For any business, you need a considerable amount of investment, especially when you are moving to top tier industries such as real estate, education, health, and food. Opening a restaurant is not an easy job, especially in the USA where customers are more sophisticated and demanding. Opening a restaurant is one thing and keeping it operation is another thing. On top of opening a new restaurant, you have to make sure your customers love your food and services. Today, the US restaurant industry is nearly $800 billion, and there is nearly 661,000 restaurant in the US as per a report by statista.com.
Today, the national average cost of opening a new restaurant is nearly $270,000, which demands chefs and businessmen to make a significant investment. The average lower end of the cost is nearly $130,000. For a high-end restaurant, the average cost is nearly $560,000.
The real cost of opening a restaurant will vary greatly depending on the location, for example, opening a restaurant in Manhattan is going to be significantly higher than in the Bronx. The average square feet cost is nearly $500/sq.ft. for opening a new restaurant. The typical price range per square feet can be between $200 to $900 per square feet.
Here are the Top Expenses Involved in Opening a Restaurant
01. Location & Rent (approx. $3,000 to $8,700 per month)
Your choice of location is going to be a significant aspect of determining your investment. A good location such as Manhattan is very expensive, but then again there’s a better chance of making business in high-urban locations. There are many places with cheaper rent or property cost, but you will not be able to make much profit.
Experienced businessmen would suggest you spend more and choose a good location where there’s good traffic and where people have more spending capacity than establishing at a cheaper place and invest in marketing.
Opening a restaurant in posh cities such as New York or Los Angeles will automatically get you new customers without much marketing, but then you have to give them a good service and high-quality food to keep your business running. People in urban areas are more open to trying new places but are also demanding, which makes a challenge for business owners to run a restaurant in top locations.
Average Cost of Renting a Space for Restaurant:
- The monthly base rent is avg. $3000 for the lower quartile
- Monthly base rent is avg. $5000 for median quartile
- The monthly base rent is avg. $8700 for upper quartile
- Lower quartile restaurant space is – 2100 sq.ft.
- Median restaurant space is – 3500 sq.ft.
- Upper quartile restaurant space is – 5000 sq.ft.
Other things to consider while choosing your location is that you could either convert a commercial space to a restaurant or purchase a restaurant that is going out of business.
02. Kitchen Equipment Cost (approx. $50,000 to $150,000)
The initial investment in opening a restaurant is significantly higher than other startups primarily because of the equipment cost. A major portion of your investment is going to be in getting your kitchen up and running and more so in maintaining the kitchen.
Here’ a comprehensive list of kitchen and bar equipment you will need
- Ovens, stoves, grills, pasta cookers, immersion cookers, broilers, fryers, griddles, steamers, walk-in fridges, freezers, dishwashers, ice machines, coffee machines, espresso machines, heat lamps, soda fountains, condensation hoods, counters, storage spaces, tables, steam tables, cold food tables, food coolers, prep tables, knives, cutting boards, gloves, spatulas, containers, brushes, plates, silverware, glasses, placements, napkins, tablecloths, mixers, wine, garnishes, straws, cocktail shakers and napkins.
03. Interior & Furniture (approx. $40,000 to $100,000)
Customer who like good food also love a good ambiance of the restaurant, and for today’s young generation it is much more essential. By now, you should have guessed that you will have to spend a chunk of your money on interior and furniture.
Here’ a comprehensive list of restaurant interior fixtures and furniture
- Flooring, wall covering, ceiling models, lighting, window treatments, bars, barstools, tables, chairs, lounge seats, centerpieces, tabletop accessories, sculptures, artwork, mirrors, displays, HVAC, sound system, nightclub lighting, sprinkler systems and more.
04. Pre-Opening Cost (approx. $30,000 to $120,000)
By the time you open your restaurant on day-one, you should be well-equipped from inventory to staff, insurance and inspection. Pre-opening cost is also going to take up a large part of your expense.
