Do you want to start a restaurant business and you want to know the cost breakdown? If YES, here are 15 factors that determine the cost to open a restaurant.
One good thing about the restaurant business is that an owner has the sole right to determine the price they want to sell their menu irrespective of what others around them are offering – especially if they are good with the delicacies they whip up.
If you are looking towards opening a restaurant in the United States of America, it is important to point out that there are several factors that can determine the actual cost of launching this type of business. The truth is that some of the factors may not apply to you, because the business model and of course the kind of business a person wants to build would also affect the overall cost of the business.
These factors are unique to each individual and this article may not cover such. Having said that, here are some of the factors that will influence the cost of opening a restaurant in the United States of America;
Estimated Cost Breakdown for Starting a Restaurant
These are the key expenses you are expected to make when starting a medium scale but standard restaurant business in the United States of America;
- The total fee for registering the business in the United States of America – $750.
- Legal expenses for obtaining licenses and permits (Health department license and business license)and permits (Fire department permit, Commercial Kitchen permit, Air and water pollution control permit, Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
- Marketing promotion expenses for the grand opening of the restaurant in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
- The cost for hiring business consultant (including writing business plan) – $2,500.
- The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – ,400.
- The cost for leasing a standard facility in a good and centralized location – $200,000.
- The cost for remodeling the facility and construction of a commercial kitchen – $100,000.
- Other start-up expenses including stationery ($500), phone and utility (gas, sewer, water and electric) deposits ($6,500).
- The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $60,000.
- The cost for start-up inventory, restaurant furniture and gadgets (Tableware, Utensils, Dishes, Bar and Kitchen equipment, Fridges, TVs, microwave oven, Sound System, Tables and Chairs, Work Tables, Sinks, Slicers, Scales, Ingredient Bins, Filing Cabinets, Noticeboard and Staff Uniform et al) – $100,000.
- The Cost for supply of raw food, ingredients, drinks and beverages for a month – $5,000.
- The cost for store equipment (cash register, security, ventilation, signage) – $13,750.
- The cost of purchase and installation of CCTVs – $5,000.
- The cost for building and hosting a website – $600.
- The cost for opening party – $8,000.
- Miscellaneous – $5,000.
You will need an estimate of seven hundred and fifty thousand dollars ($750,000) to successfully set up a medium scale but standard restaurant business with a government approved kitchen in the United States of America. Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Starting a small scale but standard restaurant business without a commercial kitchen facility within the restaurant facility in the United States of America will cost from fifty thousand dollars to one hundred and fifty thousand dollars ($50,000 to $150,000). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
When it comes to starting a standard and large scale restaurant business with several outlets in key cities in the United States of America, a restaurant business with the intention of selling franchise, then you should look towards budgeting well over two million dollars ($2 million). Please note that this amount includes the salaries of all the staff for the first 3 months of operation.
Factors That Determine the Cost of Opening a Restaurant
1. The Type of Restaurant
A major factor that will determine the overall cost of opening a restaurant in the United States of America is the type of restaurant the owner wants to build.
There are different types of restaurants like Ethnic restaurant, Fast food restaurant, Fast casual restaurant, Casual dining restaurant, Premium casual restaurant, Family style restaurant, Fine dining restaurant, Brasserie and bistro restaurant, Buffet and smorgasbord amongst others.
You will quite agree that the cost put into starting a fast food restaurant will be different from the cost of starting a Buffet and smorgasbord restaurant. A restaurant that offers fine dining is expensive, with price range averaging over $50. It is less competitive especially when compared to fast – food restaurants.
2. The Choice of Location
Another major factor that will determine the cost of opening a restaurant in the United States of America is your location.
In business, location is key part of what determines the success of the business. There are business consultants that specialize in helping people choose an ideal location for their business; a location that will guarantee them to profitability.
So, you will now agree that location can influence the cost of starting a business. For example, renting or leasing a facility in a location that is off the city center or off a major road will be less expensive when compared to renting or leasing a facility in a highbrow area; a location along a major road with high vehicular and human traffic.
