One of the most common questions we get asked is: “How much does it cost to open a restaurant?” It’s a challenging question to answer, mainly because of how many restaurant startup costs there are to consider.
Getting your restaurant concept off the ground will likely be your most challenging project as a restaurateur, but it will also be your most rewarding. In this post, we'll go over all of the financial costs that go into answering the question of how much it costs to open a restaurant.
Average Restaurant Startup Costs
Let's start with the hard numbers associated with opening a restaurant. According to a recent survey by RestautantOwner.com:
- Average median total restaurant startup cost: $375,000
- Average low total restaurant startup cost: $175,500
- Average high total restaurant startup cost: $750,500
But there’s so much variability. Keep in mind that it's wiser to use an equation – or a custom restaurant opening calculator – to figure out your anticipated costs based on your specific scenario and concept.
Restaurant Opening Cost = ~$450 Per Square Foot
On average, the cost to open a restaurant is between $100 and $800 per square foot, with costs varying based on location, concept, size, materials, new or existing location, and equipment.
That's a median cost of $450 per square foot. For a restaurant operating out of hundreds or even thousands of square feet, that number can add up quickly.
You might purchase a 1,500 square foot restaurant that’s going out of business with all furniture, fixtures, and equipment for $6,000, and then only put an additional $20,000 into it. Conversely, you could build a restaurant from the ground up and spend over $1,000,000 on a 5,000 square foot location.
There are too many variables involved in opening a restaurant for a "one size fits all" answer. Having a thorough understanding of the areas where you intend to spend your money will offer you more clarity on final expected costs.
Assembling Your Restaurant Startup Dream Team
We all know that restaurants tend to fail when they are underfunded. Undercapitalization will make an already challenging business more difficult to keep afloat. In order to avoid the pratfalls, you must work with professionals every step of the way.
Here is a list of trades and professionals that you should consult as you plan to open your restaurant:
Enlisting the help of professionals like the ones above will ensure that you’re doing things right. If possible, seek out professionals that have experience working specifically with restaurants.
What Restaurant Startup Costs You Can Expect
Failing to plan properly is the best plan for failure. The more expansive, experienced, and professional your team, the less surprises you will face as your project progresses. When starting out, you and your team should take the necessary time to see your plans through.
By nature, restaurants work on very small margins and have many moving parts, so if you start with a poorly designed layout, you may lose thousands in additional labor and lost customers. A bland or off-putting seating area will discourage people from ordering a second drink. Spotty construction and poor equipment choices can cost you twice as much down the road.
That’s why you should do your best to get it right the first time. With all that said, here is a list of some of the largest restaurant startup costs you can expect.
One of the most important decisions you’ll have to make when opening your restaurant will be the location.
Generally speaking, it's wise to spend the money on a better location that has good foot traffic, rather than have to rely solely on marketing to drive guests into the restaurant.
Depending on your concept, you might also be in a position to consider a few different options:
- Building from the ground up and investing in new construction
- Opening in an existing building and purchasing an operating restaurant
- Converting an existing commercial space to a restaurant space
Each of these options have their pros and cons and will dramatically affect your upfront costs.
2. Interior Finishes and Equipment
This is where all the little things start to add up.
You know that you need kitchen equipment and large kitchen appliances. Your restaurant will also need furniture and decor to bring your brand to life for your guests. And don't forget the back-end requirements like signage, lights, a music system, and a phone system.
It's easy to get carried away here, so careful budget planning is essential to controlling your opening costs. The biggest driver of the price range here is kitchen equipment and furniture, largely depending on the size of your kitchen and dining room, respectively.
Price Range: $20,000-$400,000
3. Pre-Opening Expenses
Everything needs to be ready to go the second you unlock the doors for your restaurant's grand opening.
You'll need to invest in a proper training program to ensure your staff is ready and efficient. You'll also need to have plenty of inventory at the ready in your back of house and freezer to get you through your opening period. This inventory includes food, plates, drinks, cups, water pitchers, and whatever other items will help you delight guests.
