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The Cost of Opening a Business

June 7, 2022
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Opening a business is what many people dream about. A dream business can be opening a restaurant, coffee shop, ghost kitchen, grocery store, food truck, or starting a bar. But, what is the cost of opening a business? When it comes to the food industry, the cost can vary based on the type of business you choose. 

Below, we’ll explore the average costs and ways to open a food establishment. These include standard startup costs and how to write a business plan so that your business is set up for success. 

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Opening a Restaurant

There are lots of different restaurant types that you can explore when it comes time to open your own establishment. Each restaurant type will have a different cost. This is because significant factors come into play like the restaurant size, restaurant menus, and required personnel. 

Other factors to consider when opening a restaurant business include the location and offering a dine-in experience, as most fine dining restaurants do. If you decide against offering a dine-in experience, you can look into opening a commissary kitchen that offers takeout and delivery options. 

Restaurant opening costs can range from $170,000 to $750,000 depending on the specifics of your restaurant style. Once you calculate your potential restaurant expenses, you can work on how to increase restaurant sales so that your business thrives. 

Typical Restaurant Startup Costs

Different restaurant types mean that there will be different startup costs. To calculate your total expected cost of opening a restaurant, consider the different areas that you’ll spend money on. 

With proper planning, you can avoid spending excess money on labor cost, construction, and unnecessary equipment. This can reduce the cost of opening a business and make your dream more attainable. Keep reading for details on a few startup restaurant opening costs

Utilities, Licenses, and Permits

Utilities include water, gas, and electricity. These utility costs will accrue during the building stage and before the restaurant is fully operational. On average, the cost can range from $1,000 to $1,200 per month based on the size of the establishment.

In order to run your business, you’ll have to obtain the necessary licenses and permits. Each business establishment will have different requirements based on the city and state they’re located in. Average costs for permits and licenses can range from $2,500 to $200,000. 

Location

The location of your restaurant is crucial, and it is a huge cost factor. You'll have to choose if you want to invest in a newly constructed property, convert an existing commercial space into a restaurant, or purchase an existing restaurant. 

Finishing Touches and Equipment

The finishing touches of a restaurant can include kitchen tools, restaurant inventory software, back of house such as lighting, and restaurant inventory. These costs can run you between $20,000 to $400,000. 

Marketing

Opening a business will require marketing in order to get the word out there. The marketing costs can depend on your needs, your niche market, and your restaurant concept. In most situations, 3-6% of your sales will go to marketing costs. In order to keep your business thriving, continuous marketing efforts are required. 

Technology

Restaurant technology is crucial for a smooth-running business. A point of sale system, such as a bar POS system can ensure easy transactions. Restaurant tech like an ERP system (see ERP meaning), restaurant QR code menus, and restaurant inventory management software are also essential.

Food Costs

Restaurants need food and keeping enough inventory on hand is crucial. Successful restaurants have safety stock on hand in order to ensure seamless customer service, especially during peak hours. 

The average food cost per month for your restaurant varies based on your menu offerings and cuisine. Understanding the cost of goods sold formula is helpful here so that you can calculate your food and finished goods profits. 

Opening a Coffee Shop

Cafes and coffee shops are one of the fastest-growing businesses in the restaurant industry. With that being said, you might be wondering, “How much does it cost to open a cafe?” Similarly to restaurant costs, the total number depends on various factors. 

Average Cost of Opening a Coffee Shop

The average cost of opening a cafe is between $100,000 to $1 million. This cost varies depending on the location,  local rent prices, renovations, decor, and furniture choices. 

When you create a coffee shop business plan, similar to that of an eCommerce business plan, you’ll get a realistic estimate of the costs. These costs include the mortgage or lease of the coffee shop, interior and exterior designs, building renovations, front and back of house equipment, food costs and merchandise inventory, employee and bartender salary, and the cost of restaurant menus. 

Coffee Shop Startup Costs

Many restaurants, including cafes and coffee shops, start with tight profit margins (see Margin definition). Due to this, it’s essential to get your business set up for success with a solid business plan, top location, and effective layout. In order to make this possible, you have to consider the startup costs. 

Common coffee shop startup costs include:

  • Location. You can choose to buy or lease a space based on your budget. You can also cut costs in this category by looking into properties that are already designed to be coffee shops or cafes. 
  • Utilities. These include gas, water, electricity, and an internet connection. On average, the cost can range from $1,000 to $1,300 per month. 
  • Cafe equipment. This can include top-of-the-line coffee makers and espresso machines. These costs can range from $20,000 to $40,000. 
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Opening a Food Truck Business

Opening a restaurant business requires a lot of work. This is especially true if it’s a brick and mortar shop or restaurant. If you’re new to the restaurant business, you might want to start off with something less risky and costly, like a food truck business. 