Here’ a comprehensive checklist of pre-opening for restaurant
- Insurance, liquor bond, waste compactor, POS systems, telephones, fire alarms, emergency lights, fire inspector approval, handicap regulations, smoke detectors, government registration, payroll system, new gas services, new telephone services, new water services, new sewer services, new electrical services, banking, signage, banners, outside services, parking lot, security, first aid and more.
04. Exterior Finishes (approx. $20,000 to $250,000)
Landscaping, outdoor design, lighting, banners, parking lot and other exterior finishes can add up to a great amount if you want to splurge on appearance and aesthetics.
05. Insurance (approx. $5000 to $9000 per year)
An important part of any business establishments is insurance coverage, which is a recurring expense. In the case or restaurants, it is even more essential as space will be crowded with continuously moving traffic which may put customers at risk. Plus, the kitchen itself is a dangerous place, and there’s always a movement of hot, brittle, sharp metallic items between the tables and the kitchen.
Here are some common liability insurance you will need for your restaurant
- Product liability, liquor liability, worker’s compensation policy, vehicle insurance, restaurant insurance, loss of income insurance.
All the above-mentioned insurances will cover equipment malfunction, injuries, alcohol, robbery or fire.
06. Permits & Licenses (approx. $5000 to $7000)
Opening a new restaurant in the United States requires you to acquire the right permits and licenses. The government strictly regulates the food and beverage industry, failing which, may lead to a permanent shutdown.
Here are some of the common licenses and permits you need for your restaurant
- Food service license – Depending on the location, acquiring a food service license can cost between approx. $100 to $1000. Any business that serves food would need this permit and will get a visit from the state health department.
- Liquor license – A full-service licenses can cost approx. $12,000, whereas the beer & wine license can cost up to approx. $3500.
- Food handler permit – These licenses can cost between approx. $100 to $600, which is necessary to meet the regulations for handling food.
- Employer Identification Number – EIN is necessary to file taxes and can be availed for free from the IRS department.
- Sign permit – If you want to hand a sign, which you probably have to, requires you to avail a sign permit from your city. However, the permit is often small, costing just around $50.
07. Employee Salary (approx. $246,800 to $457,160 per year)
Here’s an average salary of restaurant employees in the USA
- Hostess – approx. $7 to $12 per hour + tips ( ~ $13,444 to $23,040 per year)
- Busser – approx. $7 to $11 per hour + tips ( ~ $13,444 to $21,120 per year)
- Server – approx. $3 to $11 per hour + tips ( ~ $5760 to $21,120 per year)
- Bartender – approx. $4 to $13 per hour + tips ( ~ $7680 to $24,960 per year)
- Dishwashers – approx. $9 to $11 per hour ( ~ $17,280 to $21,120 per year)
- Line cook – approx. $10 to $15 per hour ( ~ $19,200 to $28,800 per year)
- Assistant manager – approx. $34,000 to $52,000 per year
- General manager – approx. $32,000 to $67,000 per year
- Kitchen manager – approx. $27,000 to $54,000 per year
- Sous chef – approx. $37,000 to $57,000 per year
- Executive chef – approx. $40,000 to $87,000 per year
08. POS Technology for Ordering and Payment (approx. $20,000)
On the long run, a good POS system can save you both time and expenses. Being the central part of the business operation, you should expect to spend close to $20,000 for a pro-POS system. It can automate inventory management, payment tracking, order, etc. as well as integrate other software such as accounting and payroll application with your POS system to automate most of the mundane business processes.
09. Marketing & Advertising Cost (approx. $45,000)
Initial marketing and advertising is an important aspect of your investment. For both offline and online advertising can cost you up to approx. $45,000. However, other marketing channels such as social media and digital marketing can be done for as little as $500 or less. Although online marketing will help you reach younger generations, traditional marketing will help you reach more mature and busy professionals. A typical radio campaign will cost you between approx. $30 to $70 per ad and for TV advertisement you should expect to spend between approx. $500 to $1500 for a 30-second spot.
