So, you want to open a restaurant. You’ve probably thought about the challenges and risks that come with this venture, but do you know all of the costs that you’ll incur?
Keeping a restaurant running is one thing, but investing in a new restaurant is a whole other undertaking. You won’t have cash coming in until you open your doors, so you’ll have to depend on your life savings, investments, and loans to get you through your first few weeks or months of business. Opening a new restaurant comes with a lot of financial pressure.
Our goal isn’t to scare you away from pursuing your dream, but to help you anticipate all of the expenses you might incur on your journey. When you’re aware of the true costs of opening a restaurant – including surprise expenses that might come your way – you can better prepare yourself financially and increase your chances of success.
Read on to discover common restaurant opening expenses you will definitely encounter, and unexpected restaurant opening costs that you may encounter on your journey to restaurateurship. Make sure you have enough saved up to cover all of these costs before pursuing your dream.
Common restaurant opening costs
They say that nothing is certain except death and taxes. Well, we can bet with certainty that you’ll incur these expenses as you open your restaurant.
While exact costs will vary depending on factors like location, venue size, and concept, these figures are meant to give you a rough estimate to help you anticipate your spending.
1. Space
If you’re leasing a commercial space, you’ll need to pay a security deposit up front, which will cost between $2,000 and $12,000.
Most commercial leases require commitments of between three and five years. Do what you can to ensure that your restaurant will be in good financial standing in the long run to make these monthly rent payments.
If you buy your restaurant’s space, you’ll need to save for a down payment and monthly mortgage payments. You’ll need roughly 10% down on your space. If your space is worth $1 million, for example, you’ll need $100,000 in cash to lock in the space.
2. Furniture & Equipment
Restaurant equipment can set you back between $100,000 and $300,000. How does this break down, roughly?
- Smallwares like tableware, utensils, glasses, takeout containers and bar equipment: $80,000
- Kitchen equipment like ovens, refrigerators, freezers, and fryers: up to $100,000
- Furniture including tables, chairs, and shelving: $5,000 to $40,000
3. Licensing and permits
The licensing and permits your restaurant will need will vary depending on where you are. Here are some you might need and their estimated costs:
- Business registration fees: $100–$1,200 plus renewals (vary by state)
- Liquor license costs: $50 to $300,0000 depending on license type and state
- Music license (ASCAP License, BMI License, and SESAC License): $200 to $2,000/year
Also look into building permits, health permits, food handlers permits, zoning permits, and alcohol tax permits.
Ask an experienced colleague or lawyer which licenses and permits you’ll need to open a restaurant in your area.
4. Renovation
You’ll need to make some changes to your space to make it fit your restaurant’s concept.
While you can D.I.Y. things like interior design and a paint job, you’ll need to hire licensed contractors to execute your ideas safely. You’ll also need to pay for supplies. Expect to spend anywhere from $1,000 for tiny projects to more than six digits for large scale projects.
5. Tech
If you want your restaurant to run efficiently, you’ll need to invest in the right technology.
POS hardware, like cash drawers, display terminals, credit card readers, receipt printers, and wifi routers start at $600, but can go as high as $3,000. You’ll also need to pay an ongoing license ($70-$400/month), which will vary depending on the vendor and how many licenses you need. Don’t forget to budget for training, installation, and support costs.
Other tools that will make your restaurant run smoothly are an employee management tool (free options are available) and a reservation management tool ($200+/month).
6. Utilities
Budget 5% of your operating budget for utilities. Check out these U.S. averages to get a feel for how much you can expect to spend on utilities:
- Commercial electricity usage: 10.56¢/kWh
- Monthly electricity bill: $700
- Electricity cost per square foot per year: $290
- Natural gas cost per square foot per year: $0.85
7. Professional services
Opening a business without help is impossible. You’ll likely need the help of legal counsel, a business strategist, accountant and bookkeeper, and marketing and PR consultants to set yourself up for success. You can hire these professionals on a retainer or hourly basis. The cost of their services will vary greatly depending on your location and their experience.
Where do you find these professionals? Ask for recommendations from colleagues.
Don’t skimp out on professional services. If someone’s rates seem too cheap to be true, you’ll probably end up having to hire someone more expensive to fix their mistakes.
