The average cost to open a restaurant in the United States ranges from $175,500 to $750,000, depending on the type, size, and location of the business you are launching. How much the restaurant initial costs are can’t be determined until you finish setting it up, but, knowing the range, it will involve a lot of money. So how do you know if you have enough funds?
To get a rough estimate of how much it costs to open a restaurant, you need to set projections. Understanding the different aspects of restaurant opening costs will help you make smart decisions when it comes to drafting your business plan, which will be useful when you start looking for investors or apply for loans.
In this guide, we discuss how to project your restaurant’s startup costs (equipment, technology, and licenses), fixed costs (rent and insurance), variable expenses (utilities and cost of goods), and mixed expenses (labor and manpower). We also talk about how you can cut costs upfront and reduce your risk down the road.
Restaurant Startup Costs Checklist
Business owners have different startup experiences. In fact, some restaurants have managed to open with only a little over $10,000 in capital, while those who simply assumed the operations of existing restaurants have spent much less than those who started building out the space from scratch. However, there are certain things that almost every new restaurant will have to pay for or purchase prior to opening.
These include the costs for the location, kitchen equipment, renovations, licenses, technology, professional fees, and marketing.
Your physical location is one of the most important decisions to make when planning to open a restaurant. Ideally, it should be somewhere that has high foot traffic or plenty of space for parking. While some restaurant concepts have survived in out-of-the-way locations, you’ll have a better chance of success if you set up where customers are sure to pass by. That said, expect a prime location to cost higher than others.
Buying a commercial space entails a downpayment of up to 35% of the price of property. So a space that costs $1 million would require you to put down $350,000 upfront. The rest can be paid off in installments, depending on your agreement with the seller (or the bank). If you opt to lease the property, lessors usually ask that you pay a refundable security deposit worth three to six months upfront. Note that leasing means you have to commit to a certain number of years of occupancy.
If that’s too long, another option would be to rent a space, which only requires a few months’ commitment. The average monthly base rent in the US is $6,914, or $1.95 per square foot, and restaurant sizes typically go from 2,100 to 5,000 square feet.
Kitchen Equipment and Supplies
Another major restaurant startup cost is everything you need to run your kitchen, covering equipment and tools. Depending on your concept, your budget will most likely include stainless preparation counters, freezers and refrigerators, steam tables, food processors, ventilation hoods, dishwashers, ice machines, cutting tools, cookware, glassware, tableware, utensils, and serving trays.
It’s important to decide which of these purchases are essential from the get-go and which can be bought later on. The general rule is that if an item is crucial to ensuring smooth operations in the kitchen and the dining floor, you need to have it before your restaurant opens. Depending on the size of your restaurant, the cost of kitchen and bar equipment could range from $40,000 to $197,000, or around $50 to $180 per square foot.
Renovations and Finishes
Costs for renovations and interiors depend on your restaurant’s concept and the condition of the space when you took over. Most commercial spaces are turned over bare, with only the basic electrical and plumbing fixtures installed. However, even a property that used to have a restaurant can still require extensive changes to fit your specifications. If you are allowed to utilize the space outside of your property, you should include renovation costs for that area, too.
This amount can be anywhere from $1,000 to $50,000. Again, consider investing only in the essentials initially, like lighting, seating, paint, partitions, electricals, and plumbing. As for decorations, you can always go the DIY route and get creative without taking a huge chunk out of your budget.
Professional and Administrative Fees
Your restaurant startup costs checklist should also include the professional fees of the experts you consult prior to opening. While you can certainly go forward alone, investing in the advice of an architect, engineer, accountant, or hiring partner early on will save you thousands of dollars from backtracking on mistakes or paying fees due to noncompliance. Depending on which and how many professionals you engage with, expect to spend some $1,000 to $50,000 in expert fees.
To begin operating your restaurant, you first need to form a business entity, pay taxes, and settle all legal paperwork, all of which fall under administrative charges. Filing fees for incorporating a business depend on the state where you are located but go anywhere from $100 to $250. You also need to consider franchise tax fees and other government filing requirements. You can hire an attorney to take care of all your paperwork, which can cost as much as $5,000.
Permits and Licenses
Aside from general business licenses and permits, the very nature of opening a restaurant means you also have to secure specific food, health, entertainment, and safety permissions. The general licenses include an occupancy permit, sign permit, building health permit, music license, dumpster permit, parking permit, and resale permit. Restaurant-specific licenses include a food service license, food handler’s permit, and liquor license (if applicable).
Depending on the type of restaurant you have, you’ll want to prepare between $2,500 and $250,000. For reference, a liquor license alone costs at least $12,000.
Another area you should consider investing on when starting a restaurant is marketing, and you can set aside a budget of $100 to $35,000 for this one. No matter how awesome your concept is, if nobody knows it exists, then you likely won’t see a return on your investment for a long time, if at all. Marketing can involve simple flyering, giving out samples and freebies, social media postings, radio ads, TV ads, and online ads. The wider the reach of your marketing efforts, the higher the cost will be.
For a small restaurant, you might be comfortable with doing your ordering, accounting, and inventory tasks manually, though you might want to invest in a restaurant management software to process such details seamlessly and accurately. Restaurant apps can cost around $1,000, depending on the features included.
Labor management is also another area where you will need technology to help with tasks, like logging work hours, payroll, and employee details. If you need to add more staff for specific times of the day, the weekends, or special occasions, you can use an app that can place qualified and hardworking service personnel on the day or at your preferred schedule. This will save you hours of going through the typical hiring process and resources from assigning dedicated people to take care of staffing.
Staffing Your Restaurant the Right Way
How much does it cost to open a restaurant? We know by now that it’s a lot of money. However, no matter how much you’ve spent setting up your business, all such efforts will go to waste if you can’t follow through on quality and service expectations. A million-dollar investment could instantly water down after a month without the proper quality controls and the right people working together to achieve desired outcomes.
Staff training is one of the biggest time and financial investments you should make for your restaurant. However, not everybody can afford to add another such cost to their preparations; and that’s not to mention your recurring labor costs down the road.
One practical solution is to hire staff who are already trained and qualified to handle different kitchen and service tasks without necessarily having them onboard full time. This way, you can focus on other growth aspects of your restaurant while staying confident that you have the right people on the job at any given time.
Save Time and Money with Quality Restaurant Staff On-Demand
Labor expenses can easily eat into your restaurant’s initial and operating budget if you don’t hire the right people from the get-go. With Qwick, you get the benefits of having highly trained chefs, kitchen staff, and servers onboard without the traditional extra spending that comes with taking on full-time employees.
Start your restaurant with the best staff with the help of Qwick today.