In this post, we’ll break down the major costs associated with opening a restaurant.
According to a Restaurantowner.com member survey, the cost of opening a restaurant can range anywhere between $175,500 to more than $2 million. The range varies so greatly due to factors such as concept, service type, size, location, type of construction, and other important factors.
With such a broad range of potential costs, it is hard to determine exactly what you will be out of pocket when starting your entrepreneurial endeavor. However, some common factors should be considered during the planning stages that can help you get a better understanding of your investment.
According to one source who gathered data from various general surveys published in 2024, the breakdown of key costs fall into these ranges:
This figure is highly dependent on the area you choose to do business in and what sort of property you are interested in. When calculating how much it costs to start a restaurant, a key consideration is whether you want to build the restaurant from the ground up, purchase an existing restaurant, or lease a property.
While building from the ground up is a long and expensive process, it does provide the opportunity to really customize your dream space. Yet, keep in mind that purchasing a space and custom building carries an increased risk factor because if your business does not work out, your financial losses will be more significant.
Alternatively, purchasing an existing property will save money and get you operating quicker, but you will need to be more flexible with your visions as some of the construction fees to customize the space could also add up quickly.
Leasing a property is often the safest avenue when opening a restaurant, but you still need to consider the down payment, remodeling fees, and a few months’ rent saved to cover the monthly bill until your new restaurant begins to turn a profit.
Whichever you choose, you won’t have to hand over the entire price upfront. However, you should anticipate a down payment of about 15% to 35% depending on the contractual terms.
The amount of money needed for renovations varies based on the existing condition of your chosen property and how much you would like to customize the space. Major renovations may include replacing items such as flooring, windows, lighting, bathroom fixtures, etc.
Smaller renovations will also need to be done to update the space and customize the design to tailor the atmosphere to fit your restaurant’s theme. These finishes can include paint, wallpaper, wall art, decorations, and plants, to name a few.
Equipment and furnishings are both major expenses for a new restaurant that are influenced by type and size. You can choose to purchase new, high-end equipment and décor or save money by looking for pre-owned restaurant furnishings. The major items that you will need to consider are:
In addition to the major items listed above, you will also need to buy the smaller items (which add up quickly) such as cookware, serving tools, dishes, utensils, glassware, food storage containers, napkins, linens, and more.
The restaurant technology that you choose is important because it plays a huge part in how smoothly your operations run, the amount of time-savings you could gain, and the health of your overall profitability. Thoroughly research your point-of-sale (POS) system, table management software, kitchen display systems, self-ordering kiosks, accounting, payroll, scheduling, and back-office software to find the best fit for your business.
The complexity of the menu is another factor in your inventory budget. To control restaurant food costs, consider writing a succinct menu with few ingredients. Also, consider that the initial stock investment can incur a huge dent in your budget when you don’t even know what dishes are selling and which are not. Whereas a smaller initial stock reduces upfront costs. It will, however, require more frequent restocking and could result in stock shortages.
You may also focus on building a relationship with vendors, which may enable you to negotiate better contract prices. However, the biggest factor in controlling food costs is improving your inventory management. An accurate inventory management system can not only help you track your restaurant food costs but also highlight areas of food waste or inefficiencies that you can adjust for lower overall food costs.
Before you can open a restaurant, you need a variety of local, state, and federal licenses and permits which can include a tax ID number, business license, food service license, construction and/or building permits, plumbing permits, electrical permits, fire department permit, signage permit, and more.
In addition, there are several food-related permits required by the government, with varying fees based on your desired location. Let’s use the state of Texas as an example. According to the Department of State Health Services (DSHS), the following permits are required when starting a new retail food establishment.
The DSHS developed the following list of equipment and facility requirements in response to questions from customers making initial business decisions. It is not a complete list. For more detailed requirements, refer to the Texas Food Establishment Rules.
Fixed establishments require:
Be sure to have enough working capital to cover any unexpected start-up expenses as well as your operational expenses during the early months where you might not yet turn a profit.
Even if you plan every detail, there are some hidden costs to doing business as a restaurant, especially during start-up. Other construction restaurant costs may arise unexpectedly, such as unforeseen physical issues that didn’t come up during inspection. Other times, following government regulations like being ADA-compliant may involve extra costs. Other hidden costs may include even smaller details like music licensing fees, which are required from commercial businesses.
The formula for working capital is:
Working Capital = Current Assets – Current Liabilities
When a working capital calculation is positive the company has than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt. When a working capital calculation is negative, this means the company’s current assets are not enough to pay for all its current liabilities.
Marketing costs will vary based on your promotional strategies. Conducting a thorough market analysis will help you understand what you are up against. Who are you targeting as customers? Who is your competition and how do you compare? What differentiates you from these competitors? What share of the market are you capable of obtaining?
Once you determine the above, create a scalable marketing strategy that can adjust as your sales fluctuate and you learn to better communicate with your target audience. The main point is to find the channels of communication that are within your budget to build your customer base, whether it be social media, digital advertising, or printed materials such as flyers and/or coupons.
Getting started in the restaurant business can be a daunting proposition, but it can also be one of the most rewarding career choices. Being financially prepared before you start the journey will be your key to success.
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