How Much Does It Cost To Open A Restaurant in 2021? [CHECKLIST + CALCULATOR]
How Much Does It Cost To Open A Restaurant in 2021? [CHECKLIST + CALCULATOR]
Many entrepreneurs ask themselves, “What would it cost me to open my own restaurant?” There is no easy answer to this question, but we can certainly put you on the right path. It is not an easy feat getting a restaurant up and operational. It can make you; it can break you, or it can make you start over, but when you finally make it work for you, it is a most rewarding experience.Rodney Powers, an entrepreneur and 45-year restaurant veteran, said, “I worked, and I worked quite hard, many, many hours in early and out late, but I loved it. It was what I knew. I ended up watching generations in my community grow up right before my eyes there in my little restaurant. I wouldn’t trade the experience for anything.”
First Things First
Before you begin taking care of legal and financial matters, you should seriously consider hiring both an accountant and an attorney. They may not be inexpensive, but they sure may save you tons of heartache down the road with entities like the IRS. Unless you truly know what you are doing, give this serious consideration. Now, on to a few basics before we talk about actual costs.
Formulate a Concept
Before you open a restaurant, you will need to create a concept that will bring your restaurant to life. Successful restaurants thrive largely due to great concepts. One is famous for Cajun fried chicken. Another is renowned for its Cuban fusion, while yet another is well-known because of its cupcakes a million ways. A unique but scrumptious concept will get you noticed.
Examine the Competition
Find out what restaurants are an old standard in your community and what makes people keep going back to them. Examine your newer successful competition and figure out why they're thriving. Think about what types of food they serve. If you are planning to serve the same dish, you need to make certain that yours stands out. Understand what you need to do to be distinct in your community.
Conceptualize a Plan
To see yourself in a booming restaurant, one of the first steps is to prepare your restaurant business plan. This is an extremely detailed plan of projected startup and continued costs. If you do not have the cash to purchase a building and fund the costs yourself, this is the plan you will present to investors. Either way, this is the plan you will use later to match expenses to see how you are comparing with your projected figures. If you do not know where to start? Get help from the US Small Business Administration.
If you do not have the money to open the restaurant independently, you will need to raise your capital. You may want to use investors for their connections, their expertise, and their funding; however, you must ask yourself if you are willing to concede the profits and control that come along with that. You can also borrow money from the bank. Either way, you will need to meet them “plan in hand.”
It is not inexpensive, but opening a restaurant can be fun, exciting, and gratifying. You will feel yourself realizing your dreams, and there is nothing quite like that. Though it is hard work, some finally make it big and who knows, one day, that someone could be you. Now, let us take a look at the cost of opening a restaurant of your own.
Consider Franchise Fees
Franchise fees can be somewhat low, starting in the $15,000 range, or go up to around $50,000. If you need someone else to do a lot of the marketing and basic planning, a franchise may be the way to go. This way, you can build on an already established brand.
Estimated franchise fees: $25,000
Become an Incorporation or LLC
You will either want to incorporate your company or turn it into an LLC (Limited Liability Company). Comparison of the two is something that cannot be explained in a paragraph, but you will want to take care of this, and it is to protect yourself and your assets from personal liability issues that could present in virtually endless ways. Know also that there are franchise taxes.
Estimated incorporation fees: $11,200
Establish an Address
If you are building, locate a lot. Remember when you checked out the competition? What about their location made them successful? Take this into consideration when choosing a spot. When you decide on one, go ahead and find architects, engineers, and contractors, and acquire the necessary building permits. Then, erect your building.
If you are not building, choose a location and purchase it, or pay the deposit on the place of your choice and sign the lease.
Estimated establishment fees: $27,000
Just like becoming an incorporation or LLC, insurance protects you from liability from issues like vandalism, burst water pipes, or customer falls. It is not inexpensive, but you will not last long in business without it.
Estimated insurance fees: $1,200
Acquire Licenses and Permits
You will need the following:
- EIN (Employee Identification Number) — While this is not a permit or license, this is required to get your permits and licenses.
- Business license — Contact your local city or county
- Liquor license — Contact the Alcoholic Beverage Control board in your state
- Food service (health) permit — Contact your local city or county
- Signage permit — Contact your local city or county
Estimated licensing and permit fees: $57,000
Turn on Utilities
You, of course, will need water, electricity, and natural gas for your restaurant, so you must consider these bills as well as the deposits.
