There are currently more than 1 million restaurants operating in the United States. You might dream of opening up a restaurant yourself one day, eager to show off your incredible cooking skills or your flair for business. Yet you may find the concept of starting your own restaurant to be daunting.
Without a doubt, opening up a restaurant requires a lot of time, energy — and money. Depending on your concept, location, and other factors, you could spend anywhere from $175,500 to $750,500 in startup costs. Understanding each aspect of restaurant opening costs can help you make smart decisions when it comes to your own business plan — so that you can make your dreams a reality.
Common Restaurant Start-Up Costs
Each person will have a different experience when it comes to starting a restaurant. After all, there are some restaurateurs who have been able to bootstrap a restaurant with just $13,000. An entrepreneur who takes over the lease of an existing restaurant will likely have much lower costs than someone who converts a space into a restaurant. However, there are certain expenses that almost everyone will have.
One Time Startup Costs
Kitchen Equipment
Estimated Expenses: $10,000 – $400,000
There are two types of kitchen equipment that you will likely need to buy: appliances and kitchen goods. Unless you take over for an existing restaurant, you will probably need to budget for appliances such as:
- Freezers and refrigerators
- Ranges and ovens
- Ventilation hoods
- Dishwashers
- Slicers
- A stream table
- Mixers
- Food processors
In addition, you will need to buy items that you can use to prepare and cook your food. This may include prep tables, cutting boards, knives, servingware (plates, glasses, utensils), storage containers, food preparation utensils (whisks, mixing spoons, spatulas, etc), pots, pans, sheet pans, and storage racks and shelving.
You will also need to buy safety equipment for your kitchen, such as a first aid kit and medical supplies, along with fire extinguishers and rubber mats. If you are building out a space, then you will also need to purchase sinks appropriate for commercial use. Finally, most restaurants use a kitchen display system where the kitchen staff can see orders as they are entered into the system.
You could pay anywhere from $10,000 to $400,000 to get the equipment you need for your kitchen. It all depends on what equipment your space has when you buy it and where you buy the equipment you will need. To save money on kitchen equipment, you’ll want to look into leasing equipment, buying used equipment, or buying equipment wholesale.
Finishes
Estimated Expenses: $1,000 – $40,000
Beyond kitchen essentials, you will need to budget for both interior and exterior finishes. Interior finishes include furniture, decor, flooring, and even a fresh coat of paint. You will also need a phone system, lighting, a music system, menus, and signs.
If you have control over the outside of your building, you may want to make space in your budget for exterior finishes like lighting, landscaping, and signage. During the COVID-19 pandemic, outdoor seating has become more important than ever, so if you may also want to budget for chairs, tables, patio heaters, and tents. You can expect to pay anywhere from $1,000 to $40,000 in finishes depending on the vision you have for your restaurant.
Basic Opening Expenses
Estimated Expenses: $20,000 – $120,000
Before you unlock your doors for your restaurant’s grand opening, you will need to invest in a number of things to make sure that the opening is a success. This includes things like hiring and training staff, along with uniforms for staff. You should also budget for inventory, such as food, alcohol and non-alcoholic beverages, cups, plates, water pitchers, and any other items that you will need to successfully open your business. You should plan to spend anywhere from $20,000 to $120,000 in opening expenses.
Displays & POS Software
Estimated Expenses: $1,300 – $7,000
As noted above, you will need a kitchen display system to help your kitchen run smoothly. This type of system is typically hooked up with a point of sale system that will not only take orders but will track sales and inventory as well. While these systems can be pricey, spending some money on one can make your restaurant more efficient and ultimately, more profitable. The hardware can cost anywhere from $1,300-$2,000 while the installation can range from $0 to $5,000 depending on the complexity of the installation.
Cash on Hand
Estimated Amount: $20,000 – $250,000
Even if your restaurant does really well from the start, it will still take some time to break even and start making a profit. To provide yourself a cushion, you should set aside some capital. This contingency funding should be at least 6 months of normal operating expenses to account for gradual sales growth. You’ll likely end up setting aside anywhere from $20,000 to $250,000 depending on the amount of operating expenses you anticipate.
Professional Services
Estimated Expenses: $1,000 – $50,000
When you open a restaurant, you could go it alone — but that carries substantial risks. When you invest hundreds of thousands of dollars in a business, it’s smart to pay experts to make sure that you are doing it right. For a typical restaurant start-up, you may retain the services of an attorney, real estate agent, architect, contractor, accountant, and marketing agency. Depending on the number of professionals you involve, you could end up paying somewhere between $1,000 and $50,000 in professional service fees.
