5 Restaurant Startup Costs to Consider
If you’re thinking about starting a new restaurant, then you will need to be certain that you can afford it. As many new restaurant owners have a passion for hospitality and food, few realize the significant financial burden that a restaurant carries.
According to a post by RestaurantBusinessOnline.com“The restaurant industry stands today as an economic engine producing annual sales of $825 billion in over 1 million institutions, which jointly employ 15.1 million individuals. All signs suggest it is ready for another 100 years.” These are some big picture numbers and figures, but it doesn’t necessarily mean that you should run out and start a restaurant, especially without knowing the startup costs.
So, how much does it cost to start a restaurant? Before we answer that question, it is vital to understand what startup components will cost you money. While there is no doubt that launching a new business will cost you a substantial amount of time, there are substantial upfront financial costs before you can even open your doors.
Below, let us take a look at some big-ticket startup expenses you can expect when you begin planning your restaurant.
1. Location, Location, Location
If you are running a classic brick-and-mortar restaurant, your institution’s location can make or break your company. New restaurant owners typically require considerable amounts of foot traffic — if you do not have a previously established standing, it can be tough to attract clients to an inconvenient place.
Two of the most significant contributors to land costs are restaurant and location size. Alas, the busiest property is often the most expensive. The larger and better, the more you’ll have to pay. It is always a good idea to conduct market research in the region you would like to open your restaurant — compare various leases on a per square foot basis.
Also, considering that many restaurant owners lease their properties, you want to take into account the terms of your lease prior to making any financial commitments. As you might not need to pay the entire lease upfront, you will be responsible for paying the rental whatever the success of your restaurant. That is why it’s sometimes a bad idea to sign a multi-year lease when opening a new restaurant concept.
Not only will you will need to pay rent, but you may also have to take into account the cost of licensing or insurance. A costly restaurant might seem good, but it is useless if you do not have the appropriate licenses from your regional authorities.
While the price will fluctuate significantly based on your town, neighborhood, restaurant size, and more, you can expect to pay over $100,000 annually for a 1,200 square feet restaurant. Bear in mind you will also have to pay a considerable deposit.
2. Property Upgrades and Renovations
Regrettably, most properties will not come fitted to your needs. When there are pre-built restaurant properties available, your menu will dictate the sort of kitchen that you require. Even in case you discover a suitable restaurant property, there is a great likelihood you will have to generate some adjustments or renovations.
The kitchen will generally be the most expensive element to renovate, but you should also put substantial effort into upgrading and branding the eating areas of your restaurant. A place’s appearance can often be a substantial element in its success.
If you manage to discover a restaurant-specific property, you may have the ability to get away with spending less than $15,000 on renovations and customizations. On the other hand, should you will need to reestablish a large restaurant for your precise specifications, then the cost can rise well above $100,000.
In any event, should you have to invest in renovations, be certain you use this as bargaining power when you are negotiating the conditions of your lease. You might also have the ability to arrange to postpone rent until your restaurant starts serving clients — this may be an exceptional way to stop cash flow issues during renovations.
If you wish to receive your restaurant off to a running start, investing in a marketing strategy is almost always a fantastic idea. Because most of your clients will probably be living or working near your restaurant, it is vital to target nearby customers with a mixture of digital and conventional advertisements.
Some restaurants spend tens of thousands of dollars annually on advertising and a professionally designed site. Fortunately, you can buy some significant promotion with only a couple thousand dollars. Running different competitions and giveaways can be a superb way to seek out brand recognition without spending paid advertisements.
If you are trying to keep costs low, you can conduct your own advertising strategy. However, it can sometimes be a fantastic idea to hire a marketing company to care for the first processes — if you do not have expertise attracting customers, it is a fantastic idea to hire someone who does!
Labor costs will vary based upon your needs and restaurant size. Staff could be paid anywhere from minimum wage to over $50,000 each year. If you would like an experienced chef to take charge of your restaurant, you may need to pay more.
To ascertain the cost of your labor, you need to draw up a list of the amount of team members you will need to run your restaurant at certain times of the day. By way of instance, you will need more employees at dinner and lunch than in the late afternoon.
5. Slush Fund
While lease, renovations, marketing, and labor will be your initial costs, in addition, it is crucial to think about unexpected costs. It is always best to prepare for the worst — if you encounter appliance issues or you will need to close your restaurant for a couple of days, it can cost serious money.
Many restaurant owners make the mistake of employing all their money to start a restaurant. It’s ideal to maintain a slush fund which you may use to cover emergency employees, repair appliances, hire new chefs, or cover any other unexpected expenditure.