Estimated utility fees: $1,700
Property security consists of both a security system and possibly at times, a security guard. This will vary depending on what type of establishment you run, where it is located, and who your clientele will be. This will also depend on whether you will serve alcohol.
Estimated security fees: $2,400
Hire a Landscaper
The first thing your guests will see when they drive up is your lot. It needs to be pristine. Have your landscaping done and set up a landscaping schedule.
Estimated landscaping fees: $300
Hire a Restaurant Consultant
There are many decisions to make and many variables to consider when opening a restaurant. Unless you are well-versed in all aspects of restaurant startups, you may want to consider hiring a restaurant consultant, whose expertise could be beneficial in many ways.
Estimated consulting fees: $2,500
Do Good Marketing
By marketing, we mean not only social media, which is quite vital to your success, but public relations, and signage. Anything that gets your brand out there is marketing, and it is of the utmost importance. If they do not know your restaurant serves delicious food in an awesome atmosphere, they will never come and dine.
Unless you are fantastic at it, you need to hire a marketing professional. Marketing has a huge impact on whether your restaurant thrives or withers. Plus, if you see that your current marketing strategy is not going well, you can change your consultant or consultant firm midstream. Be willing to do whatever it takes. Always be positive and determined that you are going to thrive one way or another.
Estimated marketing fees: $18,800
Remodel and Decorate
All depending on what type of building you chose, from a previously owned restaurant to a freshly built establishment, you will want to do some remodeling and decorating to make it your own. These changes are not cheap, but if done correctly, you can put them to work for yourself. The ambiance is extremely important in a restaurant.
Estimated remodeling and decorating costs: $93,000
Install TV/Stereo-A/V Systems
Many restaurants these days have televisions in them so that customers can keep up with sports or stock prices. Most all restaurants play music. There are charges not just from the systems themselves but from buying the rights to play the music to the public. Live music requires even another permit.
Estimated audio and video costs: $2,500
Acquire and Learn POS System
A POS (point-of-sale) system calculates almost any restaurant figure you can think of and puts it at your fingertips. It streamlines everything from order taking to delivering the check and I mean everything in between. It tells the cooks what to prepare and what time the order was placed and more. Then, at the end of the day, week, month, and year, you can get figures respectively letting you know whether you met your projections. You do not want to be in the restaurant business without one of these.
Estimated POS system costs: $15,000
You will need a phone system. You will need it for customer and business calls.
Estimated telecommunications costs: $800
Install Kitchen and Server Station Equipment
You can not begin cooking without your commercial ovens and grills, your refrigerators and freezers, nor can the servers serve iced tea without an ice machine. These are the most important pieces to build your restaurant around and you need to make sure you purchase wisely. While great commercial kitchen equipment is not always cheap, there are financing options available, and here are Kitchenall, we offer some of the best value in the industry.
Estimated equipment costs: $124,000
Set Up Your Office
You will want a desk that you picked out, one that you are comfortable with, and an ergonomic chair. You will spend much time at that desk working on menu updates, and schedules, examining inventories and reports so that you can adjust and move in the right direction — the direction of success. You will need the right machines, a stapler, a trash can, and paper supplies. Make your office a bright and happy place where you do not mind going to work.
Estimated furniture costs: $3400
Purchase Safety and Cleaning Supplies
You will need cleaning supplies for your restaurant for the front and back of the house. You will need degreasers for the kitchen, chemicals for the dishwasher, a mop bucket, a broom, and a mop. You will need a wet floor sign. Along with that, a first-aid kit is a necessity. Do not forget to post the proper OSHA (Occupational Safety and Health Administration) signage.
Estimated safety and cleaning costs: $1,200
Purchase Cooking and Serving Ware
You will need all manner of utensils to cook your customers food with and then, to give them to eat it with. This includes pots, pans, mixing bowls, storage containers, spatulas, ladles, and smallware (silverware, glasses, coffee cups, and more).
Estimated ware costs: $15,000
Charge enough for each menu item to cover what you have in it. Add in a calculation for a portion of that 1st-year capital you had to tuck away, which we will discuss shortly. Then, add in your desired profit. If that price is higher than you think people will be willing to pay, you may have to make a smaller profit on that item or possibly even not make as much of your 1st-year capital back, but you may be able to make it up on another item. Also, keep your menus simple. One page, front and back is best. You will need to reprint often to keep up with trends in food costs. The answer to your question is — Yes, opening a restaurant is quite a hectic job, but if you have the heart for it, and you are not lazy, you will eventually see your business flourish.
