What Does it Really Cost to Open a Restaurant?

When it comes to opening a restaurant, many potential owners dream of having a mouth-watering menu and a large space filled with tasteful decor. But let’s take a step back. Before jumping straight into opening your restaurant, you need to know how much it’s going to cost you – you need a budget plan. Without a budget plan, chances are, you will overspend. In our ultimate guide to starting a restaurant, we revealed that a restaurant’ startup costs vary widely due to the many cost components.

Now, before thinking that you’ll be required to fork out an exorbitant amount of money, read this article to find out what are the typical expenses restaurant startups face and gain some cost-saving tricks.

Restaurant Startup Costs

So what exactly is the cost of opening a restaurant? Though there is no definite answer to that, we’ll be sharing with you a restaurant startup cost checklist that includes the fundamental types of expenses you’re bound to face. Read on to find out what they are.

Restaurant Site

There are several considerations to take note when setting the budget for your ideal restaurant site. From location to the size of the shop, many factors affect the cost of your restaurant’s site. When choosing your place, have a few options on hand and weigh the benefits each site brings against the price you’re paying. You wouldn’t want to spend hundreds of thousands on a store solely because it has a parking space nearby. Keep in mind your target market and the concept of your restaurant to select an optimum location. For an averaged-sized 1,200 square feet restaurant, you can expect the cost of the security deposit and rental for the first six months to be approximately $60,000.

Renovation, Equipment and Decor

When starting a restaurant from scratch, you would need the basic kitchen equipment and furniture such as tables and chairs. The number of kitchen equipment you’d need would depend on your store’s size and capacity. Your menu would also determine the type of kitchen equipment and tableware you would be required to purchase. The cost in this area would also include the intangibles such as licenses and computer software. With the rise of online food ordering, you might even be thinking of offering food delivery services. If so, you should consider evaluating the 8 things you need to look out for in an online ordering system and its affordability.

When designing the interior of your restaurant, keep it in line with your restaurant’s brand identity and concept. Be careful not to get too carried away and overspend on the decoration; sometimes a little goes a long way. Your interior renovation and equipment can cost you around US$120,000.

Manpower

Labor costs include salaries, wages, taxes, and commissions. They are ever changing as it depends on the number of employees you’d need to accommodate your restaurant’s demand and the type of staff (e.g., experience level) you are looking to hire. You may want to consider engaging part-time workers to cater to the varying business volume throughout the day or even year. This can help you optimise your manpower costs while still being able to cater to your restaurant needs. It can cost you anywhere around US$2,000 per employee.

Cost-Saving Tip: The team at ZoomShift has a comprehensive guide on how you can save costs with a labour budget. Check out their article here: How Restaurants Can Set and Stick to a Labor Budget

Marketing and PR

Marketing expenses can either cost you a lot or a little, depending on how you plan to do it and what your strategies are. But we’ve got good news for you. You can actually promote your restaurant that’ll cost you next to nothing! Take your marketing strategies to the various social media platforms, and you’ll be surprised by how effective social media marketing is. Check out our collated list of Seven Shockingly Successful Social Media Campaigns for some ideas to start with

Don’t worry if you’re not ready to spend a hefty sum on roadside advertising banners and print media advertising. Did you know that your store can be your marketing platform too? We have uncovered 15 Hidden In-Venue Marketing Opportunities that you can adopt within your reach…if you know where to look. If you are thinking of hiring external Public Relations (PR) agencies, this will also incur additional costs. Expenses can amount to about US$30,000 a year.

Contingency

Remember, starting a restaurant will not make you wealthy overnight. You need to plan for gradual sales growth and for your business to gain traction. In the early months of your restaurant’s opening, your revenue may not be able to cover your expenditures. In addition, during renovation, you may experience some surprises (or rather, shocks) along the way. You may discover you need extra electrical or plumbing works, depending on the condition of the store. When situations like that arise, you want to make sure you have some capital and contingency funding for your restaurant. Allocate approximately US$40,000 in the event of unexpected costs and low sales volume.

What Startups Usually Overspend On

A common reason behind restaurant closures is poor financial planning. It’s easy for startups to overspend, especially when your dream is so close to being a reality. One important pointer to always keep in mind is to spend within your means. Hence you need to be cautious when deciding what and where to spend your money. Let’s explore the things startups usually overspend on and some tips to help you save on the unnecessary costs.  

Technology

Technology can help your restaurant a great deal. However, it is easy to squander on tech software that might not be of use for your restaurant (at least, not for now). Imagine, you’re a small restaurant that seats ten tables. Do you require iPad ordering systems for every table? Carefully assess your options and think about what software will be useful for your business.

Did you know: You can save money by having an online ordering system? Yup, you heard me right! Check out: Three Advantages Of Online Ordering Systems — Cutting Costs For F&B to find out how!

Equipment

Getting new equipment can be a want, but getting the right equipment is a need (and also far more critical). To keep costs to a minimum, purchase second-hand equipment. Look for equipment with minimal wear and tear – which can come as cheaply as half the price of a new piece. However, do remember to examine the products carefully and find out how long they have been used for.

Another tip we have for you is to invest in energy-efficient appliances. You’ll be surprised by the savings you can reap from the many appliances in your store! We understand the excitement when you’re shopping for your brand new restaurant. Nevertheless, we suggest that you keep your urges at bay and not purchase anything you do not need.

Marketing

Although marketing is essential for every business to grow their brand, it is extremely easy for startups to splurge on it, especially if it is something you are unfamiliar with. One way to minimize marketing costs is to rely on online marketing. Social media sites like Facebook, Twitter, and Instagram, offer affordable (and even free) online restaurant marketing ideas to promote your brand and grow your audience. If that is not for you, you can check out Eight Restaurant Promotion Tactics That Won’t Break Your Bank.

Furnishings

The upscale decor might tempt you, but don’t give in. You don’t have to burn a hole in your pocket to create an exceptional dining experience for your customers. Good lighting, inviting paint colours and some plants in your restaurant, and you’re good to go. Source for affordable, but compelling, decors that can give you the biggest bang for your buck.

Now, before you go on a scavenger hunt for decorations, remember, sometimes less is more.

 

Overspending on food expenses is common for startups. Get quotes from multiple suppliers and see what they are each willing to offer you. You should also consider bulk purchasing as it is a cost-effective method. However, do remember to establish with your vendor to have your food sent in installments to avoid food spoilage. After all, foods are perishable, and most have a short shelf life. Prioritize using the ingredients you purchased first to avert food expiring without being touched.

Improper inventory planning can lead to food wastage and costly damage to your wallet. To avoid this, plan your menu, optimize your product offerings and cut down on portion sizes to increase profit margins.

Conclusion

Starting a restaurant involves a myriad of cost components, that we know, may be overwhelming at times. As long as you devise a budget plan and keep to it, avoid overspending on any areas and follow our tips, you may find yourself spending lesser than you expected.