Commentary

Time to add a physical restaurant? 9 start-up costs to consider

A number of convenience operators have expanded their business by opening a physical restaurant. Before making this investment, an operator needs to know the top nine costs.

Image provided by iStock.

July 19, 2021 by Richard Traylor — Writer, WebstaurantStore

(Editor's note: An earlier version of this article ran on Food Truck Operator, a Vending Times sister publication.)

Opening a restaurant might be your dream, but is it something you can afford?

Just like any big investment, most people require financial assistance in the form of a bank loan to afford the startup costs. We'll help you weed through the individual costs of starting a restaurant so you can create a reasonable budget and acquire the funding you need. We also include ways to save on the cost factors.

How much does it cost?

The median cost of opening a restaurant is $275,000 or $3,046 per cover for a leased space, according to a recent survey. This number jumps to $425,000 or $3,734 per cover with an added land purchase. Numbers like this can be slightly deceiving because there is no one-size-fits-all answer to this question. The cost of your restaurant will be affected by a number of factors, including the location of your business, your restaurant concept and whether you choose to lease or buy your space.

Restaurant startup costs

Before you come up with a final number and apply for a restaurant startup loan, familiarize yourself with the types of expenses you need to account for in your budget. We'll provide you with an average restaurant startup cost breakdown as well as some ways you can reduce your spending.

1. Security deposit or down payment

Securing the property for your restaurant will be one of your major expenses. If you plan to buy the location outright, you'll need a down payment of 10% of the property value to secure your loan. The cost of real estate varies greatly by location, but when it comes to restaurants, a great location is key. If you choose a poor location because it's less expensive, your business may end up suffering in the long run.

The down payment for a loan is usually $12,500-$40,000.

How to save:

Choose to lease a commercial space instead of buying and you'll only be responsible for a security deposit and first month's rent.
Try renting space in a food hall to test out your restaurant concept. The cost of renting a booth will be much less than leasing an entire space.
Consider buying a food truck instead of making a land or building purchase.

2. Construction or renovation

Whether you are making improvements to an existing building or starting from scratch, construction costs will be one of your greatest expenses. The extent of your renovations will determine your total cost.

The construction cost is usually $140,000-$280,000.

How to save:

Purchase an existing commercial space and convert it to a restaurant instead of investing in a new building.
Buy an existing restaurant that's already outfitted with plumbing and HVAC to save time and money.

3. Kitchen equipment

Foodservice equipment will be your next biggest expense. Not only do you need cooking equipment like ranges, flat top grills and charbroilers, you also need refrigeration units to store your food items and ware washing equipment to keep your dinnerware clean. If your restaurant has a bar, you'll need to invest in a tap system, liquor displays and underbar organization. Don't forget all of the pots, pans and utensils required to make your menu items.

The equipment cost is usually $75,000-$115,000.

How to save:

Leasing your restaurant equipment instead of buying it outright can help to free up more of your initial budget.
Buy used equipment instead of new.
Check out "scratch and dent" merchandise with minor superficial damage that has no effect on its operation.

4. Furniture and tableware

Your furniture and tableware budget is tied directly to your restaurant concept. If you plan to open an upscale restaurant with a complex menu, you'll most likely want to invest in high-end furniture and elegant china dinnerware. On the other hand, if you have a simple menu and casual concept, your furnishings and tableware will probably be more economical. Either way, you'll need enough dinnerware, glassware and flatware to serve all of your guests on your busiest shift.

The furniture and tableware cost is usually $20,000-$50,000

How to save:

Skip the tablecloths and invest in attractive tabletops instead. You'll save money in your budget and you'll benefit from reducing your water usage on laundering linens.
Keep an eye out for restaurants that are closing. Many business owners are happy to sell their inventory and you might get a good deal on fixtures and dinnerware.

5. POS system

A point-of-sale system will be beneficial to your restaurant in many ways. Not only does it streamline the ordering process, POS technology helps with inventory management, employee management and sales reporting. Your POS package should include front-of-house stations with touchscreen monitors, receipt printers and credit card scanners. Back-of-house components include kitchen displays or ticket printers. Additional accessories include mobile POS tablets, tableside POS monitors or kiosk ordering monitors.

The POS system cost is usually $12,500-$20,000.

How to save:

Be conservative. There are many features and accessories you can add onto your POS system package, but you can save money by going with a basic system. You can always add onto your package in the future.
Don't be afraid to negotiate. If you're buying a POS package, ask if the vendor will throw in training sessions free of charge.

6. Initial food inventory

Your initial food inventory cost will be greater than daily or weekly replenishment because you'll need to include non-perishable items. Condiments, spices, oils and coffee are just a few of the items you'll need to build up your staple inventory. These ingredients will last you a long time before they need to be replaced, especially if you buy in bulk. To come up with an initial food cost projection, start by analyzing your menu and pricing out each ingredient.

The food and beverages cost is usually $5,000-$25,000

How to save:

Test out your menu items and weigh each ingredient. You'll be able to come up with the most accurate projection by knowing exactly how much of each item you need.
Buy in bulk. You'll get the best deals on non-perishables by buying wholesale.

7. Licensing

Running a restaurant requires several types of licenses before you ever open your doors. You'll want to get a head start on this step because it can be a lengthy process. Liquor licenses in particular can be quite costly depending on your location and whether you live in a quota or non-quota state. Quota states only issue a limited number of licenses which can drive the cost up immensely.

Here are typical license costs:

Business license cost: $50-$400.
Liquor license cost: $300-$400,000.
Certificate of occupancy cost: $100.
Foodservice license cost: $100-$1,000.
Health permit cost: $50-$1,000.
Sign permit cost: $20-$50.
Insurance cost: $1,000-$10,000 annually.

How to save:

There's no way around the fees for most permits. However, you can choose to skip the liquor and stick with beer and wine only. This will lower the cost of your liquor license fees.

8. Marketing

Getting the word out about your new restaurant is crucial. You'll have to set aside part of your budget for your initial marketing plan and grand opening. The cost for marketing is going to vary greatly depending on what outlets you choose and whether you hire an ad agency.

The marketing cost is usually $6,000-$30,000.

How to save:

You can reduce your marketing cost considerably by utilizing free advertising through social media channels like Twitter and Instagram. Instead of paying for a website, make a free Facebook page.
Make a listing for your restaurant on Google My Business. It's free and allows you to share all the important info about your business like your location, hours and website.

9. Salaries

As you begin to hire your staff, keep in mind that paid training is customary for new employees. Wages and salaries will come into play in the months and weeks leading up to your opening day. Depending on your staff requirements, this cost will vary greatly.

How to save:

Instead of hiring all of your staff at the same time, hire as needed. If you have six months until your opening day, you don't need a full staff on board yet. This will cut down on the wages you have to pay.
It's easy to forget about your own salary when you're accounting for so many other costs. Many restaurant owners don't pay themselves until the business starts turning a profit.

There are many different types of restaurants and each of them has a unique budget requirement. Thankfully, no matter what type of restaurant you choose to open, you can still turn a profit and be successful. Remember to follow our money-saving tips and you'll avoid falling into the trap of overspending.

Foodservice

About Richard Traylor

Richard Traylor graduated from Temple University in the winter of 2014 with a degree in Strategic Communications. After graduating, he taught English in South Korea for two years, during which he was fortunate enough to travel and see the world. In October 2016, he returned home and started to work in SEO Content at Webstaurant Store. This blog previously ran on Webstaurant Store.

Connect with Richard: