Embarking on the exciting journey of opening your first restaurant can be a whirlwind of emotions, from the elation of pursuing your culinary dreams to the anxiety of stepping into the unknown. One of the key factors that can often be overwhelming is understanding the financial implications involved in this venture.
In this guide, we will delve deep into the nitty-gritty of the principal one-time (fixed) costs such as licenses, renovations, and equipment, as well as the recurring (ongoing) costs including rent, utilities, and employee salaries that you'll encounter in your restaurant business.
By the end of this article, you'll have a comprehensive idea of the costs involved in starting a new restaurant, empowering you to set aside the necessary funds needed to turn your dream into a resounding success.
Startup Costs of Opening a Restaurant
To turn your dream of owning a restaurant into reality, you must find out how much it costs. This includes where it's located, utilities, design, and technology. Whether you're an experienced restaurant owner or just starting out, you should figure out the cost before doing anything else.
In a survey by RestaurantOwner.com, over 580 independant resaturant owners shared what they spent on construction, kitchen and bar equipment, and pre-opening expenses. From this survey, the overall cost to open up a restaurant were as follows:
- $375,500: The median cost to open an independent restaurant
- $113: For each square foot of space
- $3,586: Cost per seat
To better understand how these startup costs are calculated, let’s break them down into one-time costs and recurring (or ongoing) costs.
Restaurant Financing
Financing your new restaurant premises with a bank loan? Need to balance the books to budget for your future restaurant expenses, wages and tax? You'll be a restaurant financial wizard by the time you've read this.
One-time costs
1. Lease security deposit
This cost varies a lot, mainly by size and location of your restaurant, as well as the creditworthiness of the lessee (i.e. “you”). The security deposit is often equivalent to one to three months of base rent. Based on the Average Monthly base rent of $6,914 according to the survey by RestaurantOwner.com, the potential range of lease security deposits are as follows:
- A one-month lease security deposit would be approximately $6,914
- A two-month lease security deposit would be approximately $13,828
- A three-month lease security deposit would be approximately $20,742
TIP: Check out our Beginner’s Guide to Restaurant Leasing on understanding your lease terms and how to negotiate them.
2. Restaurant licenses and permits.
This includes a business license, EIN, certificate of occupancy, food-service license, sign permit, building health permit, and food handler’s card. We’ve set out how much each of these will cost in our guide on Restaurant Licenses and Permits. Here’s the TL;DR version based on a selection of six US states:
| State | Business License | Employer Identification Number | Certificate of Occupancy | Food Service License | Sign Permit | Building Health Permit | Employee Health Permit (AKA “Food Handler’s Card”) |
|---|---|---|---|---|---|---|---|
| California | $75 | FREE | $132 | $100 - $1000 | $1,000 | $231 | $15 - $30 |
| Texas | $515 | FREE | $295 | $500 | $100 | $115 | $10 - $20 |
| Florida | $300 | FREE | $50 | $250 - $500 | $500 | $333 | $10 |
| New York | $280 | FREE | $500 | $280 | $1,000 | $280 - $1000 | $25 |
| Illinois | $800 | FREE | $100 - $500 | $100 - $500 | $200 | $660 | $15 |
3. Legal fees
When setting up a restaurant, a lawyer can assist in a variety of ways to ensure that the business is legally compliant and protected from potential liabilities. Here's a short list of activities, actions, and paperwork typically handled by a lawyer on behalf of a restaurant owner:
A. Business Formation:
- Choosing the best legal structure and drafting and filing the necessary paperwork to establish the chosen entity.
- Approximate Cost: $1,000 to $3,000.
B. Lease Agreements:
- Reviewing and negotiating the lease agreement to ensure favorable terms and confirming ownership rights.
- Approximate Cost: $2,500 to $5,000, depending on the complexity and length of negotiations.
C. Licensing and Permits:
- Guiding the owner through obtaining the necessary licenses and permits and ensuring compliance with regulations.
- Approximate Cost: $1,500 to $4,000, depending on the number and type of licenses/permits.
D. Employment Laws:
- Drafting employment contracts and advising on compliance with labor laws.
- Approximate Cost: $2,000 to $5,000, depending on the number of employees and complexity of contracts.
