So, you’ve got a great idea for a restaurant, and want to make your idea a reality. Now, there’s a big question to ask — how much does it cost to open a restaurant? Unfortunately, there’s no single answer, or even range of answers, because the cost depends on a large number of factors.
Are you opening a brand new restaurant or a franchise location? How big does the space need to be? Where do you want your restaurant to be located?
The answers to all of these questions are going to influence how much opening your restaurant will cost. If you’re trying to open a restaurant with no money, it’s important to know how much capital you’ll need.
Okay, So What’s the Average Cost to Open a Restaurant?
This number obviously isn’t one-size-fits-all, but a survey of restaurant owners estimates that the median cost to opening a restaurant is about $375,500. The lowest quartile of that survey showed owners spending only $175,500 in startup costs, while at the upper end of the spectrum, they spent about $750,500.
If you want to open a franchise for a popular fast food restaurant, expect much higher costs. The Blueprint estimates that owners could spend upwards of $1 million to open a McDonald’s or a Wendy’s.
When it comes to opening any business, expenses seemingly emerge from all around, many of which you may not even consider at first. To make it easy (well, easier), let’s break down the expenses that you’re going to incur along the way to opening your restaurant.
One-Time Restaurant Costs
There are several things you’ll need to open your restaurant that, luckily, you’ll only have to purchase once. Here’s a list of some of the most common things you’ll need to buy — and an idea of how much you can expect to pay for each.
Equipment — Professional kitchens require a large variety of equipment, depending on what kind of food you’ll be serving. Commercial ovens can cost anywhere from $2,600 to $20,600, depending on the size and type you need. For now, we’ll stick with the lower end of the price range.
- Oven: $2,600
- Stove: $1,650
- Freezer: $2,000
- Refrigerator: $1,650
- Microwave: $680
- Pots and Pans: about $12 – $20 per piece
- Dishwasher: $3,050
- Commercial Sink: $365
- Cutting Board: $24
- Cook’s Work Table: $760
- Cold Food Table: $740
- Serving Plates: Vary, about $120 for 12
- Cutlery: Varies
Keep in mind that these costs will vary depending on which pieces of equipment you need to buy. If you’re starting a new restaurant from scratch, you’ll likely need most if not all of this equipment. These prices can also increase dramatically if you need to buy multiple of any item, or if you need a larger version.
If you’re opening a specialty restaurant and need specialized equipment, these costs will go up. Bars also have their own set of equipment they will need in order to operate, like bar mats and cocktail shakers. Do your research on what kind of fare you want your restaurant to serve to learn more about the equipment you’ll need to have on hand.
Point-Of-Sale System — You’ll need a point-of-sale payment system that allows you to quickly accept payments and keep your customers happy. A digital POS system can cost around $2,500 for the hardware, and then usually require a subscription of somewhere between $70 and $150 per month to run the software.
Do some research on prices and features to find the POS system that’s the best fit for your restaurant.
Furniture and Decor — No matter what style of restaurant you want to open, you want to make sure the environment is one that’s friendly and inviting to your customers. Also, you’re going to need tables and chairs. Your costs will depend on your restaurant concept, and your restaurant floor plan will influence how many tables and chairs you’ll need. You might even consider hiring an interior designer to ensure your restaurant has a cohesive look.
According to QSR Magazine, furniture and design costs can run restaurants as much as $120 – $300 per square foot of space. If you’re short on money, you may be able to cut down on these costs by checking places like thrift stores for some unique pieces of decor for your restaurant.
Legal Help — It’s a good idea to hire a lawyer as you’re getting started to help you deal with the contracts and paperwork that you’ll inevitably receive as you move toward opening your restaurant. Your lawyer can also help you to acquire any necessary business licenses you’ll need. Lawyers vary in cost, but you can expect to spend anywhere from $500 to a few thousand throughout the process.
Recurring Restaurant Costs
Recurring costs are usually pretty self-explanatory when it comes to their purpose, but like everything mentioned above, they’ll vary based on a number of variables. These are the costs that you’ll be paying on a regular, fixed basis (monthly or yearly).
Obviously, you’ll have to pay for the space you’re using. Both rent and mortgage costs will vary greatly depending on your restaurant’s location.
Rent in a trendy location like New York City can cost as much as $120 per square foot of space. A survey found that, on average, restaurant rent costs just under $7,000 per month in the U.S., with an average square footage of 4,180.
Purchasing your own space will also vary greatly in cost. When deciding between renting or purchasing your space, it’s important to take all the factors into consideration.
A down payment on purchasing a building will likely be more expensive than a few months’ rent, but will ultimately give you more control if you want to renovate your restaurant space. However, purchasing your building means you’ll also have to pay property taxes.
Utilities — Businesses, restaurants especially, will run up utility bills fairly quickly. Your equipment will use plenty of electricity, and constantly washing dishes uses a lot of water.
According to Upserve, restaurant utility costs can average about $3.75 per square foot every year, or a little over 31 cents per square foot per month. If the average square footage is 4,180 then utilities will cost around $1,300 per month for an average restaurant. Make sure you factor in utility costs when developing your business plan.
