Have you decided to open a new restaurant, cafe or bar? Perhaps you’re a hotelier who has decided to finally add a thriving B&B operation to the premises.
You may even simply be considering the benefits of getting into the hospitality game.
Whatever your position, you’ve probably got one huge question on your mind.
How much is this going to cost?
The average restaurant will set the owner back around $275,000. That’s just over $3,000 per seat if you’re operating in a leased building.
But, that’s a big figure which is hard to get your head around. So, let’s break it down.
Before you continue: don’t overspend on these items
It’s scarily easy to overspend when creating a new restaurant - particularly if you don’t do you homework first.
The good news for you (although, bad news for them) is that others have already made these mistakes. Therefore, you can learn from them and ensure you don’t put money where it simply isn’t needed.
Here are the most common areas in which start-up restaurants typically overspend:
- Technology: your restaurant won’t survive without technology, but don’t be wowed by the bright lights of devices and apps that won’t deliver a measurable return on investment (ROI).
- Kitchen equipment: only ever buy what you need to get get going; you can add to your kitchen as you become more successful.
- Marketing: marketing budgets should always be maintained in one form or another, but throwing loads of money at expensive advertising and fancy website design won’t provide an ROI during those early days.
- Remodelling: invest your time in finding premises that need as little work doing to them as possible. Iterations to the design and theme can come at a later date.
- Food: unless you’ve done your homework, it’s far too easy to buy in way too much stock or pay over the odds for ingredients.
Opening a restaurant in the US: how much does it cost?
So, now we know what not to spend too much money on, let’s look at the most common start-up costs for a restaurant in the US and consider some averages.
Just bear in mind that these are exactly that - approximations. You'll need to undertake lots more research for your state to reach a realistic forecast figure.
The size and location of your restaurant will have a huge impact on the cost of your lease (or ownership, if you decide to head down that route).
You should expect to pay a security deposit which could be anywhere up to $12,000, but might be as low as $2,000.
When it comes to rent, the most expensive area codes (for instance, Manhattan) can cost up to $120 per square foot. Head to LA, and you’ll pay in the region of $52 per square foot. For less popular towns and districts, that price will drop further.
Food for thought: delivery service costs
Online food delivery is now a weekly occurrence for 60% of US residents.
This boom looks set to continue, therefore you’ll probably want to add this into your start-up calculations, even if it’s something you plan to expand into in the future.
Commissions for service providers like Deliveroo and Uber EATS can be as high as 30%, but there are plenty of other costs to take into consideration. Regardless, it can be a very profitable endeavour, and we’ve put together a great guide if you want to find out more.
Beambox guide: How to Create an Online Food Delivery Service From Scratch
Sorry, there’s no escaping the paperwork and red tape you’ll encounter while opening a new restaurant.
One of the best investments you can make is in a legal professional to help you navigate these tricky waters. You’ll pay up to $100 per hour for their assistance, but it’s worth it.
They are the beating heart of your operation, and therefore need to be correctly rewarded for their hard work.
Alongside your premise costs, staff will be one of the biggest overheads you have to deal with. But it’s one of the most important investments you’ll make in the success of your restaurant business.
According to Indeed, the average restaurant staff salary as of May 2020 sits at $30,538 per year. But don’t let that put you off. Here are some average starting wages for the key positions you’ll need:
- General manager: $18 per hour
- Bartender: $8 per hour, plus tips
- Cook: $10 per hour
- Hostess/host: $9 per hour
- Server: $8 per hour, plus tips
Recommended read: Tip Pooling in the US: The Law and How to Implement
Picking the right mix of technology for your new restaurant will enable you to provide a great guest experience and maintain a happy, efficient team.
The good news is that you only need some essentials to get started.
Firstly, you need a good, solid POS (point of sale) system. These are readily available at relatively low upfront costs (circa $1,500 per unit), and the software is usually provided as a service for around $50 per month, per unit.
Secondly, you’ll need Chip and Pin terminals that can also accept contactless payments. Expect to pay around $50 - $75 per device and up to 3% per transaction.
Lastly, don’t forget your WiFi system. Find one that offers fast internet access, that’s easy to connect to and which provides you with plenty of marketing opportunities.
Try and find premises that have a ready-made kitchen space. This will save you from falling into the trap of overspending on renovations, and means you can pretty much move straight in.
However, if you need to buy or lease equipment, budget around $50,000 for a small-scale setup. Just be careful to keep an eye on maintenance fees, because these can quickly add up and eat dangerously into your profit margins.
Franchising is a great way to jump straight into the restaurant industry and lean on the brand power of a much larger organisation.
As you’d guess, this does come at a cost - and quite a big one.
For instance, the estimated initial franchise investment range for a Taco Bell outlet sits between $525,525 - $2,851,775. You’ll also need liquid assets and have a relatively high net worth if you want to get going quickly.
This works for some new, well-funded restaurateurs, but don’t be put off by the big numbers if that isn’t you. There might be smaller franchisee opportunities in your area, so have a sniff around.
As we noted from the outset, it really isn’t a good idea to go all-out with your marketing when you first get going.
That might sound counterintuitive (you need to make a noise, right?), but you can do a lot these days with a minimal investment in marketing.
Start by budgeting around $2,000 for a professionally designed, simple website and shop around for an online booking option (don’t opt for the most expensive and widely used to begin with - it’s not necessarily a ticket to loads of initial diners).
For strategies like Google Ads and social media advertising, allocate around 3% of your revenue to ongoing marketing spend.
Recommended read: Break-Even Point Analysis: The What, Why and How
Licenses and permits
As you’ve probably already discovered, there are a number of license and permits you’ll need for your new restaurant venture.
It’s important to remember these often vary by state, location and the type of operation you’re running (in terms of size and products and services provided).
Here are some of the most common:
- Food service license: a relatively simple application that will cost you up to $1,000 but might be as little as $100
- Liquor license: if you want to serve alcohol, you’ll need one of these. Expect to pay between $3,000 to £12,000 depending on your state.
- Sign permit: easily forgotten, but essential if you want to let people know that you actually exist. It shouldn’t cost you much more than $50.
- Food handler permit: this demonstrates that you meet the minimum regulations for handling food and shouldn’t cost any more than $500.
- EIN (Employee Identification Number): these are free from the IRS and required for you to file taxes.
Remember to check with your state’s rules to find out exactly which permits you’ll need to open.
Final thought: your salary
But, what about you? As the owner, you need to make a buck and keep paying your own mortgage, right?
Depending on your financial position going into the new venture, you might need to be conservative with your own wage. That means paying yourself a base wage that enables you to pay the bills and keep food on the table, and raising it as the restaurant becomes more successful.
Average restaurant owner salaries fall somewhere between $48,000 to $60,000 per year.
We hope our guide has given you all the information and inspiration you need to get cracking. It’s an exciting journey you’ve got ahead!