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How Much Does It Cost to Start a Small Restaurant

How Much Does It Cost to Start a Small Restaurant? Full Guide

Last Updated on May 18, 2024 by Shari Mason

Understanding all the costs associated with running a restaurant is crucial for creating an effective business strategy.

However, it’s a challenging feat as it requires carefully deliberating factors like labor costs, food and beverage costs, location, rent and building fees, overhead costs, construction costs, etc.

So how much does it cost to start a small restaurant? And what are the contributing elements?

We’ll explain and break down the cost to open a restaurant. Read on.

Average Cost Of Starting a Small Restaurant 

Infographics of a Small Business Costing

The average restaurant startup costs may range from $175,000 to over $700,000. The median cost for a restaurant is approximately $375,500

But, the initial costs or startup expenses for opening a restaurant can vary depending on factors such as location (rent or leased) and renovations.

Also, one-time costs are factored in your restaurant startup costs, including legal fees, service equipment, and restaurant furniture.

Related Articles:

Restaurant Startup Cost Breakdown 

Restaurant Capital & Business Loans

Average Cost: $20,000-$250,000 (or operating costs for six months)

Opening a restaurant doesn’t guarantee immediate success, despite the rebound in restaurant sales in 2021. It takes time and patience to achieve profitability and manage a successful restaurant.

As new restaurant owners, you can seek capital funding to cover the first six months, providing a safety net for unpredictable business outcomes.

“The upfront capital to open up a restaurant is a really important thing to keep your eye on.”

– Doug Jacob, Part Owner of Toro Restaurant Group in NY

We suggest initially developing a business plan for gradual sales growth as your customer base develops.

Permits & Licenses

Infographics of a Restaurants Permits & Licenses

Average Cost: $50-$14,000

Business License

To operate a business, it’s necessary to undergo registration with both your state and local government. A restaurant business license typically costs around $50-$250, although fees can vary and may be higher in certain municipalities.

Incorporation Fees

The cost of incorporating fees varies, ranging from $50 to $300, contingent upon the state and whether professional legal assistance is required.

Liquor License

Liquor license fees vary per state. But generally, this is a costly license ranging from $3,000 to $14,000.

Food Service License

The expenses associated with food service licenses range from $100-$1,000, depending on the location of your restaurant space.

Commercial Space (Location)

Average Cost: from $2,000-$1M

Leased

The average restaurant rent is around $2,000-$12,000 monthly. In the case of leasing, a substantial lease security deposit is typically required. There may be recurring costs, too, for rent and building fees.

Bought

If you plan to buy a commercial space, the price ranges from $100,000-$1M, depending on the square foot. When purchasing, it’s customary to provide a 10% down payment.

But how do you start a food delivery service?

Build-Out & Renovations

Restaurants Costing of Build-Out & Renovations

Expected Costs: a few thousand dollars to $100,000

Elements such as layout, HVAC, plumbing, and electrical systems play crucial roles in new restaurant setups. In this intricate process, hiring an expert plumber can be a game-changer, ensuring that your restaurant’s plumbing needs are met with the highest standards of efficiency and quality.

When starting a small restaurant in a space previously owned by other small businesses, minimal modifications might be necessary.

“Building a restaurant is like orchestrating a symphony of elements – from layout to HVAC, plumbing to electrical systems – each playing a crucial note in creating a harmonious dining experience.”

Eat Pallet Restaurant & Food Advice

Conversely, transforming an old concept into a restaurant entails significantly higher expenses for the build-out process and renovations, including labor costs.

Design

Average Cost: around $1,000-$40,000

Interior

Crafting a pleasant atmosphere through exceptional interior design leaves a lasting impression on customers.

While take-out and lunch counter restaurants often have minimal interior decor, it’s customary to allocate $120 to $300 per square foot for restaurant decoration.

Exterior

A basic outdoor sign, including local permits, can cost approximately $5,000. However, if you desire a more elaborate exterior setup with features like high-end aesthetics and outdoor seating, expect more expensive startup costs.

Read: Requirements For A Commercial Kitchen At Home

Equipment 

Average Costs: starts at $20,000 or more

Brand New

Installing brand-new restaurant equipment may range from $20,000 to $115,000, depending on much products you need and the size of your business.

Used

You can lower startup costs by opting for used kitchen equipment and cooking equipment. It’s 10%-40% less priced than new kitchen equipment.

Leased

If leasing, expect to pay around $1,000-$5,000 monthly.

Decors & Furniture

Infographics of a Decors & Furniture Costing

Average Cost: around $40,000

Putting tables and chairs in your restaurant can be surprisingly costly. Furnishing the dining room alone can amount to $40,000.

Due to the high expense of outfitting a small restaurant, many establishments in the restaurant industry opt to offer take-out services exclusively to save money.

Insurance

Average Cost: approx. $700-$1,500 yearly

Modern restaurants opt to apply for insurance for long-term business protection. For small business owners, we suggest considering the following insurance:

Workers’ Compensation Insurance

This insurance typically costs approximately $1,500, covering injuries of restaurant employees.

General Liability Insurance

This insurance costs around $800 yearly, beneficial in case of injuries or illnesses.

Business Property Insurance

This insurance starts at around $700 annually for fires and other natural disasters.

Professional Services

Initial Cost: around $100-$2,000

Obtaining professional assistance is crucial to operating your own restaurant. This fees also add up to how much does it cost to open a small restaurant.

Accountant

Ensure your payroll taxes are paid, and the books are clean. Hiring an accountant adds to your restaurant startup costs, priced at around $100-$400 monthly.

Lawyer

Obtaining reliable legal counsel is crucial when embarking on a new restaurant venture, and it comes at a cost. Expect to pay around $5000-$2,000 per consultation.