Music Licenses — Playing music is commonplace in any modern business, and restaurants are no exception. Unfortunately, you can’t just stream any music over your restaurant’s speakers for your guests for free. That counts as a copyright violation, and those can be extremely costly — penalties range from $750 to $150,000 per song played.
Because no one wants to pay those penalties, you’ll need to purchase a music license. These can generally cost around $16 to $40 a month, which is significantly cheaper than the violation penalties.
Insurance — Every business needs insurance, and restaurants certainly aren’t an exception. Your insurance costs will depend on your provider and area, but there are several insurance providers that offer low-cost small business insurance.
Restaurant Licenses and Permits — No matter where you’re choosing to open your restaurant, you’re going to need licenses and permits to operate. These usually have to be renewed every year or every few years, but requirements for both acquisition and renewal vary based on your location.
Common restaurant licenses and their costs include:
- Business license: Every business in the U.S., regardless of size or industry, needs a business license. These can cost anywhere from $75 to $550 to obtain, and the process for obtaining one varies by state. The federal Small Business Administration has an online tool to help you figure out how to obtain your business license
- Food service license: These are handled by your local or state health department, and they can cost anywhere between $100 and $1,000. Make sure you keep your license up to date depending on your state and local laws.
- Liquor license: These vary the most depending on location and can be very costly. Just know that they can be anywhere between $3,000 and $400,000.
This list is nowhere near exhaustive, so make sure you do research on required restaurant licenses and permits in your area.
Ongoing Restaurant Costs
These are costs you’ll have to pay more often than every month. With the razor-thin average profit margins of restaurants, this will usually be where you want to do the most cost-cutting. Even small savings will eventually add up.
- Labor — You probably don’t plan on doing every single job by yourself, so you’re going to need to hire some staff. Depending on your restaurant concept and size, you’ll need cooks, servers or cashiers, managers and a variety of other employees.Different positions require different pay, and states and localities may have separate wage requirements. Average restaurant staff members make a little over $11.50 per hour, but managers will cost you more.
- Food and Drinks — Obviously, you can’t run a restaurant without the food and drinks. Restaurants spend between 20 and 40% of their revenue on food and drinks, and this can increase if they serve expensive drinks like wine.It’s hard to narrow down an exact cost for food, because prices fluctuate rapidly, and of course, it’ll depend on the kind of food you choose to serve.
- Other Materials — Things like menus, dishes, aprons for your staff and other items will wear out after a while of use, and will need to be replaced. As with most other ongoing expenses, the cost of materials will depend on your restaurant’s concept.
- Marketing — Effective marketing is an integral part of running a successful business. Even a small restaurant should always be aiming to attract new customers. The cost of marketing will vary based on your operation, but restaurants generally pay 3-6% of their sales for marketing.
There are some costs that can occur spontaneously, or you may just not consider them before you approach your restaurant’s opening. When you’re planning how to use your funding, it’s important to keep cash on hand in case you run into any of these unexpected expenses.
- Equipment Repairs — No matter how nice your equipment is, sooner or later it’ll need repairs. It’s hard to estimate the cost of equipment repairs, as these vary based on the type of equipment and the severity of the failure.
- Emergencies — They may not happen often, but you should always be prepared for an emergency. There might be a power outage or a flood in your area, causing your restaurant to close temporarily, or a pandemic might cause you to adapt and rethink your operations. Even if an emergency doesn’t directly cost you money, being unable to operate for a period of time could hurt your business’ finances.
Four Tips for Reducing Restaurant Startup Costs
When starting and running a restaurant, it’s best to save money wherever you can. Here are some tips that can help you make these startup costs more manageable.
- Consider Used Equipment — Given the list of equipment prices above, these costs will add up quickly. If you’re tight on cash, you can try searching online for used commercial equipment sold at a lower price.
- Reduce Your Staff — Staffing is one of the most costly parts of running a business, and especially in the beginning, it can be difficult to come up with the money to hire people. Consider reducing your need for front-of-house staff by implementing self-ordering restaurant kiosks, which can also act as your point-of-sale systems.
- Don’t Over Hire — This goes hand-in-hand with reducing your staff, but it’s important to be conservative in the number of people you hire before you open your restaurant. Hiring more employees than you end up needing will only cost you money, both in the short term and the long run. If your restaurant becomes busier than you anticipate, you can always hire more staff later.
- Reduce Material Costs — Printing menus and kitchen tickets costs money, especially if menu items change and printed menus need to be replaced. Implementing tech like digital menu boards to replace paper menus and a digital kitchen display system to replace paper tickets may cost more money upfront, but it won’t be long before your long-run savings outweigh these costs.
These are just a few of the ways you can save on your startup costs. Get creative and see if there are more ways you can cut costs without sacrificing your restaurant’s quality.
The Bottom Line
Unfortunately, it’s nearly impossible to narrow down exactly how much it’ll cost you to open a restaurant before you get started. However, with enough research and planning, you can narrow it down to ascertain a tentative budget. The more precise your plans are, the more accurate your estimated costs will be.
Be smart in your planning and purchasing. Plan for a larger budget than you think you’ll need before you get started, just to make sure you don’t encounter any roadblocks when you’re already knee-deep in opening your restaurant.