How much does it costs to start a restaurant?
If you’re considering opening a restaurant, you likely have many questions. Among the more urgent is cost. What is the cost to start a restaurant and the expenses associated with this type of business?
The answer isn’t straightforward and varies based on several factors, such as;
· The restaurant type you want to open,
· Where you want to operate (what market)
· How large a restaurant are you are planning
· Do you want in-restaurant dining or exclusively takeout and delivery services
On average restaurant startup costs vary, ranging from $175,500 to $750,000. Below are some other standard costs.
The cost of food weighs heavily on your operating expenses. The cost of food generally makes up around 28% to 35% of a restaurant’s ongoing expenses. Food costs differ based on what type of menu items you plan to serve. The cost of food, however, isn’t always straightforward. It’s important to consider how many profit dollars your menu items will generate. For example, if a dish's ingredients are super expensive and only ten people per night buy it, it may be time to cut the item from the menu.
Vendor relationships are also crucial as you launch and maintain your restaurant business. Restaurant owners must actively negotiate with vendors to keep their food costs low. Finally, be mindful of food waste. One study found that 58% of restaurants struggle to manage their inventory properly and end up ordering too much food, resulting in wasting money and food.
Labor makes up a large slice of your operating costs and includes hourly wages, vacation pay, sick days, employee benefits, payroll tax, and more. Restaurants must attempt to keep labor costs at around 25% to 30%.
Here’s an example, your November labor costs were $20,000, and total monthly gross sales were $65,000. Labor cost is $20,000 divided by $65,000 and multiplied by 100. This gives you about 31%, which is just slightly above the upper limit of 30%. Market conditions and regulations play into your labor cost. For example, the fight for a $15 minimum wage or labor shortages have the potential to drive these costs up. These are variables that you cannot control but must account for.
Every restaurant needs space, and the cost of that space varies based on your goals. If you plan to open a large restaurant with a spacious dining room, the cost will be much higher than a small restaurant with plans for only a takeout and delivery business. The average restaurant rent makes up around 5% to 10% of a restaurant’s monthly costs. Also whether or not you own the space or lease the space can make a difference. Owning the space allows for appreciation of the asset through property value, it also allows for things like tax breaks on the mortgage interest and upgrades made to the property. Finally owning the property also allows for varied use like bringing in other tenants to offset costs.
A few decades ago, technology played a minimal role in the restaurant industry. Today technology is the backbone of the customer experience. Without the right technology, you risk creating subpar experiences for customers, which can quickly reduce profits.
Some of the necessary technology include:
• An employee scheduling system.
• A point-of-sale (POS) system. • A platform for deliveries. If you offer delivery service, your technology must connect seamlessly with multiple vendors to create a single workflow. The worse thing that can happen is customers order and their deliveries are late or the order is wrong.
The technology whichever tool you decide to use also provides valuable access to customer insights. Their wants, their habits, and their demands, knowing these things will help you to better manage your menu and your service.
Various other costs to consider
Marketing costs - Marketing will help you grow your food business from unknown to respected and adored by customers. Things to consider include managing marketing in-house or contracting out. Managing in-house will lower overall expenses, but will require more time.
Décor and remodeling costs - Even if you Buy/lease a commercial space that was previously a restaurant, you will likely have some remodeling costs. Expect to spend anywhere from $5,000 to $100,000 or more.
Kitchen equipment - The cost of kitchen equipment will depend on whether you decide to lease or purchase the equipment. You’ll also need to purchase necessities such as dishes, glasses, linens, and other items for in-restaurant dining. A laundry service may also be required to clean your restaurant items.
Licensing costs - The cost of a business license ranges from $75 to $7,000 or more, depending on your location and local requirements. The initial cost of a food-handling service license is around $100 to $1,000, and a liquor license costs around $300 to $14,000, depending on state regulations.
Opening a restaurant requires many decisions, and one of the most important is your business model. A close second and just as important decision is who builds your restaurant and for how much. For that contact our team of experts at www.BHIbuilds.com