An entrepreneur can dive into the food truck business to test out different menu types, cuisines, and locations. Let’s dig deeper into what this entails by covering the basics of this kind of business. 

What Is a Food Truck?

A food truck refers to a restaurant that doubles as a mobile kitchen offering food services. It’s a restaurant on wheels and is often seen on city streets, at catering events, parties, and weddings. The type of food that is served on food trucks can vary from burgers and crepes to falafel and pasta. 

How Much Does a Food Truck Cost?

The average cost of a food truck business is about $60,000. This can change based on the food truck business concept, location, and goals. The ROI of this kind of restaurant business can be significant (see ROI meaning). 

One of the cost factors for a food truck business is licensing and permit costs. On average, these costs are about $20,000. Standard permits and licenses that are required for food trucks include: 

  • Vehicle requirements
  • Hazard prevention
  • Zoning
  • Food safety certifications
  • Employment
  • Administrative

Another huge cost factor for this business is the truck itself. A custom and new food truck can cost about $75,000 to $150,000 whereas a used truck can range from $40,000 to $80,000. There are also options to rent a food truck and costs run between $2,000 and $3,000 each month. 

Food truck sales range from $20,000 to $50,000 on average each month. Average sales are higher if the truck is located in a big metropolitan area. Smaller and mid-sized cities have a smaller sales average of $5,000 to $16,000. 

When you total up your profit, you want to create a break even analysis. Calculating the return on investment using the ROI formula is also helpful.

Opening a Bakery

Many people turn to their local bakeries for all sorts of baked goods including, bread, pastries, bubble cakes, cupcakes, and other food trends. Bakeries are part of the restaurant industry, and they focus on grain-based foods. 

Some bakeries sell their items at retail prices or for a wholesale price to their customers. There are certain bakeries that also rely on both local and international sales. They can do so through online ordering and shipping their products (see How to Ship Food or How to Ship Cookies). 

Costs of Starting a New Bakery 

Before you get caught up in the idea of opening a bakery business, you’re going to want to consider the costs. So, how much does it cost to open a bakery? The average cost of opening a bakery ranges from $10,000 to $50,000. This is dependent on factors like size, location, and bakery food selection. 

Common startup costs for a bakery include: 

  • Location. Ideally, it’s best to choose a location with heavy foot traffic; however, this can increase the costs of your business. You’ll also have to consider whether you will purchase or lease the space.
  • Utilities. The costs for electricity, gas, and water can range from $1,000 to $2,000 per month. 
  • Design. The interior and exterior design can make your bakery more appealing and inviting. Decor to consider includes lighting, seating, custom display cases, signage, visual decorations, landscaping, and patio seating. These costs can range from $1,000 to $40,000. 
  • Bakery equipment. Owning a successful bakery wouldn’t be possible without the proper bakery equipment. Equipment costs average about $20,000. This includes the cost of mixers, ovens, bakeware, freezers, refrigerators, and fryers. 
  • Inventory. Startup inventory expenses for a bakery can range from $20,000 to $120,000 based on your offerings and the size of your business. Demand planning and inventory forecasting helps you keep track of your inventory and the inventory control processes. 
  • Marketing. Common bakery marketing efforts include website building, social media marketing, email marketing, public relations services, and branded merchandise. These costs amount to 3-6% of monthly sales on average.
  • Staffing. Bakery labor costs will be about 30% of the revenue. It’s ideal to have pastry chefs, bakers, assistant bakers, and dough makers. 

Opening a Ghost Kitchen and Ghost Restaurant

The ghost kitchen industry has gained a lot of popularity since the start of the global COVID-19 pandemic. In the U.S., the online food delivery industry reached $28 billion in sales in 2021. This restaurant concept is what kept many restaurants afloat during lockdowns. 

Food service delivery and online food ordering have made it easier for people to get restaurant-quality meals without leaving their homes. This ease of access to quality food made ghost kitchens a business that many entrepreneurs want to be in. 

What Is a Ghost Restaurant or Ghost Kitchen?

A ghost restaurant or ghost kitchen refers to a restaurant that operates without a storefront and without the opportunity for a consumer dine-in experience. Meals are prepared and sent out for delivery through food delivery platforms such as UberEats, DoorDash, and Grubhub. Some restaurants also have in-house delivery services. 

When opening a business like a ghost kitchen, you’ll have the option to purchase or rent a kitchen space instead of a brick-and-mortar location. This means you’re likely to have fewer overhead expenses and a quicker startup process. 

