Understanding Restaurant Build-Out Costs to Reduce Time to Break-Even
Restaurant build-out costs are a major component of overall restaurant startup costs.
Build-outs should factor into new restaurant business plans. Restaurant owners need to understand their serviceable square footage for the dining room, bar, outdoor space — as well as the back-of-house build out for prep work, ovens, refrigeration, and more cooking equipment.
In this article, you’ll learn how to think about restaurant build-out costs, including different types of restaurant build outs, factors that can impact average cost per square foot for commercial space, and more.
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Restaurants can focus on their build-out costs to help lower overall upfront costs
Just like food costs are a significant component of established restaurant operating costs, restaurant build-outs can be a large part of opening costs for your own restaurant.
A professionally designed and built-out restaurant can help maximize occupancy in the front-of-house and functionality in the commercial kitchen and other back-of-house space.
Restaurateurs should understand what type of restaurant they want to open. A full-service restaurant can have vastly different needs and spaces than a quick-service restaurant. All these considerations can influences table-turn efficiency, customer experiences, menu items, and overall profitability.
Here are some reasons why restaurateurs should prioritize professional build-outs.
Optimal layout and design: Professional build-outs allow for strategic planning of restaurant layout, ensuring efficient workflow for staff, easy navigation for customers, and maximum utilization of space.
Compliance with codes and regulations: An experienced contractor will ensure that your restaurant adheres to local building codes, health department regulations, and accessibility guidelines. Compliance with these requirements is essential to avoid legal issues and maintain a safe and welcoming environment for customers.
Integration of restaurant-specific systems: A professional build-out takes into consideration the unique needs of a restaurant, including HVAC systems, kitchen ventilation, plumbing, and electrical setups. These systems are crucial for smooth operations and can be seamlessly integrated during the build-out process.
Types of restaurant build-outs
Restaurant business owners should realize that build-outs can vary depending on factors such as location, concept, and overall design goals.
Here are some common types of build-outs.
New construction: Building a restaurant from the ground up offers the most flexibility in terms of layout, design, and customization. However, it can also be the most expensive option due to the extensive construction involved.
Conversion: This type of build-out involves transforming an existing space, such as a retail store or office, into a restaurant. Conversions can be more cost-effective compared to new construction, but they may require modifications to accommodate kitchen equipment and plumbing.
Remodel: Remodeling involves updating an existing restaurant space to meet current design trends, improve functionality, or rebrand. Remodeling costs can vary significantly depending on the extent of renovations required.
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Factors that can affect restaurant build-out costs
Several factors can influence the overall cost of a restaurant build-out. It is essential to consider these factors during the planning phase.
Here are some key factors to keep in mind.
Location: The cost of restaurant build-outs can vary significantly based on the location, as construction costs, permits, and labor rates differ from place to place. Urban areas often come with higher construction costs due to limited space and increased demand.
Size and layout: The square footage of the restaurant and its layout complexity will impact the build-out costs. More extensive spaces and intricate designs may require additional materials, equipment, and labor, leading to higher expenses.
Building condition: The existing condition of the building or space can affect the cost. Renovating an old building may involve additional repairs, structural updates, or code compliance upgrades, leading to increased expenses.
Kitchen equipment and systems: The type and quality of kitchen equipment required for your restaurant concept will impact your build-out costs. High-end equipment, such as ovens, dishwashers, refrigerators, freezers, mixers, and others, may come with a higher price tag but may provide long-term benefits in terms of efficiency and durability.
Design and aesthetics: The level of customization and aesthetic enhancements desired in your restaurant can significantly impact costs. Intricate designs, custom fixtures, and premium finishes can drive up expenses but may also enhance the overall dining experience and brand identity.
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How to calculate restaurant build-out costs
Calculating restaurant build-out costs involves a detailed assessment of various elements.
Here are the key steps to estimate your build-out expenses.
Define your vision and concept: Start by creating a clear vision for your restaurant, including the concept, ambiance, and target customer base. This will help determine the type of build-out required and the associated costs.
Research local costs: Understand the market conditions in your area by researching local construction costs, labor rates, and permit fees. This information will help you estimate expenses more accurately.
Identify specific requirements: Make a detailed list of all the necessary elements, such as kitchen equipment, furniture, fixtures, and interior finishes. Obtain quotes from multiple suppliers to compare costs.
Factor in additional expenses: Consider other expenses, including permits, licenses, design fees, insurance, and contingency funds to account for unexpected costs or changes during the build-out process.
Evaluate financing options: Consider your financing options and evaluate the impact of build-out costs on your overall budget. Seek advice from financial professionals to understand the feasibility of your project.
Tips for reducing the cost of restaurant build-out
Reducing restaurant build-out costs without compromising quality or functionality is a common objective for operators.
Here are some tips to help you minimize expenses during the build-out phase.
Efficient space planning: Optimize the layout to minimize square footage and avoid overbuilding. Use space-saving techniques like multi-purpose furniture and flexible seating arrangements.
Selection of materials: Choose cost-effective materials without compromising quality. Look for durable, low-maintenance options that meet health department regulations and aesthetic requirements.
Equipment considerations: Explore leasing options for expensive kitchen equipment to lower initial costs. Purchase used equipment from reputable sources to save money, but ensure proper inspections and warranties.
DIY and self-management: Consider managing smaller build-out tasks in-house, such as painting, simple carpentry, or light fixture installations. However, be cautious and consult professionals when necessary.
Seek competitive bids: Obtain multiple quotes from contractors, suppliers, and service providers. Comparing prices can help you identify the best deal without compromising quality.
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Where do you go from here?
The greatest takeaway from this article is the importance of ongoing, consistent restaurant cost breakdowns — for build out costs and beyond.
This cost analysis doesn’t exist in a vacuum. As a restaurant operator, you’ve bought the ticket. Now it’s time to take the ride. The first best action you can take is to assess your current costing process and the systems you can employ for conducting a cost breakdown — especially for more controllable variable costs like food and labor.
While something is better than nothing, and manual calculations are something, your ability to accurately, consistently breakdown costs at scale is dependent on proper technology.
At the end of the day, profitability is the name of this game — not sales or revenue. A laser-focus on profitability requires a laser-focus on your costs — and a laser-focus on costs requires actionable, pinpoint accurate restaurant cost breakdowns.
Combining Toast and xtraCHEF can help all types of restaurants access reports on daily sales, costs, and how they’re impacting profitability.
xtraCHEF by Toast empowers you to drill into line-item level detail for every ingredient on each of your supplier invoices.
Together, these tools can automate and simplify the process of creating restaurant cost breakdowns.
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DISCLAIMER: This information is provided for general informational purposes only, and publication does not constitute an endorsement. Toast does not warrant the accuracy or completeness of any information, text, graphics, links, or other items contained within this content. Toast does not guarantee you will achieve any specific results if you follow any advice herein. It may be advisable for you to consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.