How Much Capital Is Needed To Start A Restaurant

By Rajib Hasan -- Sunday, 11 Feb, 2024
how much money needed to start a restaurant

If you would like to become a successful business owner, you need to understand restaurant start-up costs. Many restaurant owners spend huge money on their start-up. But they don’t see the success. It is the major cause of replacing their aim from the restaurant business. In that case, a specific budget and road map are required to start a restaurant. But how much money needed to start a restaurant?

It relies on several factors: restaurant types, locations, restaurant space, choice of furniture, restaurant equipment, interior furnishing, and others. You may pay around $275,000 to open a restaurant in a building you are leasing or renting. 

That cost can skyrocket to $425,000 if you own the building. Yes, that’s a lot of money but it can take you pretty far. However, let’s deep into how to budget a restaurant to see the restaurant business success and reach a bright destination.

How Much Capital Is Needed To Start A Restaurant?

how much capital is needed to start a restaurant

The restaurant business varies from market to market. So, are you tired of getting a specific idea of how much would it cost to open a restaurant? I have been told before that restaurant start-up cost depends on a few factors. In the USA restaurants start-up cost starts from $95,000 to $2 million depending on the above factors. 

The average charge ranges $275,000 to $750,000. However, the cost breakdown for starting a restaurant business may fluctuate from time to time. We can divide two main types of restaurant start-up costs: fixed charge and variable charge.

1. Fixed Charge

Fixed charge does not change and remains the same. If the restaurant's earning volume is ups and downs, open and closed then the cost exists. Those expenses in a restaurant are constant and do not change anymore such cost is called fixed charges. 

If you think about how much money do you need to start a restaurant? In that case, a restaurant owner must consider fixed charges and emphasize that. However, fixed cost is included in a few fields in the restaurant business. Take a look at a glance.

  • Restaurant space leasing cost.
  • Monthly utility expenses such as electricity, water, gas, internet, and other necessary things.
  • Salaries and wages for employees and restaurant managers.
  • Equipment cost for kitchen, restaurant management system (POS systems), and others.
  • Administrative costs like office supplies, accounting software, legal fees, and other activities.
  • Property tax is included with a fixed charge because property tax can never be changed without government permission.
  • License costs, such as business licenses, health insurance, and food licenses are considered fixed costs.

2. Variable Charge

Those costs vary from time to time with business conditions such cost is considered as variable charge. Restaurant variable cost fluctuates depending on the sales and restaurant business activity. So, let’s see what activities are included in the variable charge.

  • Restaurant food, ingredients, and raw materials cost.
  • Supplies operating costs, such as napkins, dishwasher, cleaning power, and other day-to-day operating costs.
  • Market and advertising costs that will be required to market and promote your business.

However, I have referred to major cost methods fixed and variable. Now, decide your restaurant business budget. I am going to share here an average restaurant startup cost breakdown considering variable and fixed charges. This restaurant investment may be higher or lower depending on some crucial factors, ingredients price, design, staff cost, utility expenses, software, marketing purposes, and others.

If you open any restaurant: food truck business, fine dining, virtual kitchen, and others, then you have to think about these two costs. So, take a look at some common factors that include restaurant start-up costs.

3. Monthly Restaurant Rent

Most of the restaurant owners rent a location where they build their restaurant business. But how much does it cost to rent out a restaurant? In the USA, restaurant rent ranges from $3,000 to $8,750 per month. The average restaurant expenses per month rent is $6,914. 

It is noted that this amount can be changed according to locations, restaurant space, and popularity of the place. The USA is a developed and business country. That’s why rent is expensive. However, the average restaurant expenses per month will be different in different countries.

4. Utility Expenses

Utility bill includes electricity and gas bill. If you use an IPS or diesel generator for a standby then it will also be included in the utility expenses. In that case, you have to pay more. It means how much demand you have, and how much you consume. In the USA restaurant owners pay at least $2.90 electricity bill and $0.85 gas bill per year/ per square foot. This amount may be different if the government increases utility bills.   

5. Equipment and Furnishers

In the USA, the restaurant equipment and furniture cost relies on the quality of the equipment and furnishers, restaurant space, etc. It depends on the restaurant owner's interest in how quality equipment they will choose for their restaurants. 

