Starting and running any business requires money, energy, and time. However, not all businesses make it through the first couple years. According to the data compiled by the Bureau of Labor Statistics from 1995 to 2015, more than 20% of businesses failed within 1 year, and the business failure rate increases to over 50% in five years.

So why do some businesses fail within years of launching? Well, there could be many reasons.  Lack of planning and preparation, under-estimating the challenges, money crunch, or just plain bad luck are a few of the reasons.

How Profitable is Owning a Restaurant?

The restaurant business, although competitive, can be a lucrative venture. With over 660K restaurants across the United States, the food and drinks industry generated over $799 billion in sales in 2021.

Needless to say, owning a restaurant business can be a profitable affair if you get the business model right. How much does it cost to start up a restaurant? Read on to know about restaurant startup costs and how you can improve your chances of succeeding in the industry.

List of Restaurant Startup Costs Every Owner Must Know

Budgeting for a restaurant startup contains two items – initial costs and expenses. A restaurant start up cost is a one-time expense for the commercial space, renovation, equipment, kitchen utilities, etc.

On the other hand, expenses are recurring charges you pay to keep your restaurant up and running, like rents, payroll, supplies, etc.

Now you know the difference between these two, here is the restaurant startup costs breakdown that every restaurant owner must know:

1. Premises, Equipment, and Resources

Planning for any restaurant startup budget begins with finding the perfect location. The area, location, resources, and equipment you will require depend on the size and type of your proposed restaurant.

Rent is usually charged on a per square foot basis, and varies in different parts of cities. While some restaurant premises come fully equipped with furnishings, others require costly renovations that can shoot up the investment cost.

Here are some of the crucial costs you must consider:

• Security Deposit: $30,000 to $60,000 (equivalent to 3 – 6 months’ rent)
• Renovation Charges: $5,000 to $50,000
• Restaurant Tables & Chairs: $40,000
• Kitchen & Bar Equipment: $115,000
• Initial raw material costs (food and drinks): $8,000
• Rent: $10,000 to $12,000 per month
• Utilities & Supplies: $2,500 per month

2. Hiring a Team and Finding Vendors

The restaurant is a part of the hospitability industry, and its success depends on the staff you select. While preparing your restaurant business plan and restaurant startup costs checklist, you must have a clear idea of how many staff members you will need for the smooth operation of your restaurant. Although the federally mandated minimum wage in the United States is $7.25 per hour, it varies from state to state. It could be as low as $5.15 per hour in Georgia and as high as $15 per hour in California. The average salaries of the typical staff members of a restaurant are:

• General Manager: $50,000
• Chef: $40,000
• Assistant Manager: $38,000
• Servers/Bartenders: $24,000

Any restaurant’s dish is only as authentic as the ingredients are. Therefore, you must partner with the right vendors to get the best quality raw materials. Most restaurants have a markup price of about 300% for their dishes. For beverages and cocktails, the markup price can be significantly higher.

3. Getting Your Paperwork Done

Opening a restaurant in the United States requires several licenses and permits like:

• Business License (~ $500)
• Food Service License ($100 to $1,000)
• Liquor License (around $12,000)
• Food Handler’s Permit ($100 to $500)
• Sign Permit
• Employer Identification Number

The price of these permits and licenses (excluding liquor licenses) varies from state to state and could easily cost you about $5,000 to $6,000. Additionally, you must protect your business by investing in appropriate insurance coverage, whose premiums can cost around $6,000 per year.

4. Payment System Setup & Restaurant Technology

Any modern restaurant is expected to have a point of sale (POS) system which is fast, portable, and safe for online payments. While some payment gateway service providers charge a monthly fee, others charge a percentage for every transaction.

Similarly, investing in restaurant technology helps in the effortless management of front-end and back-end processes by automation. More importantly, you collect data for analyzing customers’ preferences and feedback to improve their dining experience.

Restaurant business startup costs for some of the hardware and software requirements associated with a restaurant are:

• Hardware:
  • iPads or handheld devices for POS and kitchen display systems: ~ $300 and up
  • Payment Terminals
  • Receipt printers: $100
• Software:
  • Point of Sale (POS) System: $69 per month onwards
  • Employee Scheduling Software: $18 per month onwards
  • Kitchen Display System: $12 per month onwards

5. Branding and Marketing

We live in a digital age where running any business is impossible without marketing. Marketing helps in increasing your restaurant’s visibility to stand ahead of the competition and create a brand image.

