discourage you from your goal of becoming a restaurant owner.
Even though the intense effort required to get up and running typically lasts for about 5 to 10 years, as Paul Abrahamian of Sticky Finger Joint in New York City told Thrillist, despite all the hard work, “it’s hard for me to give anyone a reason not to pursue their own dream. If you don’t have a dream, you don’t have much. At the end of the day, there is only one type of success, and that is to be able to live your life your own way on your own terms. One cannot think in terms of the monetary. One must think in terms of the pursuit of happiness.”
Of course, technology is essential, but this is one place where extra spending creeps in. Thinking of your restaurant as the new business that it is, Restaurant Engine asks, “Does your startup really need it all? Too much high-tech can be bad for your restaurant’s financial health.” Even in the places where tech is necessary, consider whether or not the newest models are essential or if you can get away with using older and less expensive versions instead.
Fancy marketing firms come with a price, but in today’s day and age, all it can take to get your restaurant known is a solid Instagram presence. If you’re not at the place where you can invest in an expensive media strategy, there are plenty of freelancers out there who are just as adept who can run your social media marketing like a pro, without all of the overhead costs associated with hiring an agency.
Everyone knows they have to pay utilities, it’s just the actual cost of them that might take new restaurant owners by surprise. It’s smart to look into your utility situation before signing the contract. Like in residential situations, sometimes previous owners leave without settling up their bills. By signing on, you may take on the debt and have to pay it before services will start.
Background music is one of those things that is so common these days that it practically goes unnoticed, but when it’s not there, the silence can be deafening. If you plan on playing music in your restaurant, you’ll have to pay for the rights to music because restaurants are commercial businesses and thems the breaks. Compared to the other heftier costs of starting a restaurant, music licensing costs are minimal, but they’re something so many owners forget about and, therefore, don’t budget for.