Moreover, if you encounter problems with sales once you first open your restaurant, then you want to have the ability to cover your employees costs and invoices. Maintaining between $40,000 and $50,000 at a slush fund is the best way to mitigate this threat. Let us continue below and have a look at some common brand new restaurant spending mistakes.
6 Frequent Spending Mistakes by New Restaurant Owners
If you are new to the restaurant business, it’s easy to make errors. Learning from other people’s mistakes is often the best way to avoid experiencing similar difficulties.
1. Buying Expensive Equipment
Though it can seem like a fantastic idea to buy expensive kitchen equipment once you first begin your new restaurant, this may be a major mistake. Sourcing affordable equipment or locating second-hand appliances is a excellent way to save money. When other restaurants shut down or change hands, it’s easy to pick up cut-price supplies.
If you decide to fund new equipment, the interest payments may create cash flow problems if your restaurant requires some time to get off the floor. Regardless of what, it is always important to be frugal once you’re buying any large-ticket items for your restaurant. You could always shop restaurant shops on the internet to find to get the best price.
Apart from purchasing affordable equipment, it’s also crucial to think about the energy efficiency of the appliances that you are buying. If you ignore energy intake, it could cost you thousands of dollars every month. Occasionally investing in slightly pricier appliances can help you reduce your energy bills.
2. Misinformed Restaurant Technology Purchases
If you are in the restaurant business, it is vital to understand the significance of technology. As you may not associate hospitality with technological progress, there are loads of chances to waste your money on unnecessary technician.
Your restaurant’s point of sale (POS) system is one of its critical components. While a selection of contemporary POS systems provides cutting-edge features to business owners, it is vital to pick the right one. Compare the market prior to making a buying decision, and ensure that your POS system does not require expensive hardware.
3. Ineffective Marketing
While advertising has the potential to boost your earnings by thousands of dollars every month, it will not always work. If you target the wrong clients, or you do not use the ideal marketing channels, you may not see any returns on your cash.
Luckily, digital advertising makes this a good deal easier. By using search engines and social media to target clients, you’ll be guaranteed that your advertisements are exposed to relevant folks. Blunt advertising procedures, such as radio and television, often waste your message on a much wider range of consumers.
Should you decide to pick a marketing agency to take on your marketing efforts, it is ideal to pick an agency that has expertise with unique restaurant marketing ideas. Ask the agency for previous clients, references, and additional evidence they can achieve success. Sometimes, it’s ideal to negotiate payment terms which are directly linked to advertising performance.
4. Overpriced Food Sourcing
Once your restaurant is functioning, it is critical to take into account the costs of your meals. If you’re making big purchases, it is a fantastic idea to attempt to negotiate with your suppliers. You should also compare your existing suppliers against other competitors in the exact same niche.
While it’s easy to get caught in the routine of sourcing from the same providers, it is vital to be getting the best prices if you would like to stay competitive.
5. Poor Food Management
Besides sourcing food at inexpensive prices, in addition, it is vital to handle your current stock. Many restaurants wind up shutting down because they are not able to handle their food supply correctly. If you buy a lot of food, it may spoil before you can sell it. On the other hand, if you do not buy enough, it may leave clients very unhappy.
Fortunately, many top POS systems now offer inventory monitoring and stock analysis. With a tracking system and assessing your purchase volume and stock can help you make the ideal food purchasing decisions.
6. Can Consultant Help You Cut Costs?
If you are finding it tough to evaluate costs and viability, then it may be a great idea to consult with a restaurant consultant. There are several former chefs and restaurant owners who currently help new restaurant owners navigate the intricacies associated with beginning a new institution.
If you hire a consultant that has years of experience owning or managing a restaurant, you are going to be uniquely positioned to benefit from their understanding on day one. While there’ll still be learning curves, a consultant can help accelerate the process of being a competent owner and manager. Good consultants can often help you build menus, evaluate costs, design your inside, source appliances, understand food management, and much more.
Should you decide to employ a consultant, ask them for evidence of the past consulting work and successes. With numerous restaurant consultants now operating in the market, it’s vital to find one with a respectable history.
Along with helping you evaluate costs, a consultant may also search for properties, source meals, and gain staff. While the costs of a consultant might seem unappealing, employing a specialist during your setup procedure can save you a substantial quantity of money in the long term.
At the end of the day, the costs associated with opening a restaurant may vary significantly based on a selection of factors. Rent, labour, renovations, permits, and a slew of other restaurant-related expenses all contribute to the total price of establishing a new restaurant. While some little restaurant owners have gotten off the ground for under $100,000 in total, some luxury restaurants can cost millions to open.
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