3. The Required Licenses and Permits
In the United States of America, you cannot open a restaurant without first applying for the mandatory licenses and permits. Of course, you would need food and drinks handling license, building license, zonal permits, and kitchen permits amongst others. These licenses and permits cost money and it will influence the overall cost of opening your restaurant.
Please note that there may be several inspections you must pass before you can be issued your licenses and permits and this will also cost you money. In order to get the overall cost of licensing and permits, we will advise that you reach out to your city government. You also need to consider state and federal requirements.
4. The Type of Facility
The type of facility you want to use for your restaurant business is also a major factor that will determine the overall cost of opening a restaurant business in the United States of America. You have the options of renting a restaurant facility, leasing or designing and constructing your own restaurant facility from the scratch.
With renting and leasing, you may have to spend extra to modify the place to fit into what you have in mind, but there is a limit to how far you can go and it will be dependent on what the landlord of the facility wants.
If you want to construct your restaurant from the scratch, you will buy the land or a property, bring up your design and of course construct and equip the restaurant facility to fit into the picture you have in mind. You will agree that you are going to spend more compared to people that rent or lease a facility.
5. Menu and Service Offerings
Another key factor that will determine the cost of opening and operating a restaurant in the United States of America is the menu and service offerings of the restaurant. The fact that there are different types of restaurants means that these restaurants are designed to serve different menu.
You will agree that a restaurant that serves intercontinental meals and drinks will be more expensive to open than a restaurant that serves fast-food. Aside from the menu, the service offerings of the restaurant also has a way of influencing the cost of opening the restaurant. For example, a restaurant that offers delivery services will have to budget for delivery bikes and vans.
6. Hours of Operation of the Restaurant
In business, the longer your door is open, the higher the cost that you are going to incur especially as it relates to paying for utility and paying the workers. This is because in the United States, people are paid based on the number of hours they put in at work.
For example, the cost of operating a restaurant that runs 24 hours a day and 7 days a week will be far different from the cost of operating a restaurant that only operates 12 hours a day and 6 days in a week.
7. The Cost of Hiring and Paying a Business Consultant and Attorney
If you want to get your business started on the right foundation, it will be a wise decision to hire the services of a competent business consultant and perhaps an attorney. A business consultant will help with drafting a workable business plan for the restaurant, a marketing plan and strategy, comprehensive SWOT analysis for the business, and other things that will help you with opening the business.
So also, an attorney will help you with registering the business, drafting contract documents and offering you all the legal expertise that will help you start the business on the right foundation. You will agree that these services will cost you money and it will indeed influence the overall cost of opening your restaurant.
8. The Cost for Branding, Promotion and Marketing of the Restaurant
The cost for branding, promoting and marketing the restaurant is yet another key factor that will determine the overall cost of opening a restaurant in the United States of America. Trust me, if you need massive results, then you must be willing to pay for effective branding, promotion and marketing of your new restaurant.
It is not cheap to come by an expert in branding, promotion and marketing that will help you compete with brands that are already determining the market direction of the restaurant industry in your city. So, if you add the cost of paying a branding and marketing expert, it will sure increase the cost of opening your restaurant.
9. The Cost for Furnishing and Equipping the Restaurant
Another factor that will determine the cost of opening a restaurant is the cost for furnishing and equipping the restaurant. You will quite agree that aside from the basic things that are found in a restaurant, an entrepreneur may decide to spend more than expected to furnish and equip the restaurant to look unique.
Before you can open a restaurant, you should budget and buy chairs and dining tables, gas cookers, deep fryers, fridge, deep freezer, microwave oven, storage hardware (bins, rack, shelves, food case), counter area equipment (counter top, sink, ice machine, etc.), (Flat Screen TVs, sound system,
DVD players, Pianos, Satellite dish and decoder, furniture (table, stools and sofas), telephones, filing cabinets), store equipment (cash register, security, ventilation, signage), serving utensils (plates, ash trays, glasses, flatware) and fancy lightening amongst others. All these will cost money and it will influence the overall cost of opening your restaurant.
10. The Cost for Insurance
The cost of paying for insurance policy cover is yet another important factor that will determine the overall cost of opening a restaurant in the United States of America. In the United States, you can’t operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from.
