How much does it cost to open a restaurant?

Opening a restaurant can cost anywhere from thousands to millions of dollars. Start-up costs vary depending on factors such as where your business is located, if you’re buying an existing restaurant or starting one from the ground up. New restaurant owners typically need to acquire financing from investors, lenders and creditors.

Opening a restaurant costs

While restaurants have recurring costs and expenses, business owners also need to put money toward initial restaurant start-up costs. These typically include:

• Location: You can buy or lease a property, and your costs will vary according to the market and area.
• Licensing and permits: You usually need to pay to obtain the required permits and licenses to start a restaurant, such as liquor licenses and parking permits.
• Equipment: Restaurants need appliances and smaller equipment to start operating.
• Initial inventory: You’ll need to make a large initial inventory purchase to start serving food.
• Construction and renovation: Unless you’re taking over an existing restaurant, you’ll likely need to plan for new construction or renovation costs.
• Initial marketing concept: Before you can open, your restaurant needs a name, logo and signage that best represent your brand.

Read more: Opening Your Fast Food Restaurant: Best Practices

What do restaurants overspend and underspend on?

Making sure that your restaurant is ready for operation is important, but business owners may easily find themselves overspending or underspending. To ensure that your restaurant satisfies customers and is cost-efficient, analyze your spending closely.

Equipment

Although it can be tempting to purchase brand new equipment, new isn’t always better. Expensive appliances and other equipment begin depreciating and lose value as soon as they’re purchased, but you can often find used equipment for a lower up-front investment. A new restaurant doesn’t necessarily need the latest equipment and can operate successfully with second-hand items.

When considering used equipment, however, make sure it’s in good repair. Equipment like commercial ovens and refrigeration units can be expensive to repair and maintain, so be sure to do your research and compare the costs of buying new. If equipment is in poor condition, then it may end up costing you more than purchasing new items.

Location

Deciding where to establish your business can be time-consuming, and it can help to consider what’s most important about the location. The walkability in a downtown area might help with overall traffic, but downtown real estate can be more costly. Alternatively, less convenient locations may be less expensive, but may result in fewer people coming to your restaurant than if it were downtown. You should also consider the amenities and costs associated with a particular location, such as parking, permits and taxes.

Technology

Many modern restaurants have switched to tablet-based point-of-sale (POS) systems. This enables them to efficiently track and integrate all aspects of the business’ sales, inventory, expenses and more. Since these systems are paid services, make sure to shop around to find a cost-effective option for your business. Although this is a worthwhile investment, you don’t need to buy a new, high-end tablet for every server to use. You can reduce costs on technology by opting for older models.

Maintenance

Regardless of whether you’re buying new or used equipment or furnishings, treating them well can help you avoid costly repair or maintenance bills. Ensure that staff know how to properly use and maintain equipment to avoid overspending on maintenance. Keep in mind the quality and types of equipment and materials you purchase. Commercial-grade equipment is more durable and certain materials are more resistant to heat-related damage, so investing in such items may reduce your ongoing maintenance costs.

Design and decor

The best approach to design and decor for new restaurants is to avoid any major expenses and focus on making an impact with inexpensive options. Simple design, paint colors, good lighting and inexpensive decor items like plants can improve the mood and atmosphere of most restaurants.

Marketing

Many new restaurant owners aren’t knowledgeable about marketing and are easily convinced to overspend on unnecessary strategies. While those marketing strategies may be helpful later on, it may be too early to implement flashy and expensive campaigns with a new restaurant.

To get the most out of your marketing budget, take advantage of social media and your online presence. You can develop an internet following and generate buzz by regularly posting about your restaurant’s activities. If your budget allows, you can pay for sponsored social media ads or hire a part-time or contract social media specialist to create quality online content.

Related: What Is Marketing? A Business Guide

Food costs

Food is one of the biggest costs for restaurants, but it’s also easy to overspend on. There are several ways to manage food costs, such as:

• Implement forecasting measures to avoid over-prepping and food waste.
• Evaluate your menu margins to identify which cost-ineffective items may be changed or eliminated.
• Create an inventory and ordering management system to avoid overbuying and wasting food.
• Identify food waste causes, such as portion sizes or inefficient recipes.
• Source from local and cost-effective food vendors, farmers and wholesale retailers.

Related: The Basics of Designing a Restaurant Menu

Costs of opening a restaurant FAQs

What are the monthly expenses for a restaurant?

Restaurants pay many recurring expenses each month. These may include:

• Food and liquor costs
• Repair and maintenance
• Inventory variance and waste
• Marketing
• Rent
• Property insurance
• Utilities
• Labor
• POS software subscription

What is the profit margin for a restaurant?

Many factors can affect a restaurant’s profit margin, such as the type of establishment, geographic location and food cost per meal, among others. Although profit margins can vary, the average ranges from 3% to 6%, with full-service establishments on the lower end and fast food restaurants on the higher end of the range.

How much do restaurant owners make?

According to Indeed Salaries, restaurant owners make $61,095 per year. This amount may change depending on the type of restaurant, the geographic location and other factors. Restaurant owners typically pay themselves a salary or a portion of the business’ profits. New restaurant owners may choose to take a lower salary initially and increase it as their business becomes more successful.