8. Marketing
Beyond working with a marketing professional, you’ll need to pay for marketing materials like posters, menus, coupons, ad placements, a grand opening event, etc.
We recommend setting aside a marketing budget of at least $1,000 to launch your restaurant.
9. Starting food inventory
Stocking up on pantry staples and your beginning inventory of perishable foods will set you back at least $1,000. However, this expense will vary greatly depending on your restaurant’s capacity, the type of food you’re serving, the quality of ingredients, whether or not you want organic ingredients, etc.
10. Wages
You’ll need to have money saved up to pay your staff for several payroll periods before your restaurant starts making revenue. Set aside anywhere from $5,000 to $20,000 for wages depending on the size of your staff.
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Unexpected restaurant opening costs
Starting a restaurant is full of challenges. Opening a restaurant becomes even more challenging when unexpected expenses drain your reserves or force you to take out loans. Anticipate these surprise costs to better prepare for them should they happen to you.
1. Renovations
Budget for more than you think you’ll need for your renovations. If you’ve seen even just one reality TV show about flipping houses, you know that there can be surprises behind every wall.
As the owner of your restaurant’s space, you may have to pay for replacing your entire sewage system. As a renter, you might find that your original plans don’t fit into the space as you had expected, and you may need to go back to the drawing board.
Set aside several thousand dollars – and several weeks – to buffer construction surprises.
2. Overtime wages
It can take time to get into the groove of creating a perfect staff schedule. You may end up spending more on overtime in your first few weeks of business than you had initially planned. Give your wages budget a 20% buffer just in case.
A smart scheduling tool can help you avoid these costs by warning you when your employees are about to reach overtime.
3. Inventory
Even the most experienced restaurateur can end up overspending on inventory during the first few weeks or months of operation. Both ordering too much and ordering too little can lead to overspending.
If too much food is ordered, costs are sunken into spoiled food that can’t be used. If too little is ordered, you may find yourself running to the grocery store and paying marked up prices for supplies you need to fulfill orders.
Give your inventory budget a 20% buffer to minimize shock when you overspend.
4. Staff training
Making sure your staff are properly trained is an important part of opening your restaurant without a hitch. However, it may take more time than you anticipate for staff to learn your restaurant’s processes. Your restaurant can’t open without staff, and without its doors open, it can’t generate revenue to pay staff. Have one month of wages on reserve for wiggle room.
5. Fines
Unless you consult a lawyer who is experienced in working with restaurants, you could make a legal mistake as you open your business. An inspector may come in and discover that your restaurant doesn’t have the right licenses or zoning permissions, and you could be subject to fines.
Reduce this risk by working with a lawyer before you open your doors. Set aside at least $500 for fines and/or consulting a lawyer.
6. Menu updates
Chances are that your menu will go through several iterations in your restaurant’s first few weeks of business. Don’t forget to account for the printing costs required to make these changes. Printing new menus could cost anywhere between $100 to $1,000, depending on paper quality and quantity.
Restaurant opening costs cheat sheet
Opening a restaurant is an exciting but challenging endeavour. Financial problems are one of the biggest reasons why restaurants fail.
Use this cheat sheet to help you budget for all of your restaurant’s opening costs:
- Space – $2k-$12k deposit for renters, 10% down payment for owners
- Furniture and equipment – $100-$300k
- Licensing and permits – $500-$350k
- Renovations – $1k-$100k+
- Utilities – 5% of overall budget
- Tech – $600+ for hardware, $70+/month for licenses
- Professional services – $1k+/month
- Marketing – $1k+
- Starting food inventory – $1k+
- Starting wages – $5k-$20k
- Unexpected renovation costs – 25% buffer
- Overtime wages – 20% buffer
- Mismanaged inventory – 20% buffer
- Staff training – One month of wages buffer
- Fines – $500+
- Menu updates – $100-$1k
When you anticipate all of your opening costs – both the likely and unlikely ones – you’ll be better able to create a realistic budget that will help you handle whatever comes your way.
Looking for more articles on costs to open or rent a new business?
Ana Cvetkovic, Author
Ana Cvetkovic
Author
Ana Cvetkovic is a freelance writer. She is also the CEO of BLOOM Digital Marketing, a creative marketing agency that helps the hospitality and tourism industries reach millennials online.