You can select from various marketing techniques – from social media to billboards, from PR services to radio campaigns to draw customers. The average costs of different marketing tools are:

• Fliers/Ads/Discount-coupons: $5,000 to $10,000
• Signage: $15,000
• Opening Event: $15,000
• PR Services: $5000 – $6,000
• Menu Designing: $1,500
• Radio Ads: $20 to $80 per ad campaign broadcast
• TV Ads: $200 to $1,500 for every 30-second spot

In a nutshell, marketing costs for your new restaurant can easily cost upwards of $30,000.

If you want to market on a budget, you can consider hiring content writers or freelancers for a robust digital presence in the form of blogs.

Social media content creators follow the most-efficient Search Engine Optimization (SEO) practices to create high-quality content, which usually costs less than $500.

Restaurant Business Startup Facts

According to the National Restaurant Association, here are some interesting restaurant business startup facts:

1. Restaurant industry sales in 2021 were around $799 billion.
2. The restaurant industry employed more than 14.5 million workers in 2021.
3. Around 90% of the restaurants in the United States operate with less than 50 employees.
4. The cost of opening a restaurant varies between $175,500 and $750,500.
5. 90% of the restaurant-goers research the restaurant before dining.

Frequently Asked Question

When you are planning to open your dream restaurant, you go through several aspects – food, staff, layout, interiors, menu design, cutlery, kitchen equipment, and so on, but bookkeeping often isn’t one of them. As if the restaurant business was not competitive enough, a recent study suggests that over 52% of restaurant owners consider operating costs and food costs as the biggest challenges in running their restaurants.

Restaurant bookkeeping not only helps owners track their inventory, profits, and expenses but help in tax calculation and auditing too. More importantly, it helps identify where your money is going and how you can maximize your profits. 

So, what if accounting is not your forte and you don’t know anything about restaurant bookkeeping? Almost all businesses use some type of accounting software to track their incomes and expenses. So, why not restaurants?

With some basic understanding and the right accounting software, you can stay ahead of your competition and increase your profitability. Read on to know how you can master bookkeeping for a restaurant business like a pro: 

How to Handle Bookkeeping for A Restaurant?

Whether you plan to outsource your accounting activities or do it yourself, efficient bookkeeping starts with you. Here is how you can carry on restaurant bookkeeping effectively in 5 steps:

1. Use POS to record your daily sales

Points of sales (POS) systems have turned out to be a huge blessing for restaurant owners and managers. POS systems have bridged the communication gap between your kitchen and dining staff. A POS system serves many functions – tracking your sales, managing inventory, collecting feedback, analyzing customer preferences, and many more. 

• Record your per-day sales entries: In any restaurant, customers either pay by card (or some other digital medium) or cash. By recording your daily sale entries, you are trying to replicate how your deposits hit the bank. 
• Prepare a Sales Report: A sales report usually summarizes the daily sales. Although most restaurant POS systems automatically generate a sales report daily, you can customize the report to reflect more information on the dining preferences of your guests.
• Maintain a Daily Sales Journal: Once your daily sales report is ready, you can update the sales journal to make a mental note for different aspects of your sales. For example, while bookkeeping for bars, you might want to record beverage and food sales separately to analyze the average spending by a customer.

2. Manage Accounts Payable

Now that you know your daily sales, the next step in your restaurant bookkeeping would be to set up accounts payable. After all, you want to keep your vendors and suppliers happy if you wish to continue working with them.

• Make all the entries for pending payments at least twice a week and pay your vendors once every week.
• Before making the payment, crosscheck the bills. Make sure that each purchase order matches up with its receiving order.
• Whether you pay the vendors online or through a check, ensure that the corresponding entry in your accounting system is marked correctly.

3. Work on a Payroll

To keep your staff happy, you must pay them for their work – timely and correctly. Payroll is the process of managing, calculating, and disbursing paychecks for your employees.

• The restaurant is a tricky business, and salaries depend on several variables. For example, the basic salary of any employee will depend on their experience, expertise, roles, responsibilities, etc. 
• Similarly, some employees like managers or chefs will have a weekly or monthly salary while others, like waiters, bartenders, and cleaners, will get paid on an hourly basis. 
• In a nutshell, working on payrolls can be tedious as there are several factors to consider. Any miscalculation in paychecks might lead to unhappy employees leaving your team. 
• Moreover, incorrect payroll might even have tax implications, and you might incur penalties or interests.
• Outsourcing your payroll or investing in an accounting service is an affordable way to ensure transparency, consistency, and accuracy.  