Thus, it is imperative to create a budget for insurance policy cover and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your restaurant business.
11. The Cost for Registering the Business
The cost for registering the restaurant is yet another cost that will influence the overall cost of opening a restaurant in the United States of America. Although the cost of registering a business is affordable, it will no doubt add to the overall cost of opening a restaurant in the United States of America.
12. Source of Your Ingredient
Another major factor that will determine the cost of opening a restaurant in the United States of America is the source of your ingredient. The fact that there are different types of restaurant means the ingredients they use in preparing their meals will be different.
For example, a restaurant that serves intercontinental meals, meals whose ingredients are not found in the United States but needs to be imported will need to budget more on ingredients. For instance, if you serve a typical Nigerian meal such as pounded yam, bushmeat and vegetable soup, you would have to import most of the ingredients and that of course will influence the overall cost of opening the restaurant.
13. Cost of Recruiting and Training Your Staff
The fact that you are opening your restaurant as a new business means that you are expected to recruit and train your staff to conform to the kind of restaurant you want to operate. The training will help you sell the corporate culture of your organization to the new employees.
As expected, it will cost you money to hire expect trainers that will help you train and bring your new hires up to speed and that will add to the overall cost of opening the restaurant.
When it comes to starting a standard restaurant business on a large scale, you would need the services of the following professionals;
- Restaurant Manager
- Waiters and Waitresses
- Human Resources and Admin Manager
- Merchandize Manager
- Marketing and Sales Executive
- Security Guard
14. The Cost of Uniforms, Napkins, Table and Chair Covers
Another factor that will determine the overall cost of opening a restaurant in the United States is the cost of uniforms, napkins, table and chair covers amongst others.
Waiters, waitresses, chefs, other kitchen staff, delivery guys and security personnel all have different uniforms and they are expected to put on these uniforms when they are on duty. All these uniforms will cost you money which is why it must be part of your budget if you are looking towards opening a restaurant in the United States of America.
15. The Cost for Grand Opening of the Restaurant
No restaurant opens its door for business without first organizing an opening party to officially launch the business. This means that the cost of your grand opening is part of the factors that will determine the overall cost of opening a restaurant in the United States of America.
You can choose to do a soft opening if you are operating on a low budget or you can choose to go for a grand opening party. The bottom line is that it is a cost that must be part of your budget and this cost will influence the overall cost of opening the restaurant.
How Much Does It Cost to Buy a Restaurant Franchise?
In the United States of America, the Average Cost of Purchasing a Restaurant Franchise is $150,000. Examples of 3 Well – Known Restaurant Franchising Companies in the United States of America are;
- Little Greek Restaurant
- Quaker Steak & Lube
- Buffalo Wild Wings
Can a Restaurant Business be Bootstrapped on a Lean Budget from Home?
If you a looking for a small scale business that you can successfully bootstrap on a lean budget right from your home, then you should not consider starting a restaurant business. Because of the nature in terms of size and cost of the kitchen equipment involved in starting and operating a restaurant business, it is obvious that it cannot be bootstrapped on a lean budget from home.
As a matter of fact, the business is open to the general public and you would not want complete strangers to continue to storm your house on a regular basis and at different times of the day simply because you want to them to patronize the meals and drinks you sell in your restaurant. Besides, you can hardly get government approval to make use of your home for a restaurant business.
Financing Your Restaurant Business
It is often said that money is the blood of any business. No doubt raising start – up capital is perhaps one of the major concerns for entrepreneurs; it can be challenging raising capital to launch a business idea. Your idea must be workable and promising for you to secure finance from financial institutions or from investors.
The first thing to put in place before sourcing for start – up capital for your business is to draft a detailed business plan. With a good business plan, you can easily convince investors to invest in your business. The truth is that no bank can give you a loan if you don’t have a good and workable business plan.
Besides, investors will not take you seriously if you don’t have a business plan on ground before launching out to source for start – up capital. There are several options when it comes to raising money to finance a start – up business. Some of the options are;
- Raising money from personal savings and sale of personal stocks
- Raising money from investors and business partners
- Applying for loan from bank
- Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
- Sourcing for soft loans from family members and friends.