There’s a reason why so few of all the new entrepreneurs get into a Restaurant business. Actually, there’s more than just one reason.
While the obvious reason may seem to be the lack of interest or expertise in managing or running a restaurant – and it’s true to quite an extent – often the more important reason is that the success rate seems to be scary low when it comes to new restaurants.
And throw into that a huge capital requirement, and you likely have a business idea that’s not much short of an all-or-nothing gamble.
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Don’t get us wrong. We are not trying to scare you into thinking you should give up on your idea, but we just want you to be aware of the kind of challenge you would have in front of you when starting a restaurant.
And on that note, you may want to go through our first article on this topic first, where we share some crucial aspects of starting a restaurant and figuring out your Restaurant Startup Costs accurately.
We will dig a little deeper in this follow-up article to our first one, and if you’re serious about starting a successful restaurant, you may want to take notes as we cover everything from coming up with the restaurant startup costs to the capital you need for running a Restaurant Business.
Estimating Your Restaurant Startup Costs
Having a reasonably accurate idea of how much it might cost you to start a restaurant is probably going to be the most important part of your restaurant’s business plan. You would be surprised how many people there are out there that started with their restaurant business idea but were never able to start it, simply due to not being able to anticipate the costs.
While the location cost might seem like the biggest cost, there are many other relatively smaller costs that can add up to a monster amount as you see your capital quickly shrinking into nothingness. So let us get this out straight: You need to be prepared to invest a huge amount if you’re to have any real chances of success with your restaurant business, or scrap the idea altogether,
We know we might sound a bit harsh here, but believe us, a restaurant that doesn’t even make to the opening can have catastrophic effects on your life, let alone the financial aspect of your life.
That said, here’s a complete breakdown of some of the biggest costs involved in starting a restaurant.
Rent and Operating Costs
First up would be the security deposit. It usually amounts to a month’s rent, so it’s likely to turn out to be over $10,000 in most decent areas. Then there would be the first month’s rent itself, so you may as well double that amount.
Important utilities like the Internet and phone services would set you back about $2,500 for the first month. Something to note here is that the rent estimates are based on the assumption of you renting a place.
If you’re going the “build and buy” route, then you would be paying the governmental impact fees. Now, the exact fees may depend on many factors, but in a state like Florida, it can be anywhere between $20,000 to $120,000.
You can almost never have the location being pre-fit to be used for a restaurant. So you’re almost guaranteed to incur the improvement costs.
The kitchen alone can demand as much as $250,000 to $350,000 here. Then come the restaurant tables, furniture and other similar stuff, which can all cost you about $40,000 combined.
Your regular kitchen stuff wouldn’t come cheap either; all the utensils, dishes, table wear and more may come in at about $80,000. The initial supply of food and beverages, however, can be taken care of in just about $8,000.
Now, the food and beverages costs are something that may vary quite a bit depending on your approach to what and how you’re going to be serving, but for a new restaurant without a huge amount of capital, it probably makes sense to keep them as low as possible (initially).
Here’s one aspect of the overall costs that many of the people searching for “How to start a restaurant business” fail to take into account. But they can turn out to be much higher than you can imagine.
Some of the main costs include insurance at about $6,000, permits and licenses at about $5,000, the technological costs (for payment, ordering and any other aspect of your restaurant business) at $20,000.
You would also have to add the accounting costs to it, but as they vary greatly we are not having any estimates for it here.
However, remember that you may have many smaller miscellaneous expenses to take care of as well. This is the reason it’s considered wise to have an “opening a restaurant checklist” where you can keep a track of and list down as many different expenses as you can.
Next up are the marketing costs. Of course, they too can vary and often depend on the location of your restaurant. Is the location of your restaurant good enough to get the kind of visibility it needs to attract customers by itself? If not, then spending on marketing may be inevitable.
The signage and fliers or ads can cost a hefty $15,000 and under $10,000, respectively. The menus and business cards wouldn’t cost as much, but the exact costs may depend on your preferences.
There would likely also be advertising costs as well for restaurants that cannot attract customers by itself, and they too may amount to something around the $20,000 mark.
Overall, we think that you may very well need to have a capital of about half a million dollar to have a real shot at starting a successful restaurant business. If you’re someone that landed on this article by searching something along the lines of “How to start a SMALL restaurant”, then let us tell you that you may be able to give a shape to this dream of yours for about 30% less.
However, that too may depend on your location, as for some of those more expensive cities; the costs for starting even a small restaurant may very well hit the half-a-million dollar mark.