E. Contractual Agreements:
- Drafting and reviewing contracts with suppliers, vendors, and other third parties.
- Approximate Cost: $2,000 to $4,500, based on the number and complexity of contracts.
Total Estimated Cost: $9,000 to $21,500.
TIP: It's essential to thoroughly check with your local Public Records Office, taking special attention to frequent ownership shifts, issues related to temperature or pest breaches, and more. Discussing these findings with your legal advisors before finalizing any agreements could lead to significant savings in the future.
This applies more to building owners (as opposed to business leasers), but remodeling costs are often necessary to get your space set up for your particular needs.
Floors may yet require installation, and restrooms could need construction or refurbishment. An analysis of over 700 inputs from the trade magazine RestaurantOwner.com revealed that for a mid-sized restaurant—approximately 3,200 square feet—the average construction or build-out expense was $50 per square foot.
Costs to remodel a restaurant can climb from $250,000 to $350,000 according to Sage.
Since the enactment of the Americans with Disabilities Act in 1990, restaurant owners must provide suitable adjustments for customers (and employees) with disabilities. This might entail:
| ADA-compliant works | Average cost range | Good to know |
|---|---|---|
| Converting Outside Steps into a Ramp for Wheelchair Access | $1,000 to $15,000 | Installing a wheelchair ramp costs, on average, $50 to $250 per linear foot, including material prices. source |
| Entrance Doors Must Have a Clearing of 36″ for Wheelchair Access | $300 to $2,500 | Widening a doorway for a wheelchair costs around $700 to $2,500 per door source |
| Restroom with a Sink Height with a Rim No Higher Than 34″ | $200 to $1,000 | ADA-compliant toilet installation costs an average of $800. source |
5. Interior and Exterior Finishes and Equipment
For a kitchen, there’s lots to consider here, including:
- Cooking equipment (stoves, industrial mixers, griddle, etc.),
- Refrigerators
- Commercial dishwasher.
Your expenses could range from $50,000 for a modest venture to over $150,000 for a more extensive kitchen set up.
NB: According to the survey from RestaurantOwner.com, the typical expense for a bar and kitchen spanning 1,000 square feet, inclusive of equipment, is estimated at roughly $75,000, translating to $80 per square foot.
Tables, furniture and tableware can cost up to $80,000 according to Sage.
Outdoor dining facilities, such as a dining patio complete with patio umbrellas and lights, can cost between $1,000-$40,000 according to Sweeten.
In today's restaurant industry, technology is the backbone of the customer experience and essential for business growth. Here are some of the top restaurant technologies being used and their cost:
| Restaurant technology | What it does | How much it costs |
|---|---|---|
| Point-of-Sale (POS) System | This is necessary for streamlining orders, managing inventory, and reporting sales. Your POS system may include a front-of-house (FOH) component with a touchscreen, credit card scanners, and a receipt printer. The back-of-house (BOH) components include ticket printers or kitchen displays for orders. | Costs range from $12,500 to $20,000, with savings possible through vendor comparisons. |
| Kitchen Display Systems | These are usually integrated with POS systems to track sales and inventory, boosting kitchen efficiency. | Hardware costs range from $1,300 to $2,000 while installation varies based on difficulty. |
| Energy Management Systems (EMS) | An EMS monitors spikes in utility consumption and alerts managers so that they may address sudden spikes (did someone leave the cooler door open?) An Energy management systems also allow managers the oversight to see if staff is sticking to any energy use best practices as trained. | An EMS can cost from $30 to $1,000 per month, or from $1,420.00 to $6,000 per year. |
| Employee Scheduling Systems | Using an employee scheduling system saves time and boosts productivity by allowing schedules to be created and shared digitally. | Employee Scheduling Systems can cost anywhere from $80 to $135 per month. |
| Delivery Platform Integration | A delivery platform that connects your technology to customers makes it easier and more efficient to deliver food. One idea is to look into integrations through well-known platforms such as Grubhub, Uber Eats, and Slice. These are online food delivery marketplaces, where restaurant owners can list their establishments for hungry diners to order from. | Pricing plans range from 5% to 15% of the total charged to the customer. |
Recurring and ongoing costs
There are a number of ongoing costs that come along with restaurant ownership if you want to thrive. These include the following:
1. Lease payments
You could be spending anywhere from $2,000 to $12,000 monthly for your space, according to Sage.
