How Much Does it Cost to Open a Restaurant Business [Updated 2022]

The business of a restaurant is full of opportunities for success. There are many valid ways to start a restaurant and many that are not.

However, there is no true overnight success in the restaurant industry. It takes time, hard work, dedication, and experience.

Starting a restaurant is not easy and it takes patience and perseverance.

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For those who have a passion for the hungry masses and want to share their love of food with the world, it can be one of the best professions out there.

As you begin your search for an idea for a new business venture, keep in mind that restaurants are everywhere. You don’t need to be in an urban area to get started as a restaurateur.

If you have an idea that you think will work well in your hometown or even in another nearby city.

Running a restaurant is more than just serving good food. It’s about being creative, managing finances, and being able to multitask.

While it may be hard work, it can also be very rewarding if you love what you do.

Why do Many Restaurants Fail?

Why do so many restaurants fail? The reasons are myriad. Some are due to mismanagement or a lack of experience on the part of the owners — for example, not having enough cash in reserve to weather a few slow months.

But other causes are more complex. Research shows that customer traffic is one key factor in restaurant success (or failure).

One report found that a 1 per cent increase in traffic leads to a 0.25 per cent jump in revenue, while a 1 per cent decline in traffic results in a 3.42 per cent drop in revenue.

Lack of planning, Any successful business starts with a solid plan.

Whether it’s an actual written document or just a list of ideas scribbled on the back of an envelope, you need to have some goals in mind before you start your restaurant business.

And do your research! Make sure there’s a market for your concept in that location and that you have the proper funding before moving forward.

Your restaurant won’t succeed if it doesn’t get off the ground in the first place!

Bad location, Location, location, location! This holds true for any retail business, but it’s especially important for restaurants because they rely so heavily on foot traffic and word-of-mouth advertising.

So make sure you choose wisely when selecting a location for your new restaurant.

How Much Does it Cost to Open a Restaurant Business?

Before you can open your restaurant, you will need to have enough capital to cover the costs that go into starting a restaurant business.

In addition to the money to pay for commercial kitchen space and the equipment needed to run the kitchen, you will also need money for other start-up costs like:

  • Legal fees, Licenses, and permits
  • Architectural services building modifications
  • Utility deposits
  • Insurance premiums
  • Marketing and advertising expenses
  • Supplies and uniforms for employees
  • Dishes, glassware, and silverware
  • Smallwares like utensils, pots and pans, knives, etc.
  • Dining room furniture
  • A cash register or POS system
  • A liquor license if you plan on selling alcohol

Starting a restaurant can be a risky business, as over 60 per cent of them fail within the first year. A significant part of your restaurant’s success may depend on how much you have in start-up capital.

The cost of opening a restaurant varies based on the type of food you serve and the size of the establishment.

The average cost to open a full-service restaurant with table service is $425,000, while fast-food restaurants’ average opening costs of $350,000.

While lower costs don’t necessarily mean better odds for success, restaurants that tried to cut corners often had trouble staying afloat.

In fact, many experts recommend having between $250,000 and $500,000 in start-up capital to make sure you can cover all the expenses associated with starting your restaurant until it becomes profitable.

List of Things to do Before Opening a Restaurant

Decide the Concept of your Restaurant

The concept of your restaurant is what will define your brand.

Whether it’s a fine dining restaurant, a fast-food chain, or a casual dining place, the concept will define everything about your business from location to menu, to service style and interior design.

Don’t waste time and resources investing in a concept that doesn’t appeal to you.

Take the time to research different options and think about which one fits best with your experience, skills, and interests.

Study Your Competition

Find out who you’ll be up against as far as competition in your area.

Take note of restaurants with similar concepts and see what they’re doing right, and wrong.

This will help you when deciding on a concept for your restaurant because it’ll give you an idea about what works in your area and what doesn’t.

It will also help you when it comes time to market your business because then you can differentiate yourself from the other restaurants in terms of service, experience, product offering or price point.

Write a Restaurant Business Plan

A restaurant business plan is an essential tool that provides structure and guidance to your restaurant’s dreams.

But just like every other business, starting a successful restaurant can be challenging.

Before opening your doors, there are lots to do including writing a business plan and deciding on your unique selling position.

Your restaurant business plan should include:

An executive summary: This is where you’ll summarize the rest of your restaurant business plan, including key details about your concept, market analysis, location, menu and more.

Market analysis: Here’s where you’ll define your target audience and determine who else is competing with your concept in the market.

Concept and development: This section will cover the details of your concept, as well as how you plan to develop it.

You’ll also outline what your restaurant will specialize in and its general atmosphere (luxurious dining or a casual bistro, for example).

Management and personnel: Who are the key players in your company?

Your management team doesn’t have to be large or all-encompassing, but you should include the relevant players (including yourself) who will make it work.

Marketing strategy: How do you plan to spread the word about your restaurant? This section will detail your marketing strategy, cost breakdown and sales forecast.

Choose you Location

The other important thing you will need to do is find a location for your restaurant.

If you have the opportunity to choose, select a location that has high visibility and ample parking.

You can save thousands of dollars every year if you can purchase a location rather than lease it.

If you can’t afford to purchase, seek out a business that has failed in the same location.

Often, these places will be willing to make improvements if they think they can keep the business going.

You should also look for locations that have access to the highway or main thoroughfares into and out of the city.

Restaurants often fail because people don’t know where to find them.

Creating a Steller Menu

Create a menu that will appeal to your target audience. People are creatures of habit and rarely like to stray far from what they know.