Fixed Recurring Costs
Location
Estimated Expenses: $40,000 – $150,000/year
Unless you plan to operate a food truck or a home-based restaurant, you will need a physical space in which to run your restaurant. The location of your business is one of the most important decisions that you will make when planning for your new restaurant. For most people, spending a bit more to get a better location will give you a better return on your investment over time.
A good location is somewhere that has a lot of foot traffic and/or ample parking. While some restaurants have thrived in out of the way locations, most do better when people can find them easily.
There are a number of options that you will confront when choosing a location for your restaurant. You may choose to open in an existing building, take over for another restaurant, or convert a commercial space into a restaurant. Alternatively, you may build something to suit your specific needs.
If you decide to buy your location, you can expect to pay around $178 per square foot. If you lease your location, you will pay around $159 per square foot. Rent and building fees can range from $40,000 to $150,000 annually.
Marketing
Estimated Expenses: $100 – $3,000/month
Unless you are opening a franchise restaurant, you will need to spend some money on marketing – particularly if you are opening in an area where there are a lot of restaurants. You may choose to work with a public relations or digital marketing agency to promote your business across multiple chains and outlets. The specific cost of marketing will be based on your concept, competition, and other factors.
You could end up paying anywhere from $100 to $3,000 in marketing expenses to gain traction for your new restaurant. It’s important to keep in mind that if you decide to work with a marketing or PR agency, you’ll get what you pay for. You obviously don’t want to overspend on marketing, but if the monthly price of marketing services seems too good to believe, it probably is.
Monthly Software Subscriptions
Estimated Expenses: $59 – $250/month
Once your POS system is up and running, you’ll have to pay a monthly subscription fee. On average, POS systems typically cost somewhere between $79 and $150 per month. You may also pay for other software subscriptions like bookkeeping software for accounting or editing software for social media posts and ads.
Licenses, Permits & Insurance
Estimated Expenses: $3,000 – $17,000/year
While certain aspects of restaurant planning — like interior design and picking a menu — are fun, paying basic organizational and development costs are not. Yet it is a necessary part of opening a business. Be sure to budget for things like licenses and permits, and insurance. The cost of a liquor license ranges anywhere from $300 – $14,000 while a food-handling service license can run anywhere from $100 – $1,000. You’ll want to set aside anywhere from $2,500 to $200,000 for these expenses.
Variable Recurring Costs
Prime Cost
Prime cost in the restaurant industry encompasses the cost of all labor, ingredients, and materials used to produce a menu item. The goal with restaurant budgeting is to keep prime costs under 60% of sales. If you can keep your prime costs in the range of 55-60% of sales, then you should be able to run a profitable restaurant.
Utility Costs
Estimated Expenses: $430 – $1,329/month
Utility costs include all essential services required to keep your restaurant running. Utility costs include electricity, gas, water, trash, recycling, and internet. You can expect to pay around $3.75 per square foot annually in utility costs. This amounts to an average of $430 to $1,329 per month based on the average size of most restaurants.
Payment Processing Fees
There are three fees that are typically charged whenever a payment is processed: payment processor fees, card fees, and interchange fees. These fees amount to somewhere between 1.5% and 3.5% of the total transaction.
So How Much Should I Expect to Spend on Opening Up a Restaurant?
Each restaurant is different, and the total amount that you spend for a restaurant start-up may vary significantly from what another entrepreneur spends. Many of the costs associated with opening a restaurant are one-time costs, like purchasing tables and chairs for the dining room, whereas others costs — like mortgage or rent payments and employee wages — are ongoing.
According to a survey conducted by Restaurantowner.com, the average startup cost depends significantly on the size of the restaurant:
- Average annual sales of $550,500/2,000 square feet average: average start-up cost of $175,500
- Average annual sales of $1,125,000/3,070 square feet average : average start-up cost of $375,500
- Average annual sales of $1,880,000/5,000 square feet average: average start-up cost of $750,500
Your costs may also vary based on the type of service that you offer (full, limited, bar, or takeout), whether you are renting a space inside of a building or operating a free-standing building, and whether you are planning on new construction or remodeling an existing space.
The breakdown of these costs will be based on where you are opening your restaurant, as well as other factors, such as the need to purchase kitchen equipment. For example, if you open up a restaurant in Manhattan, your rent will likely be a far bigger portion of your budget. However, if you open up a restaurant in Pittsburgh, your rent or mortgage will probably be much lower — but you may spend more on interior finishes or marketing.
Costs For Specific Types Of Food & Beverage Establishments
Of course, costs are going to vary depending on the type of establishment you plan to open. It typically costs less to open a fast-casual than it does to open a full-service sit down restaurant. You can view our other cost guides for specific types of food and beverage establishments below:
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