The survey from RestaurantOwner.com with data from more than 550 responses generated the following data on average base rent for commercial space in the United States:
| Base Rent | Lower Quartile | Median | Upper Quartile | Average | # of Respondents |
|---|---|---|---|---|---|
| Monthly base rent | $3,000 | $5,000 | $8,750 | $6,914 | 496 |
| Square footage of restaurant | 2,100 | 3,500 | 5,000 | 4,180 | 496 |
| Base rent per sq. ft. - monthly | $1.00 | $1.50 | $2.22 | $1.95 | 496 |
| Base rent per sq. ft. - annual | $12.00 | $18.00 | $26.64 | $23.39 | 496 |
NB: Triple-Net Leases will involve payment of other expenses in addition to base rent. Triple-Net Lease means the tenant pays for utilities, property taxes, insurance, and maintenance (including janitorial services), in addition to the base rent. See our Beginner’s Guide to Restaurant Leasing for a full breakdown of leasing costs when renting restaurant space.
2. Employee salaries.
Before you start thinking about staff salaries, first determine which staff you actually need. In our guide on Hiring Restaurant Staff, jump to the section on “Determine Which Staff You Need in Your Restaurant” for a full breakdown of approximate salaries. Here’s the TL;DR version:
| Job Role | Job Description | Median Hourly Wage | Annual Wage (30 hours/week) |
|---|---|---|---|
| Restaurant manager | The restaurant manager oversees daily operations, including service coordination, staff management, and quality control, to ensure exceptional dining experiences and a smoothly running establishment. It is their duty to uphold exceptional standards, create customer contentment and contribute to the overall performance and success of the restaurant. | $16.00 - $20.00 | $28,080.00 |
| Server | Servers in restaurants serve at the forefront of customer service, diligently accepting and delivering orders, all with the intention of ensuring a delightful dining experience for guests. Their primary responsibility revolves around fulfilling the requirements and desires of the valued patrons of the establishment. | $7.25 - $12.00 | $15,015.00 |
| Host/hostess | A restaurant host/hostess warmly welcomes and greets guests, manages table seating and reservations, and ensures smooth flow and organization in the dining area. These individuals play an integral role in establishing a favorable initial impression, aiding guests in finding suitable seating arrangements, and collaborating with the service team to deliver outstanding hospitality. | $7.25 - $17.00 | $18,915.00 |
| Bartender/bar manager | A bartender/bar manager crafts and serves a wide range of beverages, manages the bar area, and ensures excellent customer service. They possess extensive knowledge of cocktails, maintain inventory, and interact with restaurant patrons. | $7.25 - $11.00 | $14,235.00 |
| Head chef/kitchen manager | This role manages the culinary operations within a restaurant. They handle tasks such as menu planning, recipe development, food preparation, quality control, and ensuring a safe and well-organized kitchen environment. | $25.48 - $36.54 | $48,375.60 |
| Sous chef | A sous chef assists the head chef in overseeing the kitchen operations, managing staff, and ensuring the quality and consistency of food preparation. They are responsible for supervising cooking processes, coordinating kitchen activities, and maintaining high culinary standards in the absence of the head chef. | $21.30 - $28.85 | $39,117.00 |
| Dishwasher | A dishwasher preserves cleanliness and sanitation within the kitchen through the diligent washing of dishes, utensils, and kitchen equipment. These valuable team members assist the kitchen staff by keeping the items needed for food preparation and service clean. | $9.00 - $21.50 | $23,790.00 |
3. Food and beverage costs
Food and beverage costs include the money spent on buying ingredients.
Here are some essential considerations to help you calculating food costs in your restaurant:
- Break down each dish into its ingredients, including every component, from seasonings to cooking oil quantities.
- Calculate the cost of each dish by combining the expenses of all ingredients.
- Determine your fixed cost per meal served by adding up fixed costs (salaries and utilities, for example) associated with producing the dish.
- Ensure your dishes cost no more than what allows for profitability.
