Opening a restaurant and becoming a restaurant owner is part of many people’s dreams. Turning that dream into a reality can be challenging, but also rewarding. It’s a big decision and with every big decision comes the question of, “How much does it cost to open a restaurant?”
The startup cost to open a restaurant is significant. There are many factors to consider which can make it a tough question to answer. However, this article will provide you with the information you need to start budgeting for your restaurant.
So, how much will it cost to start a restaurant? Let's find out!
Average Cost to Open a Restaurant
The average restaurant opening cost can be hard to come by. The answer will vary based on the type of restaurant you want to open, the location, and the size of the business. Other factors include whether you’ll want to offer a dine-in experience or operate a ghost or commissary kitchen and offer takeout and delivery options.
Once you narrow down these factors, you’ll get a better idea of the normal expenses of running a restaurant. This can also help you understand how to increase restaurant sales.
Restaurant costs can vary, but they range from $170,000 to $750,000. However, these numbers shouldn’t discourage you from bringing your dream restaurant to reality. There are several ways to reduce restaurant expenses and plan ahead.
Typical Restaurant Startup Costs
Not all restaurants will have the same startup costs. However, you should consider the different areas where you plan on spending your money in order to get clarity on your final expected costs and what to expect to pay.
Properly planning out your restaurant business can help you avoid losing thousands in additional labor cost and potential customers. Poor restaurant equipment choices and construction can end up costing you twice as much as time goes on. Below are some essential startup costs and expenses for opening a restaurant.
Breakdown of Restaurant Startup Costs
The following restaurant opening costs can help you budget for your potential new business project:
Utilities
Even though your restaurant won’t be fully operational during the building stage, you’ll still have utility expenses. These include water, gas, and electricity.
It’s common for these expenses to add up quickly. Average costs can range from $1,000 to $1,200 per month depending on the size of the property.
Location
Picking a location for your restaurant is one of the most crucial decisions. It’s beneficial to pick a location that has good foot traffic, but these spots can be pricey. When choosing the location, you’ll have to consider the following options:
- Investing in a new construction property
- Converting an existing commercial property or space per sqaure-foot into a restaurant
- Purchasing an existing and/or operating restaurant
Each of the options above has pros and cons. Choosing the right option will require thorough research.
Finishing Touches and Equipment
It’s true that the little expenses start to add up. These include interior finishing touches and your kitchen equipment. From kitchen tools to restaurant inventory software, it’s all something to consider. The back of house equipment like the lighting, signage, phone systems, and music systems are also crucial.
Finishing touches like decor and furniture are what help bring life to your restaurant and make the space appealing to guests. Don’t forget that everything needs to be ready in terms of restaurant inventory such as food, plates, cups, utensils, and cookware. All in all, these costs can range from $20,000 to $400,000.
Marketing
Marketing is a restaurant opening cost that can be minimal or expensive, depending on your needs. Franchise locations might have the advertising part taken care of. However, new restaurants might need to be advertised more, especially in a saturated market.
The costs for this can vary based on the channel or niche market you’re targeting. A new brick and mortar fine dining restaurant might benefit from professional marketing from an agency. Smaller establishments might only require some social media marketing efforts to achieve O2O success.
Marketing and PR costs can depend on your competition and restaurant concept. In most cases, similar costs will equal about 3-6% of your sales. Continuous marketing is necessary in order to keep business moving. You may also want to consider incorporating a loyalty program.
Development and Organizational Costs
Obtaining the necessary licenses and permits is one aspect of opening a restaurant that people dread. However, it’s essential.
You’ll have to file and pay your restaurant licenses and permits as well as pay for all utilities. The average licensing cost of this can range from $2,500 to $200,000.
Technology
Restaurant technology will help your business run smoothly. You’ll need to have a point of sale system, like a bar POS system for your restaurant, and you’ll likely want to incorporate restaurant tech. These include restaurant QR code menus, ERP accounting system (see ERP meaning), and restaurant inventory management software. It's also crucial for restaurants to understand the benefits of ERP in this case.
Food Costs
No restaurant is complete without food. A successful restaurant opening will call for fully stocked pantries, refrigerators, and freezers. If you run out of food items, especially at the beginning of your business venture, it can give guests the wrong impression.
Keeping your inventory stocked can guarantee that you have all you need to provide seamless customer service. Some restaurants consider having safety stock on hand. Your average food cost per month will likely vary based on the menu offerings and the type of cuisine you serve.
This is when the cost of goods sold formula can come in handy so that you have your food and finished goods profits.
Common Restaurant Startup Mistakes
Being aware of potential mistakes or problems before they arise can help you better plan and prepare to avoid them. Even some of the best business owners and best coffee roasters can make mistakes. Below are three common mistakes that can occur when opening a restaurant:
Not Having a Solid Business Plan
A solid business plan is essential for a restaurant startup. Anyone can come up with a good idea, but you should make sure that your idea and plan are feasible. A business plan can help you outline your business and understand how it will operate. It's also easy to seek out investors or eCommerce banks for small business loans with a business plan. This will also help you avoid sticky situations in the future.
Not Focusing On the Location
Location is a crucial factor when opening a hospitality business. You should always choose the location that is first on your list, given that it’s within your budget to do so.
Be sure to consider your target market, where they tend to spend time, and a location with decent foot traffic. If you find a location that meets all three characteristics, strongly consider it.
No Financial Planning
If you don’t plan out your finances, you might underestimate the amount of money that is required. This can result in a lot of problems down the road. Unexpected expenses can come up, and it’s good to be prepared for this by having money set aside.
Frequently Asked Questions About the Cost of Opening a Restaurant
What Is the Average Cost of Opening a Restaurant?
The average cost of opening a restaurant can vary depending on numerous factors, but it tends to range from $170,000 to $750,000. These factors can include the type of restaurant you open, the location, and the size of the restaurant.
What Costs Should Be Considered Before Opening a Restaurant?
The costs that you should consider before opening a restaurant include:
- Utilities
- Location
- Finishing touches and equipment
- Marketing
- Development and organization
- Technology
- Food costs
What Are Common Restaurant Startup Mistakes?
The common restaurant startup mistakes that people run into include:
- Not having a solid business plan
- Not focusing on the location of the restaurant
- No financial planning