If you want to attract older people with money, classic dishes may be the way to go.

On the other hand, if you are going for a younger, more outgoing crowd, you may want to offer some more exotic dishes.

The menu should not be too large. Restaurants with 20-page menus typically have poor quality food because it is difficult to prepare so many items well.

Pick your top 10 dishes and make them the best version of themselves possible.

The menu should also not be too small. A small menu can make customers feel constrained and unsatisfied with their options.

The key is balance; create a menu that is large enough to offer variety while remaining small enough to ensure the quality of each dish.

When creating your menu, use descriptive language in order to entice the clientele.

For example, instead of just writing “Salad,” try “Hearty Grilled Chicken Salad.”

This will let your customers know exactly what they are getting and make them more likely to buy it because it sounds delicious!

Restaurant Permits and Licenses

Obtain your restaurant permits and licenses. You’ll need to contact your local health department and get a food permit.

You will also need to check with the city licensing office to find out what other permits you’ll need to operate a business in that city.

Check with the zoning office to make sure that your location is zoned for commercial use.

If it isn’t already, you’ll have to apply for a variance. A variance is a permission from the city council to use a space commercially.

Most cities only allow commercial use in certain areas of town and if your space isn’t one of them, you’ll need a variance.

Also, be sure you are aware of any fire code changes or zoning restrictions on building construction projects because they can affect your restaurant design plans.

Also, local government agencies often require that you obtain approval before installing equipment such as ventilation systems, hoods, and fire suppression systems (in some areas these are all covered under one permit).

Restaurant permits and licenses vary from state to state but usually include a number of different documents — from zoning information to health and safety requirements.

Additionally, some states require owners to obtain additional permits from other agencies (such as fire departments) before opening up shop.

Design Your Layout and Space

At first, glance, creating a restaurant floor plan might seem like an overwhelming task. You need to consider the flow of customers and staff, walk-in refrigerators, tables and seating arrangements, storage areas, restrooms, and much more.

But with patience, planning, and a little help from the restaurant floor plan template, you’ll have your restaurant layout designed and ready in no time.

Before you start designing your layout and space, you’ll need to know the local building codes.

These regulations vary by region but may include fire code requirements for exits and emergency lighting; electrical codes for wiring; plumbing codes for sinks, dishwashers, and restroom facilities; signage requirements; and health codes specifying food prep surfaces or proper ventilation systems.

Your local business code office can give you more details about the requirements in your area.

Get the Right Equipment In Place

Having the right equipment can make all the difference in running a successful restaurant.

Think about it: if your oven isn’t working, you can’t serve your customer’s warm food. If your grill isn’t working, you can’t cook your burgers.

If you don’t have enough plates, you can’t serve anyone.

And that’s why it’s so important to have the right equipment for your restaurant.

The right equipment will help you do everything from saving money on food costs to improving the quality of your food and even serving customers faster.

Hire the Right Employees

For restaurant owners, finding and hiring the right people to work in your place of business can be a challenge.

The job market is tight, which means there are fewer qualified applicants to choose from.

Applicants are often overqualified or under-experienced.

And many applicants lack basic skills such as proper grammar or a good attitude toward customer service.

On top of that, many restaurants struggle with employee retention, since employees may move on quickly once they gain experience in the industry.

Advertise Your Restaurant

The restaurant business is a tough one to run. It’s competitive, expensive and labour intensive. But if you’re in it for the long haul, you can’t ignore advertising.

The best advertising strategy for your restaurant depends on its size, location and what you want out of it.

You might want to bring in more customers or increase the average amount per check or entice people to come back more often — or all of the above.

If you’re looking for ideas, here are some tried-and-true (and some unique) ways to promote a restaurant:

Get to know your local media. Take the time to find out who covers food in your area. Call them up, introduce yourself and invite them to check out your restaurant.

Offer to host a tasting or even a simple media tour where you can show off what makes your business special.

Make friends with bloggers: There are lots of food bloggers out there who can help spread the word about new restaurants in exchange for free food and drink.

Find bloggers who write about restaurants in your area and invite them for a visit.

If you build relationships with these writers and treat them well, you’ll be more likely to get positive reviews when they do come in.

Signage: A sign that communicates the restaurant’s name is a must — but there are other options too.

A sign out front is great for attracting the attention of people walking or driving by, especially if it includes your hours and contact information.

You can also put up signs inside your shop to help guide customers through their experience.

Promo items: You can give away promotional merchandise like hats and t-shirts with your logo on them — this approach is great if your restaurant has a unique name that people are likely to remember.

Other promotional items include magnets, mugs and pens.

Get social. Start a Facebook page, Twitter account, and Instagram profile for your restaurant. Post regularly about specials and promotions.

If you’re low on time, use social media management tools like Hootsuite or Sprout Social to schedule posts in advance.

Find Reliable Vendors and Suppliers for your Restaurant

Restaurant vendors are businesses that provide supplies or services that your food business needs to run smoothly.

Supplies will include anything from produce and beverages to paper napkins and serving equipment, while services might include pest control, accounting or IT support.

Finding reliable vendors and suppliers is crucial to running a successful restaurant.

The right vendor will deliver consistent quality at competitive prices, which means that you’ll be able to keep your customers happy and make a profit.

Poorly-sourced ingredients will either break your budget or break your reputation and if you can’t trust your vendors to deliver what they promise, you’ll end up losing out on a lot of money.

But finding the right restaurant vendors and suppliers isn’t easy.

It takes time, research, and a lot of trial and error to find people who are knowledgeable about the industry and responsive to your needs.

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