4. Always do Reconciliation

Reconciliation is an accountancy term for matching all your financial transactions by looking at different sets of balances and records.

• Reconciliation is the only way to ensure that you have accounted for all your financial transactions from banks, credit cards, payroll, loans, credit lines, etc.
• You minimize errors due to faulty entries, lost checks, and incorrect deposits through reconciliation and ensure that your financials are in order.

5. Maintain Financial Reporting

Financial reporting helps you gauge the status of your business. The restaurant industry works on tight margins, and financial reporting helps analyze where your business is going. Some of the key financial reporting parameters include:

• Profit & Loss statement
• Balance Sheet
• Cash Flow statement
• Sales vs. cost of goods

How To Perform Cost Calculation for Restaurant Bookkeeping

• Cost of Goods sold: It refers to the ingredients and products you buy to prepare food and beverages. Ideally, the cost of ingredients is roughly 30-40% of the total sales.
• Cost of labor: It comprises all expenses towards your staff including:
  • Hourly wages for your servers
  • Salary for chefs, managers, etc.
  • Payment or allowances for uniforms, tips, gratuities, unemployment taxes, etc. 
• Occupancy and Equipment cost: It consists of the cost of owning or renting the place as well as expenses done for the infrastructure like:
  • Mortgage, rents, property taxes, insurance, signage.
  • Utility bills like electricity, water, and municipal taxes.
  • Cooking equipment, freezers, ovens, etc.
  • Maintenance and servicing cost.
• Restaurant furniture Cost: Restaurant furniture requires a significant expenditure and consists of payments for
  • Buying restaurant tables and chairs
  • Repairing and maintenance cost of restaurant chairs, tables, barstools, etc.
• Marketing cost: Now that your restaurant is open to welcome customers, you would have to spread the word. Marketing costs include:
  • Print ads in newspapers, pamphlets, or billboards
  • Digital marketing through social media influencers
  • Audio-video advertisements on radio, local TV, etc.

Best Restaurant Bookkeeping Software Options

Now that you understand the importance of bookkeeping for restaurant business, here are the best accounting software for restaurants:

1. Restaurant365

• Cloud-based software that integrates restaurant bookkeeping with other management tools like ordering, invoicing, staff scheduling, etc.
• While it does not offer payroll services, you can integrate with other vendors, POS systems, etc.
• Monthly prices for Restaurant365 start around $249 per location and goes up to $459 per location

2. QuickBooks Online

• Easy to use program and ideal for restaurant owners with little accounting knowledge or bookkeeping experience
• It offers impressive features like income & expense tracking, invoicing, inventory management, etc., with add-on payroll services, and is compatible with most POS systems
• Monthly pricing for QuickBooks Online ranges from $25 – $100

3. Touch Bistro

• iPads-based POS system built by and for restaurant owners
• Effortless to set up and offers features like inventory management, ingredient-based food cost calculation, table management & ordering, payment processing, etc.
• The monthly plans for Touch Bistro start at $50 and go up to $229

4. Xero

• Cloud-based simple accounting software and alternative to QuickBooks Online.
• Offers tools for inventory management, invoicing, reconciliation, income & expenses tracking, payroll processing, financial reporting, etc.
• Xero is ideal for small restaurant or café bookkeeping, and is available at monthly charges starting from $11, while the top tier plan costs $62. 

5. ZipBooks

• Simple, generic accounting program that you can use for any industry
• Some of the features of ZipBooks include financial reporting, vendor & customer management, expense tracking, etc.
• ZipBooks is probably the most budget-friendly option of bookkeeping for small restaurants. It has a free version with limited capabilities, while the paid options range from $15 – $35 per month

6. Davo

• You can integrate Davo with your POS to automate the sales tax process, and the program ensures that all your taxes are paid correctly and on time
• Although it does not have many features like other software mentioned above, you can use it as an add-on to other programs
• Davo offers a one-month free trial period and $39.99 per month per location after the trial period

7. Plate IQ

• Plate IQ is the best restaurant accounting software for automation and works with multiple industries like groceries, hotels, etc.
• Plate IQ has several unique features like reconciling vendor invoices, automated invoicing, problem alerting, emailing, spend reporting, etc.

FAQ