The Hidden Costs of Opening a Restaurant
There comes a time in everyone’s life when they finally give in to their lifelong desire to open a restaurant… Okay, maybe not everyone’s life but if you’re one of the ambitious souls who has been in the industry for a while you may be thinking it’s time to be your own boss. Once you’ve gathered up the courage and tenacity to embark on this adventure, the first thing you’ve got to consider is the economic reality of the situation.
According to a survey, the startup costs of an average restaurant are around $275,000 without purchasing any land. Depending on your location and projected revenue, you may even need to double that. On top of start-up costs, it’s important to acknowledge that it takes about 6 months for the average restaurant to become profitable.
You might be thinking, where do I start? Everyone knows that you need a space, food, and staff to open a restaurant but what are some of the overlooked costs of opening a restaurant? Don’t let these startup costs kill your momentum! Use this as a general guide as you budget for your new business.
- Ordering and Payment Systems and Technology
- Accounting Systems
- Music Licensing: As a business the laws and restrictions governing music license become a lot more strict. You can’t use the same Pandora subscription as you do on your personal time. Getting the right subscriptions and licensing to set the #mood for your place can cost around $1,000.
2. Design, Decor + Furniture
- It’s no secret that the culture and ambiance significantly impacts a new business’s success in today’s Instagram and Yelp dominant society. Digital reputation is everything and many businesses have started to make their “instagram-worthy” decor part of their marketing strategy. If design is at the center of your business model, you will probably need to factor that into your budget.
- Signage: Do you know how much large exterior signs cost? A lot. Potentially even around $15,000.
- Menus: The classier the vibe the more costly the menus. Do not underestimate this expense.
- Advertisements: Marketing is highly specific and we can’t tell you how you should approach it for your business. New businesses need to be wary about the way that they are allocating their marketing budget. Spending too much on misguided, large campaigns can be just as dangerous as not spending enough.
Good news is that we live in a social media world and we can reach thousands of potential customers at a comparatively low cost, if done right. But even social media advertisements can become quite the expense if you consider the various platforms available: Facebook, Instagram, Yelp, Google… just to name a few.
- Recruiting: Hiring a staffing agency can be very expensive but so can hiring the wrong people. You can make a profile on Industry to accurately represent your business through your profile and attract top talent in a matter of days.
- Employment: How many guests would you like to see in your establishment at any given time? How many people do you need to keep all of those guests happy? Need a place to start when considering the staff you need to recruit? — check out this list of restaurant jobs.
- Training: Training takes a lot more time and money than most business owners want to acknowledge. Some restaurants even spend up to 3 weeks training their staff. When planning your budget, don’t forget to take into consideration the fact that employees in training are still employees and they must be paid. That being said, training can get expensive so hire right the first time.
5. Menu + Menu updates
- Sure, you may know what your starting menu will be but don’t limit yourself by budgeting for this menu only. Once customers start coming you’ll find out quickly how much you may need to change your to adapt to the clientele. Also, consider whether your menu will be seasonal and need regular updates. Over budget so you have the flexibility to change your menu if need be.
6. Building + Establishment + Equipment
- Security Deposit — 1 to 2 months rent
- Business Insurance
- Utilities — Including internet and phone services
- Construction: Prepare for the unexpected rewiring crisis, kitchen renovation, safety and inspection requirements
One of the main reasons a startup restaurant fails is because the owner underestimated the capital needed to start a restaurant. Be patient, plan for what you can and set aside at least 10% for the unexpected. Let us know when you open up and we’ll be glad to help!