Another marketing cost may include signage, coupons, ads, business cards, public relations services, and restaurant-opening event. Moreover, you should also have an official website for your restaurant which will again cost nearly $1500 and some $300 per month to maintain. Listing your business with other popular application can be relatively free.
10. Contingency Capital (avg. $30,000)
Even if everything goes great, your restaurant isn’t going to be everybody’s favorite overnight. With a consistent satisfactory service and quality of food, your restaurant will need at least six months to a year to reach its full business potential. Therefore, it is wise to keep a contingency capital of avg. $30,000, which will be used to handle the ups and downs of the first few months of operation.
11. Professional Service (approx. $3000 to $90,000)
For a business owner who knows nothing about restaurants will surely need professional help to keep things from tearing apart. Your professional services may include a restaurant consultant, architects, lawyers, designers, and others, who can charge a premium for their service.
Food Chain Franchise
To become a franchise owner, you have to spend additional and doesn’t have to spend much in the interior design, and initial marketing as owning a franchise has its requirements and are already popular.
To become a McDonald’s franchise, you will need to have at least $1 million in nonborrowed personal resources. Then, the franchise fee is approx. $45,000 and a service fee of 4% per gross sales.
The franchise fee is approx. $16,000 with a royalty fee of 8% of gross sales. According to reports, opening a Subway franchise cost nearly $117,000 to $264,000 in total in the US.
The franchise fee is approx. $40,00 per restaurant with a royalty fee of 4% and an advertising fee of 4% of gross sales. That said, the owner should have $2 million in liquid assets to avail Wendy’s franchise.
The franchise fee is approx. $25,000 with a service fee of 6% of gross sales and an advertising fee of 3% of gross sales. To avail its franchise, you need to have a budget of up to $3 million, a net worth of $1 million and $360,000 in liquid assets. Moreover, you have to commit to building at least three restaurants in 3 years.
The franchise fee is approx. $25,000 for external groups.
The franchise fee is approx. $40,000 with a royalty fee of 4% of gross sales and advertisement fee of 4% of gross sales. According to reports, a stand-alone restaurant can cost up to $2.5 million excluding the lease cost.
The initial franchise costs between approx. $40,000 to $90,000 and the total initial investment can range between $229,000 to $1,700,000. Moreover, you should have a liquid asset of at least $250,000.
The franchise fee is approx. $45,000 with a royalty fee of 5.5% of gross sales. That said, you should have a net worth of $1.5 million and liquid assets of $750,000.
Cost Break of Opening a Restaurant from an Actual Restaurant Owner
- Security deposits – approx. $10,000 to $12,000
- Rent – approx. $10,000 to $12,000 per month
- Initial utilities – approx. $3,000
- Governmental impact fees – approx. $20,000 to $120,000
- Construction and customization – approx. $250,000 to $350,000
- Furniture – approx. $40,000
- Utensils and equipment – approx. $80,000
- Initial supply of food and beverages – approx. $8,000
- Insurance – approx. $6,000
- Permits – approx. $6,000
- POS – approx. $20,000
- Signage – approx. $15,000
- Menus – approx. $1,500
- Flier – approx. $5,000
- Business cards – approx. $70 for four people
- PR services – approx. $6,000
- Restaurant-opening event – approx. $15,000
- Total – approx. $450,000 to $530,000
One-Time Cost (~ $467,500 to $701,000)
Here’s a list of the one-time expense that you will have to pay while opening your restaurant
- Security deposit – You security deposit will vary depending on the location and size of the space you want to rent. Usually, the lease security deposit will cost you between approx. $2000 to $12,000 and if you have taken a loan, then you have to pay at least 10% of the price as down payment.
- License and permits – All business licenses and permits can sum up to approx $5000 to $7000 including liquor permit, city licenses, safety license, health permits, and other compliances.