Price Range: $20,000-$120,000
This section is contingent on exactly what kind of restaurant you're running. If you open up a franchised location, your advertising may be taken care of. But a new restaurant in a saturated market might require heavy advertising and promotional costs across various channels and outlets.
If you're opening an upscale, urban eatery, you might work with a PR agency to get coverage, or you might be approached by a news outlet for details on a story about the restaurant.
Like every other variable in opening a restaurant, the cost of marketing and PR depends on your concept, your competition, and other factors that only you, as the restaurant owner, can know for sure.
Price Range: $0-$35,000
5. Capital and Contingency
Even if your restaurant becomes a hit, it will still take some time to get things up and running. You need to plan for gradual sales growth and realize that your customers will take a while to become regulars. Put aside some much-needed capital and contingency funding for your restaurant to get you through at least six months of unpredictable or low sales volume.
Whether your goal is to open a new location, invest in new equipment, or just manage cash flow over the next few months, you're going to need a reliable source of funding to make your dreams a reality. Toast Capital offers restaurants access to fast, flexible funding for any restaurant need. Toast restaurants may be eligible for financing from $5K to $250K. Toast Capital Loans have one fixed cost - with no compounding interest and no personal guarantees. Better yet: Once approved, you can receive your funds as soon as the next business day.*
Price Range: $20,000-$250,000
6. Exterior Finishes
The restaurant shouldn't just look nice on the inside. If you have any control over the exterior of your building, you may want to make investments in outdoor design, lighting, and landscaping. And if you have an outdoor dining space, you’ll definitely want to make the most of it during patio season.
Even without control over the exterior, you’ll still need signs outside of your restaurant to let your new guests know that you're open for business.
Price Range: $1,000-$40,000
7. Organizational and Development Costs
This is probably everyone's least favorite part of opening a restaurant, but it’s one of the most important. You'll definitely need to file and pay for your restaurant licenses and permits, make your insurance deposits, and make utility deposits for gas, electricity, and water.
This might take up time as much as it does money, so start brushing up on the necessary licenses and permits you’ll need to open your restaurant.
Price Range: $2,500-$200,000
8. Professional Services
First-time restaurant owners likely shouldn't dive in without some helping hands. A restaurant consultant – not to mention expert advice from professionals like architects, lawyers, and designers – wouldn't be unwise for a strong standout and opening for your restaurant.
Price Range: $0- $50,000
Last but not least is the technology stack that will allow your restaurant to run smoothly. All restaurants need a restaurant point of sale system and – depending on your concept – you'll likely need other features and technologies to help your restaurant go off without a hitch.
Full service restaurants might want a handheld POS system to turn tables faster, and quick service restaurants might want a strong customer loyalty program.
All restaurant technology providers have different pricing models. Legacy systems usually have flat rates that can run into the six-figure range, while more modern POS providers have more manageable monthly fees. Because of that, it's best to reach out to a restaurant tech provider directly to see what their pricing looks like and make comparisons yourself.
Price Range: Get a Quote
Bonus Cost: Franchise Fees
Clearly, this cost doesn't apply to you if your restaurant isn't part of a franchise, but if it is, be ready to write a hefty check. Here’s a list of average franchise fees for popular restaurant chains:
Open a Restaurant without Closing Your Bank Account
Before making the big decision to open a restaurant, calculate how much capital you have to spend and how much you're willing to allocate to each area. For example, you might want to spend more on renovations than advertising.
Budget smart and try to be precise as possible. While you could end up spending way more or much less than you had planned, starting with a reasonable, well-considered budget will better set you up for success.
Getting ready to open your restaurant? Download the free calculator below, and subscribe to the Toast Blog for the latest tips and resources.
*Toast Capital Loans are issued by WebBank, Member FDIC. Loans are subject to credit approval and may not be available in certain jurisdictions. WebBank reserves the right to change or discontinue this program without notice.