Starting your first restaurant can be exciting. It can also be very hard if you are not prepared. These days, most restaurants go out of business during their first year because they were not prepared for all of the startup costs. Restaurant costs can vary from restaurant to restaurant. Initial factors that can determine your startup costs would be location, restaurant size, number of staff, and whether your restaurant is a franchise. According to a survey done by restaurantowner.com with over 700 responses, they found that the median startup cost with no land purchased was $275,000, and with land purchased it was $425,000. That can be a big undertaking for most people. We outlined 6 startup costs you should be prepared for below:
1. Building and Location Costs
Your restaurant location will be a big factor in your startup costs. Just like a residence you pay more to live in a better area. However for the building, costs could vary if you plan on buying from the ground up, renting or leasing, or buying an existing restaurant. If you are buying a restaurant from the ground up, you will also have to consider exterior and interior building expenses. Renting or leasing will all be dependent on your credit and comps in the area. Then buying an existing restaurant will require you to pay for renovations. It wouldn’t be a good idea to use what’s already there, because the previous owner went out of business for a reason.
2. Equipment Costs
POS systems are the first thing you should buy when starting your restaurant. They can help you plan the rest of equipment you may need. If you are buying an existing restaurant you could get lucky with equipment costs. There are plenty of restaurants who go out of business, and sell their restaurant with their equipment as a package deal. If you don’t get lucky, buying new equipment can be one of the easiest ways to overspend your startup budget. Depending on how much you have to spend, you should consider looking online for used or second hand equipment. Remember one restaurant’s failure could be your success. You can also work with financing companies who can assist you in picking out the right equipment. Then you can make monthly payments instead of paying everything up front.
3. Food Costs
Food costs are very easy to get out of hand. From planning your menu to the ingredients you need, there is a lot that goes into it. You want to first plan you menu, and make sure it is setup for success. You don’t want to go to big or too small. Going too big, could mean needing a wide array of ingredients, and going small could mean not giving your customers enough choices. It’s a good idea to do your research and reach out to local vendors to get ingredient prices locked down. Don’t settle on just one vendor either. Usually, you will find vendors who specialize on certain items. When you first open your restaurant, you will also want to pay attention to areas of waste. Soft openings can also be a great event to test potential food waste areas.
4. Marketing Costs
It’s true, you do have to spend money to make money, and marketing is the area you do want to spend in. However, you don’t want to over-extend yourself when it comes to your marketing efforts. If you are just starting out, you don’t want to invest in a TV Super Bowl ad unless you have the funds. Usually it’s just big chains that spend millions on these types of TV commercials. You also don’t want to get sucked into an agency contract, because you feel you don’t know much about marketing. If you are looking for a low coast solution to at least get your restaurant started, you should look into leveraging all things digital. You can use social media ads to promote your brand and posts to engage in conversations with potential customers. You can also hand out flyers around your area to increase foot traffic.
5. Permit and Insurance Costs
You should never take permit and insurance costs lightly. They often take restaurant owners by surprise, and a lot don’t take them as seriously as they should. If you don’t invest in the right ones, it can be quickest thing to shut down your restaurant. Accidents can always occur in a restaurant. Whether it is someone getting hurt with a large piece of equipment, your chef gets burned from cooking a complex dish, or someone falls on a wet floor, you should always make sure your staff is ensured. Additionally, permits can take a very long time to get. You don’t want to delay your restaurant’s opening day, because you waited too long to get your permit. There are many restaurant owners who say that getting a permit can take just as long as doing serious construction. Don’t wait! Order your permit the first day you start planning the opening of your restaurant.
6. Unexpected Costs
You should always be prepared for the unexpected. While insurance will cover most things like theft or broken equipment, you should always be prepared for a loss in sales, employee turnover, or even a lawsuit. It’s very easy to experience a loss in sales in the restaurant industry. You could have new competition enter your area; you could have a slip in the customer experience, etc. High employee turnover is inevitable in the restaurant industry. It’s important you have the fund to always be hiring and training new employees. Remember while an employee is training, they are making much revenue for the restaurant. Finally, you have to always be prepared for a lawsuit from either a customer or employee.