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5 Restaurant Expenses to Understand When Opening a Restaurant

Posted by Jami Schwartz on 1/7/17 3:00 PM in Restaurant Metrics

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Just how much does it cost to start a restaurant?

Restaurant startup costs might vary wildly because of the kind of restaurant, location, and more. A survey by RestaurantOwner.com polled about 700 restaurant owners across the United States to dig into the numbers and learn more about average costs.

These are some interesting statistics from this 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. The average startup costs for restaurants might not be that surprising. However, one thing that might alarm some 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 5 restaurant expenses in mind when starting or opening a new restaurant. 

1) Restaurant Equipment Cost

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, if the restaurant will include a buffet, proper heating, refrigeration, and serving materials need to be purchased.

This goes not only for the pieces of equipment patrons will see, but for the chefs and servers as well. A pizza oven is a pricey purchase, but if you're not selling pizza, you won't need to plan for this. Similarly, some foods may require more pots and pans than others, while some restaurants may need to install an extra oven for baked goods.

To stay within budget, restaurant founders might consider second-hand equipment, comparison shopping, renting, and doing without some items that aren't absolutely needed in the beginning.

On the other hand, the right equipment can help restaurants offer better food and better service, so it's important to invest in anything that can help the restaurant earn a profit, lower costs, and satisfy customers.

2) Restaurant Staff Expenses

All but the tiniest eateries 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 you're customers keep coming back.

When restaurants are considering staff, it is essential to note the needs of the business. Restaurant positions common to all concepts include cashiers/greeters, line cooks, and managers. Full service restaurants will need servers, while fine dining restaurants will need bartenders and a team of experienced chefs in the kitchen. 

Even if a new restaurant hires experienced staff, these people will still need training to operate the new venture. Some restaurant owners might hire inexperienced staff to save money in the beginning, but it's likely that they will need even more training. 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 everything from recruiting, to wages, to outfitting, to meal comps, and maybe even time off. Restaurant Marketing Guide

3) Restaurant Marketing Expenses 

Since new restaurants can't rely upon much word-of-mouth advertising in the beginning, it's important to develop a solid marketing plan in your restaurant or bar's business plan.

Today, restaurants might advertise online or in other media. This will cost you, but the price varies on the method you use. Google and Facebook charge different rates for sponsoring messages, but one may be worth more if the other won't get you any customers.

Other restaurant marketing expenses include promotional discounts to attract new customers. You'll also 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 and launch a restaurant app to tie into online ordering and your loyalty program. All of this marketing may help increase revenue in the long run, but it will require an initial investment.

4) Building or Remodeling

Building an entirely new restaurant is a big investment. Keep in mind, those initial restaurant expenses we mentioned at the beginning 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? These are questions you always have to ask in your restaurant remodeling. 

Certainly, restaurant owners may hope to build their business by offering patrons a comfortable, clean, and attractive dining facility. The cooking and wait staff will also need adequate work spaces to perform their jobs. At the same time, you'll may need to limit restaurant expenses during your startup phase. To stay within a budget, restaurant owners might need to prioritize their wish list and only begin with the basics.

5) Restaurant Tech

In order to manage costs, expedite service, and run more efficiently, you'll want to invest in different restaurant technology tools that are available today. These can range from table ordering and payment kiosks to software that helps manage cash flow. While software and hardware costs for new technology might seem like overkill in the startup phase of a new restaurant, it might also help make the business easier to run and manage.

As with equipment, restaurant owners will need to decide which tech can improve their business and which purchases immediately and in the long run. Restaurant technology that helps restaurant owners manage their time or finances may be more universal, but it is still important to analyze the benefit of the technology in comparison to the cost in order to ensure the budget is not stretched early on.

How to Pay Restaurant Startup Expenses

Like other startups, many new restaurants get partially funded by their owners. However, this limits options for all but very wealthy people. Even if it's possible to find investors, they are likely to want to exert their own influence in exchange for their money. This option doesn't appeal to everybody who dreams of opening up their own restaurant.

Owners who need funding in order to grow might access funding for restaurant owners by considering a restaurant-friendly lender. For instance, online lenders are often willing to consider new businesses that haven't had a chance to build their own business credit and don't have a large owner stake in the company. The virtue of these online lenders is that they offer online applications, speedy approvals, and quick funding. Enjoying access to quick and secure funding can help a new restaurant grow and give the restaurant owner peace of mind.

What restaurant expenses surprised you when you opened your restaurant?
Share your experience with our community of 10,000 restaurateurs in the comments below!

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Written by: Jami Schwartz

Jami Schwartz is in charge of content at Kabbage. Kabbage helps small businesses get the funding they need to grow. Through a fully automated, online platform, businesses can link their latest business data, allowing us to review the overall health of their business to approve and provide lines of credit up to $100,000 in minutes.


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