If you’ve long harbored the desire to open a restaurant, and you know that absolutely nothing will stop your ambition, you’ve probably got one fairly big question in your mind.
How much does it cost to open a restaurant?
It’s a question every entrepreneur and business owner asks themselves during those formative years. But when it comes to restaurants, the sheer number of costs involved is rather daunting.
However, in the UK (if we switch this rhetoric around to be more positive), roughly 80% of start-ups continue beyond their first year.
That stands you in great stead if you want to get into the restaurant industry, regardless of the abundance of start-up costs you’ll face.
Infact, managing your start-up costs effectively is typically what makes or breaks your restaurants chances of survival.
You can make a success of your restaurant, no matter how challenging the economic backdrop is. And it all starts with getting a well-researched handle on restaurant start-up costs.
The unavoidable: your premises
There’s no getting away from the fact that your restaurant will need premises, and it might be your highest monthly outgoing.
Unless you’ve inherited a property or have sufficient cash to buy your own place (few do), you’ll probably need to rent.
Rental costs will vary depending on your location and the market at the time you decide to open your business.It’s therefore tricky to provide guiding prices, because every restaurant is different, but you can expect to pay between £12 and £20 per square foot in popular cities.
Here are some of the other costs you’ll need to take into account in addition to rent:
- Building insurance. This is sometimes covered by the tenant, but might be paid by your landlord.
- Business rates. Just double check if your business is exempt, because it might be, based on its size.
- Utility bills. Think of this as you would your house, only on a slightly larger scale (electricity, gas and water are the most important).
- Waste management. Most restaurants have a standard monthly rolling contract.
- Service charges. Usually paid quarterly to your landlord for the upkeep of the building and its surroundings.
- Property tax. Your letting agent, mortgage lender or financial advisor should be able to advise on the cost of this.
When serving hot food in the UK, you’ll also need something called an A3 planning license. They’re in high demand and sometimes come at a premium, depending on your location.
The license is paid to the landlord and covers fixtures and equipment that are already on site. Expect to pay anywhere between £5,000 to £100,000 (the latter if you’re operating in a particularly popular city, such as London).
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Food for thought: delivery service costs
Food delivery is now a huge sector in its own right and shows no signs of slowing.
Tellingly, more restaurants than ever are adding a delivery option to their list of services, and have been able to do so thanks to the relative ease with which it can be implemented.
This isn’t without its costs though, as you might expect.
Beyond commissions to food delivery companies, you’ll have to account for a number of internal overheads that will make the delivery arm of your business successful.
- Menu Maintenance
Good news! We’ve put together a guide (because, of course, we have).
The boring legal stuff
Sorry, there’s no getting away from the red tape you’ll encounter when starting up a restaurant.
Thankfully, it’s all pretty standard and relatively straightforward. As you’d expect, a lot of it focuses on the insurances you have in place.
When starting a restaurant, you’ll need to:
- Have public, contents, buildings, stock and employee liability insurance in place (the cost is dependent on a number of factors, but a regular sized café in a popular city would pay up to £800 a year in total insurance fees)
- Hire a solicitor to help you with all the red tape and legalize (expect to pay up to £100 per hour for their time).
That’s it. The solicitor will be worth their weight in gold, both in time saved on your part and the savings they’ll probably offer when recommending the right insurances and licenses.
The beating heart: your staff
If you want to run a successful restaurant, you need the best staff - no question.
Alongside your premises costs, they’ll also be one of your largest overheads, but one from which you’ll get the most value if you spend your staff budget wisely.
You’ll need front of house staff, a management team (unless that’s just you for starters), cleaners, chefs and additional kitchen staff.
Average chef wages range from the £22K to £30K, depending on your location. According to Indeed, the average salary of general restaurant staff in the UK is just under £9 per hour.
Don’t forget to take into account recruitment and training costs, too, therefore we advise speaking to a recruiter to get a handle on what you might have to pay to get the best people in and armed with the right expertise.
Of course, if you already know who is going to form your restaurants team, you can save a pretty penny here.
Modern hotels need the right mix of technology to provide the service and amenities expected by guests.
Starting with your Wi-Fi, it’s important you pick a service which delivers superfast internet access and which is easy to connect to and which provides you with behavioral marketing opportunities.
The point of sale (POS) system is an absolute necessity, too. Thankfully, these days, the cost of entry for such systems is far lower than it used to be.
Most providers now offer some form of fixed monthly fee which includes terminal rental and software support which could be as low as £30.
If they ask for an upfront fee for POS hardware, expect to pay between £1,000 and £1,500 per unit.
You’ll also need mobile payment terminals to accept contactless and chip and pin payments.
Start by speaking to your bank - they should be able to offer a solution or point you in the direction of a partner who can. Devices will cost around £50 each, and transaction fees typically sit between 1.5% to 2.5%.
If you find premises with a kitchen that’s pretty much ready to go, you might be lucky enough to only have to invest in a few pieces of equipment that aren’t already there.
However, sometimes, this isn’t an option. Instead, you might be presented with an empty room which needs to be converted into a kitchen. Customized commercial kitchens can cost anywhere up to £190,000, so it’s important to keep that cost in mind during the top end of your initial budgeting.
Franchises are incredibly popular for restaurateurs. They represent a quicker route to market, a pre-existing audience and plenty of support from a much larger organization.
However, as you’d expect, running a franchised restaurant comes with its own costs, in addition to those we’ve already explored in this guide.
Get it right, and it can be very profitable; the UK’s network of franchise businesses is worth over £17 billion.
The average cost of setting up a new franchise restaurant business is around £42,000. This includes an initial fee (which ranges massively depending on the franchise in question), setup costs and legal advice. The link above offers lots more guidance that’s definitely worth a read.
Getting word out: marketing costs
You’ll need to get word out about your new restaurant, which is where good, old-fashioned marketing comes into play.
Lots of businesses stand by the rule of spending between 3% to 6% of sales revenue on marketing. It doesn’t have to be gospel, but if you’ve already done your forecasting for sales, it’s a great place to start.
Just remember to divide the resulting marketing budget between the following channels:
- website (creation and ongoing running)
- social media advertising
- Google Ads
- local publication advertising (it’s still relevant!)
Which licenses do I need?
Although there are some regulations you’ll need to comply with as a restaurant owner, the good news is that not all come at a significant cost (if any).
During your planning phase, take a look into the following licenses and make a list of what they might cost:
- PRS (for music)
- Alcohol license
- Building permit (if you intend to undertake construction work)
- Food hygiene certificate
- Food premises approval
Some of the licenses above are easily obtained by completing online forms, but it’s advisable to check with your local council to see if there are any additional licenses or regulations you need to abide by for the area.
Essentials: Don’t forget to read this
We’ve covered the essential start-up costs for UK restaurants in this guide, but it’s important not to overlook some of the other essential elements.
With that in mind, before you dive into your spreadsheets, check out the guide below.