You’ve heard it a million times: no two restaurants are the same.
Some restaurants are family-owned and serve homestyle dishes to members of their community. Others have hundreds of tables and serve seafood and steaks to tourists and businesspeople in bustling downtown areas. Many fall somewhere in the middle. You can imagine that the books look drastically different in each case.
A restaurant owner’s salary depends entirely on two huge factors: how much it costs to do business, and how much product the business sells. Basically, your salary will always be tied to your restaurant’s profit. If, at first, the business is running on fumes and accruing debt, you won’t be bringing home any money.
The question is further complicated by the fact that when you’re your own boss, it’s on you to decide how much you make, so we’ll get into all that.
But first, let’s look at some salary ranges.
How much do restaurant owners make?
On average, anywhere between $24,000 a year and $155,000 a year. Yup, that’s a massive range.
How’d we get those numbers?
Payscale.com says restaurant owners make anywhere from $31,000 a year to $155,000. They also estimate that the national average is around $65,000 a year.
Chron.com estimates a similar range, between $29,000 and $153,000 per year.
Finally, simplyhired.com gives a smaller range, with an average of $44,000, with the low end being around $24,000 per year and the top 10% making around $81,000 per year.
A great way to determine how much you should get paid is to ask your peers. Though frank discussions of money are still fairly taboo, it’s worth asking your restaurant owner friends what they take home each year to get an idea of what range you’ll be looking at (considering your area and type of restaurant).
The big question: If you’re the boss, how do you decide how much you get paid?
According to NFIB, here's a good rule of thumb: In most profitable small businesses, an owner takes less than 50% of the profits as a salary. The other 50% typically goes towards paying back debts or investors, or paying for non-essential upgrades in marketing, staffing, or equipment that will help scale the business.
To calculate how much you’ll be making, you need to know your profit margin. You can calculate it easily with our free Profit & Loss calculator. Be sure that when calculating your salary, you work off of your net profits, not your gross revenue. You need to be sure that your salary is being calculated based on the money that’s left over after you’ve paid all your overhead and operating expenses.
It’s also important to take into consideration the question of multiple owners. There’s only one pool of profit, and if you have a business partner, you’ll have to determine fair salaries for both of you from that one pool.
According to Rewards Network, different business structures also have different tax rules. Whether you’re operating under a sole proprietorship, a partnership, an LLC, or an S or C corporation, consult an accountant to make sure you’re following the rules. Rewards Network put it like this:
“For example, if you are a sole proprietor, you can pay yourself as you like, where the profits of your company are seen as the same as your income, and therefore, taxed similar to that of a regular employee. One suggestion is to pay yourself (as owner) a salary on a regular basis. This can also help you to get a clear picture on what it costs to operate the business and what you will be able to retain as personal income.
On the other hand, if you’ve structured your company as an S Corporation, you pay yourself a salary while also deducting normal payroll taxes like FICA and federal taxes. Any remaining profits to the company can be distributed as draws or distributions and are taxed at a lower rate than your salary/income. The S Corp model helps to avoid double taxation: once at the corporate level and once at the individual level. Unlike a sole proprietorship, the profits are not seen as personal income. Rather, they accrue to the corporation and a corporate income tax return must be filed annually. Any pay you receive is seen as personal income, of course.”
Your salary will vary month to month
Say goodbye to predictable, unchanging paychecks year-round – you should expect to take home less during slow months, and much more during high season.
Seasons and weather have a huge impact on business, and there’s no getting around that, but if you use sales data from previous weeks, months, and years to predict how well the restaurant will do at any given time, you can plan your financial life more effectively despite the unevenness.
You can also make sure your profit margin percentage doesn’t take too much of a hit in slow periods by using the same data to put smart scheduling practices in place, and to ensure your inventory purchasing is in line with how much you’ll likely sell.
Another factor that will contribute to variance in your take-home pay is unpredictable, uncontrollable costs like broken equipment.
Finally, turnover isn’t just frustrating – it’s expensive, too. The cost of losing and replacing an employee can be up to $5864, according to a study by Cornell’s School of Hotel Administration. Keeping your employees happy and on your team is crucial if you don’t want your profits – and your paycheck – to take a hit.
Taking personal time will always be costly
One of the toughest decisions in the restaurant business is knowing when to give your whole staff the day off and close your doors. It’s important to give your staff time off in order to help them maintain good work-life balance, which will in turn help you keep them on staff for longer – but closing your restaurant’s doors is extremely costly even for a day.
Some restaurants choose to close for a few weeks during January or March, both typically slow months in the industry, to let the whole staff breathe and take time for family time or vacations. Others only close on major holidays like Christmas – and some restaurants are open 24/7/365.
You may be the boss, but you might not have the biggest paycheck
Opening a restaurant is in no way an effective get-rich-quick path: in fact, for a long time, you may not even have the biggest paycheck in the restaurant.
Especially starting out, your waitstaff may be making more than you because of tips – and it’s in your best interest to be ok with that. Because of the high cost of starting a restaurant, and the many expenses that will eat into your net profits in the first couple of years, your servers may be seeing more consistent money than you are.
If you run on an open-book management model, though, your staff will see that you’re not hoarding money that you could be sharing with your workers, and this will lead to more trust of you as a boss and across the team.
Still ready to take the plunge?
Don’t open a restaurant without arming yourself with the right tools to keep track of all your finances. Your POS should be able to help you with compiling the analytics and reports that you need to stay above water and eventually get to a place where you can take home a healthy paycheck.