Restaurant Startup Costs You Need to Expect When Building Your Dream Restaurant
Opening your own business is rewarding, but a challenge you should not jump into without proper research and experience. Having the right strategy and the right calculations make all the difference between your restaurant’s success or subsequent failure.
How to Start a Restaurant Business
Do the Math
Many wonder how to start a small restaurant. The simplest answer is to do the math! It takes money to run a business and you should calculate your real estate costs, labor, and food to add up to 75% of projected sales, leaving you a profit margin of around 10% after you count out additional smaller expenses. Keep in mind that this simple formula doesn’t include all of the overhead costs that you might occur.
To start your restaurant business successfully you will need to properly calculate all of the costs you will incur. The importance of this cannot be overstated! A miscalculation during the early phases of starting your business can overextend you before you have any revenue to offset your expenses.
While there are many reasons a restaurant might fail it is estimated that 80% fail because they didn’t properly estimate their expenses. Better to overestimate your expenses rather and underspend than underestimate and overspend!
Find the Right Location
While you should expect to pay around 10% of your revenue towards rent, the location can make quite a difference. Your location could cost you even more so do your research carefully. You want a location that will generate customers but won’t overextend you either. As they say in real estate, “Location, location, location”.
Are there enough people in your intended location to generate profit? Placing your restaurant in a high visibility area, with plenty of people living/passing by the vicinity can produce drastically different results than an out of sight location. So, take the time to determine the population base before making a decision.
If you find a location that works and has affordable rent/mortgage but are not keen on the look, consider spending money on renovations rather than find a different location with a higher rent.
When it comes the location, keep parking and accessibility in mind as well. Will this place accommodate all of the seats you’re planning to have?
Is this location easily accessible without your customers having to drive out of the way? Remember, placing your restaurant in a high visibility area generates walk-in business.
If you are planning to build your restaurant up from the ground, budget in a pillow for those unexpected surprises.
Calculate the Financial Deposits, Permits, and Licenses
Moving into a building and opening your restaurant will require different insurances, permits, and setting up utilities. Usually, you will need to pay these deposits up-front.
Budget for Equipment
You can’t run a restaurant without the right equipment and the right equipment can cost anywhere from $100,000 to $400,000. Start compiling a list of the equipment needed with the biggest items at the top such as ovens, refrigerators, freezers, ranges, food preparation surfaces, and so forth.
Next compile a list of the smaller items that you might not have initially thought about such as your pots and pans, thermometers, storage containers, peelers, mixers, and more. Then, calculate the costs of your cutlery, glassware, and dishes, the linens, and the napkins.
Put everything you might possibly need onto your list and then break it down into expensive/least expensive and the needs/ wants. This will help you prioritize which equipment and supplies to purchase first and which to get further down the road once your business takes off. For those starting off, consider buying used or wholesale equipment! Keep in mind your menu and buy the equipment you need for your menu first.
Some Costs Frequently Overlooked/Hidden Costs Include:
- The full cost of food
- Music licensing
- Permits and Licenses
- Recruiting, Employment and Training Staff Costs
- Technology: Accounting systems, order/payment systems and more
- Furniture, decorations, and design costs
- Marketing costs
Opening a restaurant checklist:
There are many steps to opening a restaurant and you can’t skip through them. You will need to figure out your restaurant concept, what is it about your restaurant that will draw in customers? Next, check-out your local competition. Is there a market for your concept? Who are your competitors and how are they successful?
Take the time to put together a solid business plan and calculate all of the expenses we mentioned earlier. Find investors, a location, and start the countdown to the grand opening.
- Figure out your restaurant concept
- Research nearby competition
- Create a business plan, calculate all startup expenses
- Find potential investors
- Find a good and affordable location
- Hire Staff
- Order your equipment
- Open with success
Running a Restaurant
Success on your opening night won’t sustain you. Now that you have launched your restaurant it is time to roll up your sleeves and run it. Make your customers a priority and your place one that they enjoy. Constantly test your menu selection and keep tweaking it to provide great quality and selection.
Play an active role, empowering your staff to provide stellar customer service. When it comes to the business and finance, plan your menu in a way that will yield you the optimum gross margin. Market your restaurant and advertise to bring in a steady stream of customers in addition to word of mouth references.
Ways to Market and Advertise
- Create a fantastic website and use social media platforms (FB, Twitter…)
- Promote exclusive content that they won’t find at your competitors
- Offer discounts and promotions
- Give your customers a platform to share their opinion and feedback
Continue to develop your brand and get to know your customers and their demographic profiles so that you can continue to meet their needs and preferences. Knowing your customers helps you target your market strategy effectively.
Many shy away from customer feedback but it an excellent way to learn where you are succeeding and where you stand to improve. Don’t ignore negative feedback but proactively reach out to find a solution.