- Verify that each dish's price covers both food costs and fixed expenses per dish.
Example: Pasta Dish Priced at $10.00
1. Ingredient Costs:
- Pasta: $2.50
- Tomato: $1.25
- Cheese: $2.50
- Olive Oil: $1.25
- Herbs: $0.50
- Salt: $0.25
- Garlic: $0.25
- Total Cost: $8.50
2. Fixed Costs:
- Assume fixed costs per meal are $5.00.
3. Profit Calculation:
- Total Cost (Ingredients + Fixed): $8.50 + $5.00 = $13.50
- Menu Price: $10.00
- Profit Per Dish: $10.00 - $13.50 = -$3.50 (Loss)
4. Food Cost Percentage:
- Food Cost Percentage = (Total cost of ingredients / Menu price) * 100
- For this dish:
(8.5/10) * 100 = 85%
The food cost percentage of 85% is above the industry benchmark of 40%, and the restaurant incurs a loss of $3.50 per dish. This indicates a need to reevaluate the dish's pricing or ingredient costs.
Check out our Guide on Restaurant Menu Pricing for expert tips on pricing your menu given your food and beverage costs.
4. Utilities
Utilities include water, gas, electricity, trash, recycling, and the internet.
As a general rule, the annual cost for restaurant utilities is about $3.75 per square foot. But this depends on the size of the space.
According to Sage, you’ll be looking at around $2,500 per month in restaurant utility costs. Estimate more than this if your restaurant is bigger than 4,000 square feet.
It’s also important to note that your utility costs will vary depending on your location. Forbes conducted a monthly utility costs breakdown by state. Find out how much utilities will cost you based on your state:
5. Restaurant cleaning costs
Restaurant cleaning will be crucial among your pest control strategies. You’ll need a clean restaurant to pass a Health and Safety Inspection, which could occur at any time.
According to Maintenance One, restaurant cleaning rates will vary per square foot:
| Total square feet | Average cost |
|---|---|
| 0-1,000 | $120 |
| 1,000-2,000 | $200 |
| 2,000-3,000 | $290 |
| 3,000-4,000 | $370 |
| 4,000-5,000 | $460 |
| 5,000-6,000 | $540 |
| 6,000-7,000 | $630 |
| 7,000-8,000 | $700 |
| 8,000-9,000 | $800 |
| 9,000-10,000 | $880 |
Here are the average commercial cleaning hourly rates:
- National average cost: $39/hour
- Typical cost range: $30-$50/hour
For restaurants, professional cleaning services cover tasks such as purifying the dishwashing region, eradicating grease from the exhaust hood, and sanitizing the countertops and tables used for meal prep. It is advised to gather quotes from various cleaning providers to evaluate both the pricing and caliber of their services.
The typical expenditure for sustaining the cleanliness of a restaurant may vary from $0.15 to $0.50 per square foot for each session, contingent on the establishment's dimensions and how often the cleaning occurs.
Alternatively, the price may range from $20 to $40 per hour.
6. Insurance
Restaurant insurance covers you against potential risks and liabilities that can arise during the course of operating your restaurant. These include: property damage, theft, food contamination, liquor liability, employee injuries, and more.
The key insurance policies typically taken out by restaurnt owners in the US include:
| Insurance Type | Description |
|---|---|
| Business Owners Policy for Restaurants | Business Owners Policy (or BOP) is a package that combines multiple insurance products under one policy. Products include Commercial Property, General Liability, and Business Interruption. |
| Workers' Comp for Restaurants | Workers Compensation provides financial protection for the injured employee by helping to cover their medical bills, lost wages, and other related expenses. |
| Cyber Liability for Restaurants | Cyber liability insurance for restaurants can help cover the costs associated with investigating and managing a cyber incident, as well as providing compensation for damages and losses incurred as a result of cyberattacks. |
| Commercial Auto for Restaurants | Commercial auto insurance provides coverage for vehicles used for business purposes, including liability coverage for damages caused by your business vehicles. This type of insurance can protect your restaurant from the financial risks associated with accidents, theft, or damage to your vehicles. |
It's important to work with a restaurant insurance agent who can help you find the coverage to meet your specific needs taking the time to understand your business and the risks you face.