How Much Does a Ghost Kitchen Cost?

The cost of opening a ghost kitchen varies based on whether you choose to rent or purchase a commercial kitchen space. There is no fixed cost for a ghost kitchen. Unlike brick and mortar restaurants, ghost kitchens won’t have costs for dining chairs, tables, menus, or similar equipment.

Labor spend will also be low since a ghost restaurant doesn’t require hosts or servers. They’ll also have a smaller footprint which can result in lower rent costs. This kind of business is ideal for existing restaurants that want to test out the market in a different location or niche. It’s also a starting point for a business owner that may want to test out the restaurant industry for the first time.

Opening a Grocery Store

The grocery store is where many people go to stock up on essential consumer goods. Most grocery stores sell items such as food and various household items such as cleaning products, self-care items, types of alcohol, and soft drinks. 

Nowadays, there are a few big box chains in the U.S. that dominate the market with their private label brands and products (see Private Label Definition). These include Target private label brands and Walmart private labels. However, independent grocers can still enter and thrive in this industry. 

Costs of Opening a Grocery Store 

The cost of opening a grocery store can depend on the business model you decide on, such as a direct to consumer business model. A small corner grocery store and a franchise grocery store will have different costs. On average, mom-and-pop grocery stores cost about $25,000 to $50,000 whereas franchises run double that.

Common costs that you should consider when opening a grocery store include:

  • Franchise fees
  • Permits and licenses
  • Bonds
  • Rent or mortgage
  • Inventory
  • Business taxes
  • Wages
  • Insurance
  • Equipment
  • Signage

Creating a Restaurant Business Plan

When opening a food-related business, the first step is to create a business plan. This is similar to a restaurant business plan or a winery business plan. A business plan is what will help you map out your intentions and the direction of your business. 

Business plans are ideal to have for all kinds of restaurant establishments. They cover important topics such as financials, restaurant concepts, location, and design. With a restaurant business plan, business milestones become reachable. 

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Why Is a Restaurant Business Plan Important?

A restaurant business plan is important because it’s the blueprint for your business venture. It outlines your vision and explains how your business will operate in detail. You present your business plan to investors, stakeholders, and business partners. 

No detail will be overlooked with a thorough business plan in place, especially when it comes to the cost of opening a business. You can successfully grow your business and address any potential problems as they arise using your business plan as a guide. 

How to Write a Restaurant Business Plan

Planning out the cost of opening a business can be a huge first step. Each food establishment requires a different business plan. There are several factors that you must consider including the restaurant style, target market, and location. 

The main components of a restaurant business plan are: 

  • Executive summary
  • Restaurant concept
  • Target market and competition
  • Sample menu types
  • Staffing
  • Interior and/or exterior design
  • Location
  • Restaurant marketing
  • Financial aspects

Executive Summary

This is the introduction and summary of your business idea. Include key elements of your business and include some detail to intrigue the reader. This section should also include the mission statement, plans for execution, core values, and a brief ROI analysis

Restaurant Concept

Describe the concept of the restaurant in this section including the food you plan to serve, the inspiration behind the concept, and the service style. 

Target Market and Competition 

Identify the type of customers you’re looking to attract. Describe your niche, behaviors, characteristics, and demographics. Include your competition and how you plan to stand out.

Sample Menu 

The restaurant menus (see menu meaning) that you plan to offer should go here. Pricing should also be included (see how to price a menu) along with the different types of menu options you’re interested in. These can be table d hote menu, dessert menu, prix fixe menu, or a food and wine pairing menu

Staffing

The kind of management and employees that you’ll need to run your business should be included in this section of your restaurant business plan. These can include a restaurant management team such as a restaurant manager, bar management, and inventory control manager. Include salary and pay information.

Interior and/or Exterior Design

Express your design visions in this section of your business plan. Include restaurant technology ideas and decor.

Location

An exact location is not always necessary, but a few potential options are ideal. Explain why this location will be good for your business, and information on the demographics, foot traffic, and square footage. 

Marketing

The restaurant marketing section of your business plan will cover the brand identity and position of your business as well as promotional and sales tactics. You can also include ideas for your website’s about us page that will give your restaurant credibility. 

Financial Aspects

Highlight the current financial state of your business and any expectations you have for the upcoming years. Go into detail about how much you’ve spent and plan to spend, potential costs that can incur, and returns on investment. A restaurant profit and loss statement is ideal for this. 

The cost of opening a business will vary depending on the type of business concept you plan to start. However, this guide helps you get an idea of what you need to get started and plan appropriately for success.