Have you been dreaming of starting a restaurant business? If you love great food, have an eye for detail and love the idea of being your own boss, running your own restaurant can be an extremely fulfilling and profitable adventure.
It can also be quite the challenge. You’ll need to plan carefully and work hard to build a successful business. Starting a restaurant requires a considerable up-front investment, too. One of the small business challenges you’ll face is the need to calculate your startup costs and figure out how to finance and budget them. Unless you have a large amount of money to invest, you’ll likely need to take out a loan.
But how much money are we talking about?
Small Restaurant Startup Costs
RestaurantOwner.com, a community of independent restaurant owners, conducted a survey of its members on how much it cost to open a restaurant. They gathered data from more than 350 respondents across the industry. Restaurant businesses can vary widely, though, so they divided the results into three figures: lower quartile, median and upper quartile. The average cost to open a restaurant in the lower quartile was $175,500, the median was $375,500 and the upper quartile was $750,500.
That’s quite a wide range. So how do you know which of these figures is most relevant to the restaurant you want to open?
Let’s break it down into a restaurant startup checklist.
Restaurant Startup Costs Checklist
Below are the essential first steps to opening a restaurant and a rough idea of how much they will cost.
Restaurant Licenses & Legal Fees
Before you get started, you’ll need to take care of the paperwork. The first thing you’ll need is a business license. Fees vary from state to state, so you’ll need to research exactly how much it costs where you live. It can range from around $75 to $500. If you’re planning to serve alcohol at your restaurant, you’ll also need a liquor license, and that can be expensive – especially in states with a quota on the number of liquor licenses available. In states like New Mexico, the fact that that quota exists means the only way to obtain a license is to buy from another business, so the average cost in 2016 was around $381,000 and could even be as high as $900,000. In other states, liquor licenses might cost $12,000-$400,000. If you only want to sell wine and beer, the cost is lower: as little as $3,000.
Because of all the paperwork, you’ll need help from a good lawyer to review all the documents and make sure everything is in order. This might add anywhere from $500 to $2,000.
Insurance for a Restaurant
Business insurance is essential for protecting your business and minimizing risk. How much it costs depends on the size and nature of your restaurant and the level of insurance you need. General liability insurance for restaurants generally ranges from about $40 to $500 per month. At Next Insurance, our restaurant insurance starts at around $25 per month – offering great coverage at a very affordable price.
If you’re purchasing a space for your restaurant, especially one that was never set up as an eatery, you’ll need to remodel. How much this costs will depend on how much work needs to be done: do you need to install a kitchen and lay new plumbing lines, or just add some cosmetic finishes to upgrade the look and feel of the place? According to the Building Journal cost estimating tool, it will cost around $160 per square foot to remodel a restaurant with mid-level finishes in an average US city. That’s around $325,000 for 2,000 square feet. If you’re remodeling in a more expensive city, like New York or Philadelphia, it will cost more.
This also really depends on the kind of restaurant you’re running and what equipment you’ll need for it. In the survey, the average amount spent on kitchen equipment was $40,000 for the lower quartile, $95,000 for the median, and $196,250 for the upper quartile.
Purchasing secondhand equipment can help lower costs. Restaurants that have gone out of business may be willing to sell their equipment to you at a reduced price. Just make sure the equipment is high-quality and suits your needs.
Design & Furniture
While the food is the most important part of experiencing a restaurant, the look and feel of the place is what makes the first impression. You don’t need to spend a fortune on fancy furniture – for some restaurants, the simpler the better. But it may be worth hiring an interior designer to ensure that your restaurant’s atmosphere is appealing and attractive to your target audience. Professional design can cost between $100 to $500 per square meter.
To ensure that your restaurant is welcoming to people of all abilities, you may need to make some additional investments. A wheelchair-accessible ramp, an accessible bathroom stall with a grab bar and lower sink, and braille menus can help accommodate people with mobility or visual issues. Consider planning a menu that provides for people with dietary restrictions, such as allergies and celiac. Though these measures may require additional investment, they’ll be worth it if more patrons feel safe eating at your restaurant.
Be aware that the opening itself comes with its own expenses. You’ll need to launch a well-planned advertising campaign to spread the word, hire and train employees, and more. The survey put pre-opening costs at $10,000-$50,000, with $20,000 being the median.
Costs of Running a Restaurant
Beyond the initial costs, you’ll also need to consider the ongoing costs of running a restaurant. These include the lease or mortgage, employee salaries, the raw materials for the foods and beverages you’re serving, utilities, marketing, maintenance – and, as mentioned above, insurance. If you took out a loan to cover your startup costs, you’ll need to pay it back, too. Your restaurant needs to pull in enough income to cover these costs with enough profit left over for you to make a living.
Ultimately, starting a restaurant can be incredibly rewarding and lucrative if you know what you’re doing. Plan each stage carefully and make sure to leave room in your budget for unexpected costs.
For more information about how insurance can protect your restaurant business, see our Restaurant Insurance page.