- Legal fees – Opening a business means you have to deal with a lot of paperwork and legalities, for which you will need a lawyer. If you have a private lawyer, you will probably have a yearly fee, but for new hires, a lawyer could charge between approx. $500 to $2000.
- Building design – Remodeling your existing space would cost approx. $250,000 to $350,000
- Kitchen tools and equipment – Starting from scratch, you will have to spend between approx. $50,000 for a small kitchen to up to nearly $150,000 for a large kitchen. You could save on equipment if you can get used tools from a restaurant that recently went out of business.
- Furniture and tableware – In an average, table, chairs, with other decors can sum-up to $90,000, which can go higher if you have a larger capacity.
- POS system – A good POS system to automate all mundane works will cost you avg. $20,000.
- Ads and Marketing – Initial marketing and ads for a period of 6 months could be cost between approx. $20,000 to $30,000 up front.
- Handicap accessibility – To make your restaurant handicap accessible, you should expect to spend between $30,000 to $40,000.
Recurring Costs ( ~ $43,700 to $82,000)
Opening a restaurant means you have to keep money aside for ongoing cost, which is a major part of the operation cost.
- Lease cost – The two highest recurring cost is going to be your rent and employee salaries. Your monthly lease or mortgage payment will depend on your negotiation and location. Leasing will give you a particular space for a few years, but there’s no additional expense of taxes, which is common for owning land. On the other hand, leasing cost may increase overtimes. For a start, you should set aside approx. $2,000 to $12,000 per month on rents.
- Salary – Employee salary is going to be the highest recurring cost than any other aspect. For a full-fledged employee list along with managers, chefs, servers and all will cost you an average of $21,000 to $40,000 per month.
- Food and beverage – Your food and beverage inventory will largely depend on your sales, but a rough estimate would be $15,000 per month. That said, it could be lower or higher, depending on your sales and the cost of raw materials. In general, food is purchased 4 to 6 times a month; liquor is purchase once a month, beer is purchased three times a month, wine is bought once a month.
- Utilities – On basic utilities such as gas, electricity, water, phone, internet, and trash removal, you can expect to spend nearly $2,700 per month.
Optional Recurring Cost
- Marketing and advertising – Recurring marketing and ads are much cheaper than the initial investment in ads. Maintaining a simple website and a few social media accounts with paid online ads, you should expect to spend nearly $3000 per month.
- Repairs and maintenance – Unexpected repairs and equipment purchase can get costly if you are unable to maintain your restaurant properly. Still, a rough estimate should be around $2000 per month on unexpected maintenance. Here, you should also consider the fact that you have to renew all your permits and pay regular insurance premiums. Insurance and permits renew could add up to $10,000.
Some Common Best Practices for a Successful Restaurant Business
- Be a good boss and treat your employees like your family members. Check up with them for their health, talk to them frequently and address their problems as fast as you can.
- Keep your inventory full for at least for a week from your profits.
- Get everything fresh, from meat to vegetables, so that your customers are happy, you make more sales, and the waiters get a good tip, all for your effort.
- Have a chef’s special dish that is unique to your restaurant.
- Keep your price competitive.
- Have a larger seating arrangement for parties and events.
- Have a receptionist to handle phone calls and reservations.
- Give free stuff if a customer doesn’t like your food.
By now, you should have guessed that starting a restaurant is no easy thing. Even for a small restaurant, you will have to deal with a lot of aspects frequently spend on multiple items until it’s operational. The average cost per seat will vary between approx. $3000 to $4000, which means you have to make sure you get a lot of customers to meet your expense and then make profits. That said, the food industry has always been a lucrative business, even if it takes a lot of initial investment. If you get fewer complaints on your food and service, chances are you will thrive in this already saturated industry.
However, it’s worth noting that you shouldn’t expect much profits from the first few months or for the first year. If you can’t turn it into a successful business in two years, it’s better to shut it down and sell it to a new owner. However, you have a better chance at making a profit with a franchise than an independent restaurant, but then the initial investment for a franchise can be huge, and you have met their financial conditions.