Estimated menu costs: $1,300
Consider Food and Beverage Costs
While food cost goals are not the same in different types of restaurants, they need to be below 35-40% for all restaurants, and steakhouses are some of the only restaurants that could break even at close to 40%. An average restaurant can break even at 35%, but according to Gloria Brown, a 38-year restaurant veteran, to be profitable in an average restaurant, you will need to maintain a food cost of roughly 30%. In some types of restaurants, like pizza parlors, bistros, and more, food cost percentages must be in the 20s. Do your homework to find out what yours should be.
It may seem to be a daunting task, but as Gloria said, “It’s not easy to do, but it can be done. One thing you have to manage is waste. You have to watch portion control. You have to make sure the food is being maintained properly. You also have to control employee meals closely, as well as pay attention to how much food the servers are giving away in the dining room. Most importantly, monitor food and beverage inventory on a daily basis. Employee theft is a very real problem that restaurant owners face across the board.”
Food costs are going to be one of your three biggest cost hurdles, so get on top of them from the beginning.
Estimated food and beverage costs: $17,000
Consider Labor Costs
Labor costs can soar out of control if not kept in check. They usually need to be kept between 20-25% for maximum profit. However, just as with food costs, labor costs vary between types of restaurants. You must project your labor cost when you do the weekly schedule and examine it daily to make sure everyone is falling in line with it. Gloria said, “Your line cook may not clock out until an hour after he is supposed to. Then, the dishwashers have the same idea, and the breakfast prep cook came in an hour early. Say this happened all week because you were not doing a daily labor cost audit. Now, you are easily over your budget at least $350.”
The National Restaurant Association lists the annual turnover rate at over 70%. That is catastrophic when you consider that each one costs the time it takes to find a qualified person, train them, and get them certified, not to mention the costs behind advertising the ads for employment, training them well, and paying for their certification.
Do a projection and a daily audit. Also, study what is necessary to keep good help and keep employee turnover down. Here is a hint — good workers are more likely to be happy in their job if they have other good workers around them. Good workers, however, do not want to feel like they are carrying all the load for a shift while the other party, who is probably making the same amount of money, is not pulling their weight. So, if you have employees that are dead weight, do not be afraid to cut them off.
Estimated labor costs: $53,800
Consider Other Costs
Yes, there are more costs. Do you have parking, or will you need a valet? Are you using paper linen, or will you need a linen service? Do not forget, too, that there are taxes on just about everything. These types of charges can add up quickly and catch you by surprise. They can ruin your projected budget.
Estimated other costs: $2,500
Basic Opening Cost
It sure can be expensive to open a restaurant, right? It can, however, pay off if you can turn it into your dream. The only way to do that, though, is if you put together a solid plan and stick to it.
Basic Opening Costs: $1,471,000
Gather 1-Year Capital and Contingency
You are going to need to plan ahead to achieve success in the restaurant business. You will want to expect it to take a while to start breaking even and quite some time after that before you begin seeing a profit. If your restaurant happens to do better, great! If it does not, you will not be let down. To prepare for this, investors and banks expect you to go into business with at least six months’ worth of liquid capital. Here we have planned for one year, which is the most solid plan and what many investors and banks expect these days. Contingency is money put back to pay for the unexpected — things like the dishwasher breaking down or the refrigerator going out. You are expected to have 10-15% contingency. Here, we have figured 15%.
Estimated capital and contingency costs: $1,016,465
True Total Cost of Opening a Nice Restaurant
Estimated true total opening costs: $2,487,465
Time to Open
A soft opening is a small opening just for invited guests to see if everyone knows what they are doing. You want to find out now if someone needs more training and not during the grand opening. Besides family, friends, and colleagues, invite fellow local small business owners and the Chamber of Commerce in your community. You should have already started a social media campaign, but if this opening goes well, word of mouth via social media will take off on its own at this point.
The day has come. You are ready for this. Your staff is ready for this. Just remember that if things start to get out of control, you must remain calm and see the staff through it. If you panic, they will panic, and you will have a mess on your hands. If you get too busy and one of your chefs walks off the line, go put on an apron. You can do this!
Time to Close
Our numbers may seem high, but we made sure to round up and estimate on the higher end, so that you won't be surprised later. Also know that these numbers are only estimates. Prices fluctuate but seem to be rising every day. Our Excel spreadsheet makes it easy to see what your own restaurant will cost you. Just plug in your projected figures, and it will calculate your total costs for you. We hope this resource has helped you understand the costs of starting up a restaurant in 2021 and we wish you the best of luck in your new venture!