This is one of the most frequently asked questions in starting a restaurant, and one that people often get wrong by seriously underestimating the actual answer.
That may not be a problem, if there is plenty of cash in reserve and sales pick up quickly, or it may be a devastating problem if there was very little reserve, the estimate was way off, or sales are much slower than expected in taking off.
Because many restaurant entrepreneurs have no real experience in these matters, it may seem like a difficult job to accurately estimate the cost to start a restaurant. It doesn’t have to be. Using good financial projection software, designed specifically for a restaurant can give you the exact cost answers you are looking for when presenting your plan to a bank or investors.
Here are the main cost considerations for startup costs when starting a new restaurant:
Lease
This includes not only the monthly payments, from the time of taking the keys, but also a deposit that may be required, which could run anywhere from a few hundred dollars to several months worth of payments.
Leasehold Improvement
Once you have the space, you may need to make changes to the interior, including adding or removing walls, rewiring, replumbing, adding finishes, lighting, shelving, fixtures, etc. to make the space into your actual business.
Beginning Inventory
This is includes all the food, beverages and liquor you will have on hand to be ready on your opening day. Depending on the terms you can get with yourvendors, you may be able to finance some or all of this cost. Being a new restaurant, however, getting good terms right from the start will be more difficult and depend on your good credit and business experience and to some extent your industry knowledge and contacts.
Printing
Virtually every restaurant requires some printing. This may be as little as business cards and menus, or it may be much more.
Restaurant Equipment
You will need to buy or lease the necessary equipment to operate it. Don’t forget the small things, like fax machines, phone systems, computers, desk chairs, filing cabinets, etc. which every restaurant needs, and although no one thing costs a lot, the collection will add up.
Utilities and Deposits
You will need to turn on the electricity, phone and any other services you need to operate. Some of these will require a deposit or hook up fee, or both, that will make the first payments double or more of the typical payment you can expect.
Permits/Licenses/Taxes
While not usually an excessive amount, you will need to budget some money to cover your business license, health permit and any other permits or taxes you will be required to pay. Some states require a deposit for your sales taxes. If you incorporate or form an LLC, there will likely be fees and taxes associated with the registration.
Professional Services
If you use a lawyer, accountant or other professional services in starting up, there will be expenses associated with these services. Most restaurants can avoid these, unless there is a complicated investor relationship or partnership agreement needed.
Your Staff
You may start your business alone or with only partners, but if you need more help then you will have the cost of employees. You will also have the added expense of payroll taxes, social security, etc. which adds an additional $.20 or more cents to every dollar of payroll cost.
Marketing/Advertising
You will be spending money on whatever kind of advertising you do for your new restaurant. You might buy yellow pages ads, do a mailing, put up a website, buy a sign for the front of your building, or even do radio spots, trade journal ads or any of a variety of other options. Most of these expenses will come up before the advertising actually takes place, which means they can’t be funded from the revenue they produce.
Insurance
There are several types you will need, depending on the size of your business. Generally you can pay in installments, which helps lower the cost.
Other Costs
All restaurants have extra costs that come up. By planning your restaurant carefully you will be able to accurately estimate how much they will cost when you get started.
The only mistake you can make is not planning at all, because then you will certainly get it wrong and that almost always means coming up short on cash and having to close the doors on what might have otherwise been a very successful restaurant.