Restaurant Management Software

Infographic of a Restaurant Management Software

Approximate Cost: from $200-$5,000

Employee Scheduling Software

If you’re a new restaurant owner relying on numerous part-time employees, efficient scheduling becomes essential. Using reliable employee scheduling software, like R4M, may cost around $10 monthly.

Point-of-Sale (POS System)

Make use of technology using a POS system, making tracking orders, inventory, and payments efficiently handled. Set costs around $1,500-$5,000, installation is $200-$500, and monthly payment is around $6-$400.

Employees & Trainings

Average Costs: around $100-$500 or more

In certain states, restaurant employees are required to obtain a food handler’s permit, involving completing a self-directed course, passing an exam, and paying the applicable permit fee. The cost starts at $100.

“Investing in the knowledge and skills of our restaurant team is not just a cost, but an essential ingredient for success – like seasoning a dish with care, training ensures a flavorful and satisfying experience for both employees and customers alike.”

Eat Pallet Restaurant & Food Advice

Additionally, to ensure competent job performance, you must provide several hours to a few days of training on the POS system [1], menu, and other aspects of the business to your employees.

Training costs vary significantly based on the number of employees and their experience.

Read: 2023 Trends In The Food Beverage Industry

Marketing/Advertisements

Average Cost: 3%-6% of sales

Website

A website is crucial for any legitimate business, including a small model. The available options span from free, do-it-yourself websites to elaborate ones that may require hiring assistance at a high cost.

Traditional Media

Your marketing costs may surge if you opt to implement traditional media strategies.

While digital marketing is prevalent, traditional forms of marketing, like flyers and radio commercials, remain effective in establishing your presence.

Social Media

Social media helps expand your new restaurant’s customer base. While creating a Facebook page or Instagram account independently is possible, hiring assistance can simplify the process.

Initial Food Inventory

Infographic of Initial Food Inventory

Estimated Cost: from $5,000-$25,000

Before opening a restaurant, ensure an ample supply of food and inventory. This prevents shortages and enables your staff to provide efficient service.

The food cost and beverage costs vary significantly based on the types of dishes and drinks your offer. Take note – all the costs covering this is expected to fluctuate from month to month.

Pre-Operating Expenses

Average Cost: from $20,000-$120,000

To ensure a smooth and successful grand opening for your restaurant business, invest in pre-operating expenses, such as a comprehensive training program for your staff.

Also, stocking your inventory, including freezers and back-of-house supplies, is essential. This inventory includes food, plates, cups, drinks, and other elements necessary for an excellent customer service.

The costs associated with these items may vary depending on factors like guest capacity and other considerations.

FAQs

u003cstrongu003eIs it hard to run a small restaurant?u003c/strongu003e

Yes. It’s hard to run a small restaurant. It requires dedication, careful planning, and effective management skills.

u003cstrongu003eCan you make money owning a small restaurant?u003c/strongu003e

Yes. You can make money owning a small restaurant. But it depends on factors like effective business strategies, target market demand, cost management, quality offerings, and building a loyal customer base.

u003cstrongu003eHow much does an average small restaurant make in a day?u003c/strongu003e

Small restaurants can make around $1,350 per day. However, the daily revenue of a small restaurant can vary significantly depending on multiple factors such as location, business model, target market [u003ca href=u0022https://www.investopedia.com/terms/t/target-market.aspu0022 target=u0022_blanku0022 rel=u0022noreferrer noopeneru0022u003e2u003c/au003e], pricing, and operational efficiency.

u003cstrongu003eWhich type of restaurant is most profitable?u003c/strongu003e

The most profitable type of restaurant is quick-service restaurants [u003ca href=u0022https://www.fortunebusinessinsights.com/quick-service-restaurants-market-103236u0022 target=u0022_blanku0022 rel=u0022noreferrer noopeneru0022u003e3u003c/au003e], like fast-food chains. This type has a large customer base with reduced restaurant costs (overhead). u003cbru003eu003cbru003eBesides, these establishments generally enjoy moderate profit margins and attract a wide customer base due to their relaxed atmosphere and affordable food costs.

u003cstrongu003eHow much should I invest in a small restaurant?u003c/strongu003e

You can invest around $375,500 in a small restaurant. But this may vary depending on various factors like concept, location (how many square foot), services, payroll costs, labor cost, etc. You can apply for a small business loan to fund your venture.

u003cstrongu003eAre restaurants a risky investment?u003c/strongu003e

Yes, a restaurant is a risky investment [u003ca href=u0022https://money.usnews.com/investing/articles/2016-06-29/6-facts-to-know-before-investing-in-a-restaurantu0022 target=u0022_blanku0022 rel=u0022noreferrer noopeneru0022u003e4u003c/au003e] due to the competitive nature of this industry, changing consumer preferences, operational challenges, and market fluctuations.

Final Say

So, how much does it cost to start a small restaurant? The startup cost to open a small restaurant is substantial, with a realistic minimum investment of at least $175,000.

Also, allocating additional funds to cover expenses is crucial as your business expands.

Armed with this knowledge, you can effectively manage your finances by prioritizing essential areas while minimizing expenditure on non-essential aspects.

Being aware of these expectations equips you better for the entrepreneurial journey that lies ahead.

References:

  1. https://www.softwareadvice.com/resources/what-is-a-point-of-sale-system/
  2. https://www.investopedia.com/terms/t/target-market.asp
  3. https://www.fortunebusinessinsights.com/quick-service-restaurants-market-103236
  4. https://money.usnews.com/investing/articles/2016-06-29/6-facts-to-know-before-investing-in-a-restaurant
Shari Mason

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