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.
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.
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:
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:
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:
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.
Opening a restaurant in the United States requires several licenses and permits like:
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.
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:
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:
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.
According to the National Restaurant Association, here are some interesting restaurant business startup facts:
The total restaurant startup cost varies from $175,500 to $750,500, with the median cost being $375,000.
The operating cost of a restaurant comprises fixed expenses like rent, taxes, utilities, maintenance, marketing, etc. and variable costs like food, labor, etc. On an average, the operating cost of a typical restaurant comes in around $50,000 per month.
The minimum cost to start a restaurant is $175,500.
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