How to Figure How Much It Costs to Open a Restaurant
Starting a restaurant is a dream many people have, but the costs of the reality can quickly add up. From build-out costs to permits to payroll, a lot of money will flow out of your pockets before profits begin rolling in. Estimating and cataloging all necessary costs is the first step toward writing an effective business plan. Unless you're independently wealthy, you'll need a detailed business plan to convince banks and other investors to lend the necessary money to you.
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Instructions
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Decide whether you'll be leasing or buying the property of your business' location. Leasing means less money up front. Build a "first option to buy" clause into your lease, so if your landlord decides to sell and your restaurant is successful, you have the option to buy the property outright. Write down the monthly rental cost.
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Shop around for build-out costs for the facility. Build-out costs include all necessary kitchen equipment, as well as renovations to the kitchen, dining area and bathrooms, and other building maintenance issues that you must address before opening.
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Estimate costs for furniture, interior design, tableware, linens, bathroom supplies and installation of a point-of-sale system. Compare costs among different vendors in your area to get ballpark figures; if you know exactly what you want, compare specific models directly for more accurate pricing.
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Add up costs for all necessary permits and licenses in your area. Building permits and liquor licenses are just two things your restaurant may require. Prices vary widely by locality; contact your city or town hall for the most current pricing information, as well as a list of what specific permits and licenses you'll need. Also add up costs of all applicable insurance policies, including fire, theft and liability.
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Build in costs for all personnel required for your restaurant, and be honest with yourself about how much you can realistically do on your own. Kitchen staff, wait staff, a bookkeeper, payroll company and a lawyer are just some of the costs to consider. If you will not be managing day-to-day operations of your restaurant, you'll also need to hire and train a general manager.
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Analyze the competition for your restaurant in the local area. Consult the most recent U.S. census data for the area, visit local restaurants, talk to the owners and take notes. Census data can provide crucial information on household income levels and demographics for marketing and feasibility estimates. Local restauranteurs can give you inside information you wouldn't get otherwise.
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Establish a schedule for business hours, including days off, according to the information you gathered. Use this schedule to add up the costs of paying your staff and utilities to get a rough estimate. Estimate food costs based on your menu and rates charged by food service purveyors in your area. If multiple purveyors are available, compare costs and quality of products before making a decision.
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Tips & Warnings
A point-of-sale system is a modern cash register system, which is typically computerized. It allows you to monitor your customer base, identify repeat customers and quickly analyze which menu items are successful -- and which aren't. They also allow you take credit cards -- but beware, you'll need to pay credit card company processing fees to utilize this feature.
Set up a marketing plan, and set aside funds for that plan. An eye-catching sign and amazing food alone isn't enough to bring in new customers; you need to convince the skeptical public that they can't live without your restaurant.
Have a contingency fund set aside on top of your initial estimated outlay of funds. You won't turn a profit right away, and even in the case of eventually-successful restaurants, you often won't see a profit until six months after opening. You need to be able to pay all your bills -- and staff -- for at least that amount of time, even if you're not taking in a profit.
References
- RestaurantOwner.com: Industry Survey -- How Much Does It Cost To Open A Restaurant?
- Restaurant Resource Group; Reduce the Risk of Opening a New Restaurant; Jim Laube
- "Forbes"; How to Run A Restaurant: Startup Costs; Maureen Farrell; February 2007
- Illinois Department of Commerce and Economic Opportunity; Restaurant Start-Up Profile; Katherine J. Henning et al.; June 1999
