Find Out How Much Does it Cost to Open a Restaurant

Probably everyone with even a slight interest in food has wanted the answer to this question. While there are some estimates we will explore, the cost to open a restaurant depends on:

The size and number of seats.
Location.
Type of cuisine and supporting equipment needed.
Regulatory issues for the facility.
And, to a great degree, how extravagant you choose to be.

Each of these factors is further complicated by the municipality, state and region you have chosen to open your restaurant, café or food service operation.

Since some parameters must be set to offer cost guidance, we will assume you are leasing a location in a retail area such as a strip center, office building or free standing building. We will further assume that the location was a restaurant that you must only add your equipment and cosmetics to adequately operate your business. If you were doing a total build out in a location that had never been a restaurant you must add expenses like a grease trap ($10,000 to $15,000), fire suppressant equipment ($3000 to $10,000), restrooms to comply with local codes and plumbing specifically designed for restaurant operations and the intense use of water and waste.

Size of Your Restaurant and Number of Seats

There is no limitation on formulas for restaurants. A small café that my seat 25 people could scrape by on an average of $100 per seat, while an opulent 250 seat fine dining restaurant in Manhattan may spend an average of $300 per seat. Costs could be even higher if you need custom built sizes and configurations for tables and chairs.

The small cafe may only need 800 square feet of space, while the 250 seat operation may require 10,000 square feet to accomplish their goals. In a broad generalization, you can figure at least 30% of your space will be required for kitchen and storage and the balance is customer seating and front of the house needs.

Location

There is a great difference in lease costs across the country. Your small coffee shop in Ft. Wayne, Indiana may find a suitable facility for $15 per square foot, while in downtown Chicago you may pay $40 per square foot. Most landlords will also charge fees for common maintenance, insurance and real estate taxes on top of the base lease rate which could add an additional $4 to $15 per square foot. Shopping malls sometimes charge a 2% to 4% fee based on annual sales.

One industry standard is that leasehold costs run about 9% to 11% of annual sales. If you anticipate your costs would exceed the common averages, you should be extremely cautious in venturing to far from national averages. The restaurant business operates on relatively small profit margins.

Type of Cuisine and Supporting Equipment Needs

Arguably, the most expensive type of restaurant to open would be a fine dining steak and seafood house. These two components of most menus have the highest costs and lowest margins while requiring a significant equipment cost to properly cook and store the products. On the other end of the scale may be a small café or coffee shop that only requires beverage equipment and perhaps an oven or two to produce the basics.

Basic restaurant equipment for cooking needs fall into these categories:

Beef and Pork – may require a high temp charbroiler from $2000 to $5000 and a holding cabinet around $500 to $2000.
Chicken – a low end charbroiler from $1500 to a convection oven at $4000 to $6000.
Seafood – a steamer at $1500 to $3000 is required along with a stove from $2000 to $5000 may be required in addition to a charbroiler.
Vegetables – plan on a stove plus a deep fryer from $1000 to $3000.
Baking – plan n a single or double convection oven ranging from $4500 to $15,000.

Refrigeration costs include:

Walk-in refrigerators and freezers run from $5000 to $25000 depending on size and requirements.
Single and double door refrigerators start at $1500 to $3500.
Prep station refrigerators from 24 inches wide to 72 inches wide run from $1200 to $3500 for standard models.

The costs quoted above are for standard models that come in different configurations and include options for many purposes. The prices are from restaurant suppliers selling new equipment.

Used equipment may be a bargain for starting a restaurant, but it takes a sharp eye and good bargaining skills to make sure you aren’t getting someone else’s headache. Good used restaurant equipment generally saves 25% to 50% of the full retail cost, but lacks the long term warranties offered on new restaurant equipment.

Leasing equipment is another means of financing your restaurant equipment needs. This is a viable option commonly used for ice machines and dishwashing equipment that also includes service. Leases for all of your equipment can be wrapped into one package for credit worthy entrepreneurs.

In addition to the equipment above you may need smaller equipment like toasters, broilers, food warmers, mixers, slicers, coffee makers, ice machines and many others depending on your restaurant concept.

Smallwares for kitchen needs is a significant cost that cannot be ignored. Even small operations may spend several thousand dollars on skillets, pans, utensils, food processors, bowls, stock pots and dishwashing equipment.

Front of the house smallwares and dinnerware can run from $25 per seat to $150 per seat depending on the style, material and effect desired.

Regulatory Issues for Restaurants

Many times new restaurant owners forget the costs for permits and bringing a facility to current health and safety codes. Grease traps commonly required today can cost from $1500 for a small inline 30 gallon grease trap to $15,000 for a 750 gallon in ground unit. In most cases the number of seats determines what the requirements are.

Restrooms must comply with the size and number stools depending on seating capacity of the restaurant. The cost can be significant if the location needs extra plumbing, electrical, convenience or compliant hardware installed.

If you plan to sell alcoholic beverages, those permits may run from a few hundred dollars to $150,000 for a full liquor license that you may have to purchase. Most of the time all licensing is controlled by the state. Each state has their requirements and licensing information online.

Permits vary, but you can expect from $800 to $2000 in permit fees depending on the various needs to upgrade your restaurant facility.

Extravagance and Ambiance for Restaurants

All of the above options are directly related to the image you want to portray. Everything from wall covering to fixtures has wide latitude in availability and costs. You can easily take a very casual 150 seat beach shack and spend $50,000 on cosmetics or $250,000. The choices depend greatly on choice and effect desired for the guest’s experience. There is also a direct relevance to menu pricing and anticipated annual revenues.

So, How Much Money is Needed to Start a Restaurant?

As you can see from the above numbers it could be $25,000 to $2.5 million – only you can answer that question. However there are other costs you must anticipate that are generally forgotten in business plans and cost estimates.

The abstract costs to open a restaurant include:

Deposits – your lease will have one or two months required. Utilities including gas and electric may want a full estimated month’s usage held as deposits. Gas and/or electric can easily be $1000.
Staff costs for pre-opening training. Even if you only plan to have one or two employees, the costs for a very small operation can be high. Large operations will have a corresponding large expense.
Marketing should begin well in advance of opening and carry a significant cost. Ideas and sample marketing plans can be found in The Restaurant Marketing Plan Handbook.
Starting inventory is frequently under stated. A general rule is to have three to five days supplies and inventory on hand the day you open. This avoids surprises and eliminates emergencies to get supplies that usage was under estimated. If you plan on daily revenues of $5000 per day and plan on a 30% food cost, your opening food and supply cost could be $5000 to $7000.

Finally, one cost that must be calculated is the cash required to keep your doors open until your cash flow (not profits) turns positive. In The Restaurant Ebook, there is one entire chapter devoted to understanding that running a profitable restaurant doesn’t mean you can’t go broke! Here is a direct quote from the book;

“Cash flow planning is a must for any new business. Can you support a wildly successful operation? Many entrepreneurs spend all of their available funds in the pre-opening stages or in the first few weeks of their operations. Profit and Loss statements show a profit. Balance Sheets show positive equity, yet they can’t pay their suppliers and eventually they make the wrong decisions and end up with padlocks on the doors. This is what I call going broke profitably!”

Summary

To be one of the successful entrepreneurs who dream of starting their own restaurant, you must understand more than just producing a great plate of food. Become a student of the business before your dream becomes a reality.