How much does it actually cost to start a restaurant? In short, a lot.
The more elaborate answer is that restaurant startup costs can vary wildly depending on the concept, location, and type of food. It's important to do as much research as you can before diving in; Toast's free restaurant cost calculator can help you figure out how much you'll actually need. Then, you can compare your findings to the rest of the industry, thanks to a survey of 700 restaurateurs done by RestaurantOwner.com.
Here are some interesting statistics from the survey:
- Average startup cost without a land purchase: About $500,000
- Average startup cost per seat without a land purchase: About $4,200
- Average cost overrun from initial cost estimates: About 33%
Of course, these are only averages. Some restaurants may cost much less, while others take an investment of millions of dollars to build. One thing that might alarm potential future restaurant owners is how easily these costs get underestimated, meaning your planned expenses end up being over your budget.
To avoid this, keep these five restaurant expenses in mind when starting or opening a new restaurant.
1) Equipment Expenses
All restaurants needs the right equipment to prepare, store, and serve food. Naturally, you'll need to consider which types of foods and beverages you will be serving prior to purchasing equipment, as certain cuisines require different items. For example, an Indian restaurant may need a tandoor, and if a restaurant will include a buffet, extra hotel pans, portable heating elements, and other special equipment will be need to be purchased. Some restaurants may need to install an extra oven for baked goods.
It's common sense to plan for the big-ticket items like ranges, ovens, refrigerators, and a freezer, but you can't forget to account for the hundreds small items that add up quickly, like Cambros for storage, anti-slip mats for the floor, and a massive supply of paper towel.
To stay within budget, restaurant founders might consider second-hand equipment, comparison shopping, and renting early on.
2) Staff Expenses
Almost every restaurant will need to hire a substantial staff. While you may start out as a one- or two-person operation, you'll need more manpower if your customers keep coming back.
When restaurants are considering staff, it is essential to note the specific needs of the business. Restaurant positions at counter-service places include cashiers/greeters, line cooks, managers, and dishwashers. Full-service restaurants will need servers as well, and fine dining restaurants will also need bartenders and a team of experienced chefs in the kitchen.
Even if a new restaurant hires experienced (read: higher-paid) staff, they will still need training to do their jobs in your new space. Some restaurant owners might try to hire inexperienced staff to save money in the beginning, but it's likely that they will need even more training, which costs additional money in the form of your time. They can also make those crucial first services run less smoothly.
And remember, even if your restaurant doesn't turn a profit during its first few weeks (or months, or years), you'll still need to pay your staff - both hourly and salary-based employees.
In any case, it's important to consider all of the expenses associated with staff. These expenses include recruiting, wages, outfitting, meal comps, and maybe even benefits and time off.
3) Marketing Expenses
Since new restaurants can't rely upon much word-of-mouth advertising in the beginning, it's important to leave room for a solid marketing strategy in your business plan.
Today, restaurants often use paid advertisements in social media and beyond. This will cost you, but the price varies on the method you use. Google and Facebook charge different rates for sponsoring messages, so do some comparison shopping.
Some restaurateurs choose to stick to just using social media (without paying to sponsor posts), but they also sometimes pay an employee a little bit extra to run the accounts for them.
You might also experiment with promotional discounts to attract new customers.
You'll definitely need to purchase a domain name for a website, and to make sure the site gets listed in the right directories. Extra expenses can include hiring a professional to optimize the page, or launching a restaurant app to tie into online ordering and your loyalty program. All of this marketing can help increase revenue in the long run, but most of it will require an initial investment.
4) Building or Remodeling Expenses
Building an entirely new restaurant is a big investment. Keep in mind, those initial restaurant costs we mentioned above were for restaurants that did not make a land purchase. Even if your restaurant will occupy space that another restaurant used to, there will almost always still be some remodeling and redecorating costs.
Your building design will dictate a lot when it comes to your restaurant. What will your design look like, and what kind of customer base will it appeal to? What will your kitchen look like? Will there be enough room for your staff to move around? Are you willing to sacrifice floor space for more customers, even though this can make your restaurant seem congested and limit your servers' mobility? Will you have space for delivery drivers waiting to pick up food? These are questions you always have to ask in your restaurant remodeling.
All restaurant owners hope to offer patrons a comfortable, clean, and attractive dining facility. The cooking and wait staff will also need adequate work spaces to perform their jobs. To stay within a budget, you might need to prioritize your wish list and only begin with the basics when it comes to non-essentials.
5) Tech Expenses
In order to manage costs, expedite service, and run more efficiently, you'll want to invest in some restaurant technology.
From online reservation systems to table-side ordering devices and payment kiosks to software that helps manage cash flow and sales statistics, there are a lot of moving parts to consider. However, while software and hardware costs for new technology might seem overwhelming in the startup phase of a new restaurant, it can also help make the business easier to run and manage - and more profitable long-term.
Another technology expense that will sneak in to your budget is the fees that are charged by online ordering companies like Ubereats. It's hard to say no to delivery these days, with online ordering increasing steadily every year. However, since each company does charge a fee or a percentage, you can start out working with just one platform, and then add on more companies when you've turned a profit later on.
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.*
*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.