The costs for restaurant insurance are set out in this guide on Insurance Cost for Restaurants. Here’s the TL;DR version:
| Insurance Type | Range | Average Annual Payment |
|---|---|---|
| General Liability for Restaurants | $529 to $6,097 | $950 |
| Business Owner Policy (BOP) for Restaurants | $1,100 to $10,500 | $2,160 |
| Workers’ Compensation Insurance for Restaurants | $600 to $10,000 | $1,500 |
FREE Resources for Restaurant Owners
How to raise funds for restaurant startup costs
When it comes to restaurant financing, you’ll encounter several types of bank loans. From equipment loans to working capital loans, inventory financing to lines of credit, the options can seem overwhelming.
In our Complete Guide on Restaurant Grants and Loans, we walk you through each type. You’ll also get a list of the top 13 restaurant business loans available in the US. Here’s yet another TL;DR summary:
| Restaurant business loan provider | Max amount | Term length | Estimated interest rate |
|---|---|---|---|
| Apple Pie Capital | No hard limit | 5 to 10 years | 7.75% to 12% |
| ARF Financial | $1,000,000 | 12 to 36 months | 3.85% to 15% |
| Balboa Capital | $500,000 for commercial loans and $300,000 for franchise loans. | 24 to 72 months | Varies by customer |
| CAN Capital | $250,000 | 6 to 24 months | 29.9% |
| eBusiness Funding | $500,000 | 6 to 24 months | 17% |
| Fora Financial | $1,500,000 | Up to 15 months | Factor rates from 1.10 to 1.40 |
| OnDeck | $250,000 | Up to 24 months | Starting at 35.40% APR |
| Fundbox | $150,000 | 12 to 24 weeks | 4.66% for 12-week term; 8.99% for 24-week term |
| Funding Circle | $500,000 | 6 to 84 months | 12.45% to 40.51% |
| Taycor Financial | $2,000,000; $400,000 for equipment financing | 12 to 84 months | Starting at 3.49% |
| Credibly | $400,000 | 3 to 15 months | Factor rates starting at 1.11 |
| Bluevine | $250,000 | 6 to 12 months | Starting at 6.20% simple interest for a 26-week repayment term |
| SBA 7(a) | $5,000,000 | Up to 300 months for most expenses | Variable: Prime rate plus 2.25% to 4.75%; Fixed: Prime rate plus 5% to 8% |
Pro Tip: There are 9 crucial factors you should know before applying for your restaurant business loan. Find out how to apply and what to expect before you get your cash.
Takeaways
One-time Costs
| Cost Type | Description | Amount |
|---|---|---|
| Lease Security Deposit | Equivalent to one to three months of base rent. Varies by size, location, and lessee's creditworthiness. | $6,914 - $20,742 |
| Restaurant Licenses and Permits | Includes business license, EIN, certificate of occupancy, food-service license, sign permit, building health permit, and food handler's card. Varies by state. | Varies by state |
| Legal Fees | Includes costs for business formation, lease agreements, licensing and permits, employment laws, and contractual agreements. | $9,000 - $21,500 |
| Building Improvements | Costs for remodeling to meet restaurant needs, including ADA-compliant works. | $250,000 - $350,000 |
| Interior and Exterior Finishes and Equipment | Costs for kitchen equipment, furniture, tableware, and outdoor dining facilities. | $50,000 - $150,000 |
Recurring Ongoing Costs
| Cost Type | Description | Amount |
|---|---|---|
| Lease Payments | Monthly payments for commercial space rental. | $2,000 - $12,000 |
| Employee Salaries | Salaries for restaurant staff, including manager, servers, host/hostess, chefs, and more. | Varies by role |
| Food and Beverage Costs | Costs for ingredients and other expenses associated with producing dishes. | Varies by dish |
| Utilities | Costs for water, gas, electricity, trash, recycling, and internet. | $2,500 per month |
| Restaurant Cleaning Costs | Costs for professional cleaning services. | $0.15 - $0.50 per square foot |
| Insurance | Costs for insurance policies including general liability, BOP, workers’ compensation, and more. | Varies by policy |