Opening a Restaurant, Costs & Considerations
Launching a new business venture takes time, money and a lot of energy. In order to ensure you’re not one of the 50% of small businesses that fails after five years, as a new business owner you need to do your research and make sure you’re fully prepared for the challenges that lie ahead.
If you’ve decided to start your own restaurant, you’re entering into a particularly competitive field as the number of restaurants and quick service restaurants and franchises now open in the U.S. is close to reaching 1 million. However, with the U.S. food and drink industry in 2018 now boasting a combined annual turnover of $766 billion, there are some potentially life-changing benefits for entrepreneurs who get their business model right in this industry.
In order to give your new restaurant the best chance of success, take a look at our guide on managing your startup costs, and how to get your business up and running.
Write a business plan
Before you plan any menus, launch any websites or hire any staff, you need to write a comprehensive business plan. The most important element of a business plan is the financial forecasting. This includes details of potential funding requirements, and the general costs for starting and running a new business in the restaurant industry.
It’s important to be realistic when calculating your startup costs, and remember that you’re likely to spend a large proportion of your budget before you’ve even opened your doors. Around 82% of entrepreneurs cover the initial costs themselves, or rely on their friends and family for funding. If this isn’t an option for you, a solid business plan will boost your chances of securing outside funding.
Use our custom startup cost calculator to get a better idea of your initial expenses for your restaurant (please note these costs are indicative, and you can alter the figures for your own requirements).
Resources, equipment and premises
The equipment and resources you’re going to need will depend on the type and size of the restaurant you’re opening, and on your proposed premises. Rent is usually charged per square foot, so it is pivotal to assess exactly how much space you will need.
While some premises will come fully kitted out, others will need extensive renovations before they’re fit for purpose, and you may need significant investment in new equipment.
Some of the main costs restaurant owners need to consider are:
- Rent (not including security deposit) - $10,000 to $12,000 per month
- Utilities - up to $2,500 per month
- Renovations - $5,000 to $50,000
- Tables and chairs - up to $40,000
- Specialist kitchen equipment and bar equipment - up to $115,000
- Initial supply of food and beverages - up to $8,000
Hiring a team and finding vendors
Your staff are an integral part of any business, so when putting your business plan together it’s important to think about how many employees you’ll need to run your restaurant, and how much money this will cost you every month. In the U.S., the federal minimum wage is $7.25, however this figure varies from state to state. On average, these are the average restaurant salaries for typical staff members:
Another important consideration is sourcing your ingredients. You’ll need your stock to be competitively priced, as well as good quality. Most restaurants put a markup of around 300% on the food they serve. However this figure can vary.
Getting your paperwork in order
There are various licenses and permits you need in order to open a restaurant business in the US. Firstly, you’ll need to obtain a business license. This can cost up to $500 and the process will vary depending on where you live. Other important licenses and permits to consider include:
- Food service license
- Food handler’s permit
- Employer Identification Number
- Liquor license
- Sign permit
In total, the cost of obtaining all necessary licenses will add up to $5,000 to $6,000. You’ll also need to invest in relevant insurance policies. These will protect you and your business, so it’s essential you invest in adequate cover. You can expect your insurance costs to be around $6,000 a year.
Setting up a payment system
A payments system is an integral part of any business, but in the restaurant industry, it’s especially important to have a point of sale system that is mobile, quick and easy to use, and takes payments securely.
Some payment processors will ask you to pay a monthly fee while others take a percentage of every transaction. The service you select will depend on your business’s needs and your own preference.
For more information on how payment processing works, read our Credit Card Payment Processing 101 Guide.
In this digital day and age, marketing is an integral part of your business’s success. You need to get your name out there in order to stand up to the competition. Whilst it is possible to make good use of social media, in total, marketing and advertising for a restaurant could cost upwards of $30,000, including:
- Signage - $15,000
- Menus $1,500
- Fliers/ads/coupons $5,000 to $10,000
- Opening event ($15,000)
- PR services ($6,000)
Business startup statistics
Between 2016 and 2017, the US restaurant industry grew by 1.7%.
In their first year, 17% of restaurants fail in the US, this is 2% less than the average for small businesses. Over the next five years, the industry is projected to see continued growth, so it is understandable that entrepreneurs are moving towards a venture in this industry. The average cost of opening a restaurant is $250,000. However, will need to ensure you have a significant understanding of the associated costs to ensure there are no surprises along the way that could increase your expenditure.
Starting your own business is incredibly rewarding, especially if it’s a success. The most important part of starting any new business is getting your financial forecasting right. Make sure your costs breakdown is as accurate as possible to ensure there are no surprises along the way.