However, an average restaurant owner requires $40,000 to $200,000 for Kitchen equipment and $20,000 to $100,000 for restaurant Furniture. This amount can be changed due to price hikes and current market demand.

6. Decoration Cost

There are more than one million restaurants in 50 states in the United States of America. Millions of people from different countries live in the USA. That’s why the restaurant's popularity is higher. Concerning this popularity it has been an expensive country in the world. However, restaurant decoration is required for modern civilized people. In that case, the restaurant owner must keep a budget for decorating.

For that reason, restaurant fit-out contractors are required to decorate the restaurant according to the restaurant owner's opinion. So, how much does it cost to design and decorate? It’s around $120 to $300 per square foot. But this amount can be more or lower depending on the location and the restaurant owner's look and feel.

7. Restaurant Staff Costs

Restaurant staff costs rely on the type of restaurant, amount of sales, hourly wages, location, etc. Indeed, restaurant staff cost is counted as the percentage. In the United States, most restaurants aim to keep their staff costs below 30%. 

It means if a restaurant earns $100, then a restaurant owner spends $30 for restaurant staff wages, payroll taxes, and benefits. There is a formula to calculate restaurant staff cost: Total annual labor cost = gross wage + other annual costs. Most restaurants follow this rule for employee salary and wages.

8. Restaurant Food Costs

Restaurant food cost is another crucial thing. In that case, the restaurant owner or restaurant manager must be conscious of food waste management and purchasing ingredients. At the beginning stage keep focus on purchasing ingredients, not buying more than the estimation. 

Because a low amount of customers arrive at the new restaurant. So, you must know about the FIFO method to decorate restaurant shelves and must separate perishable products to avoid food damage.

Preparing more food compared to the recently arriving customer may increase food costs or food waste costs. There is a food cost calculation formula that relates how much you spend to purchase food items or inventory ingredients: Food Cost Percentage = (Cost of Goods Sold/Revenue) * 100.

However, in the USA the average food cost ratio is around 25% to 40%. It means if a restaurant makes $10,000 per week the food cost percentage is about 35%. In that case, calculate your weekly food cost: restaurant earnings per week = $10,000 and the food cost ratio is 35%

= $10,000 * 0.35

= $3500

So, your weekly food cost is $3500 according to your weekly earnings. So, find your restaurant food cost using this magical math. So avoid or minimize food costs at the beginning of your restaurant. 

9. Technology Expenses

Technology is a touch to digitize your restaurant business. Technology makes a restaurant business more reliable, advanced than other non-digitized restaurants. It gives you a key in your hand to manage all the things in a systematic way. To make a restaurant modern and updated use restaurant management software (POS software). There are thousands of restaurant management software providers.

They have different pricing and subscription processes (monthly or yearly). For this software, you have to spend a charge. How much does it cost? The best way is to visit some renowned software providers: Clover, Restora POS, Square POS, and others. Contact them and discuss about restaurant management system, pricing, functionality, and whatever you want.    

10. Marketing and Promotion Budget

Restaurant marketing strategy is a crucial thing from all aspects. You know that the restaurant business relies on the customers. For more awareness, marketing has no comparison with others. The right marketing process can be a game changer for your restaurant business. 

Which is the right strategy for marketing? Indeed, there are different ways of marketing. Today I will show you the actual strategy. I hope you have never seen that before. You should follow three main steps, such as

  • Getting new customers.
  • Enhance average order size.
  • Turn new customers into regulars.

10.1. Getting New Customers

The best strategy to get new customers is Google SEO. Many entrepreneurs think that Instagram, TikTok, and Facebook are the best way to grab more customers. Yes, it is true but Google SEO can send you more customers than that. This image says most of the new customers are coming from Google.

If you become a restaurant owner and would like to get new customers then you should emphasize both things (SEO, and Social media marketing strategy). Millions of people are stuck on social media. Whenever they search for any specific food item or the best restaurant then most of them search on Google. So, if you can follow the Google SEO strategy then this strategy can be the game changer for the new build restaurants.

It is noted that only the SEO strategy will never work for all countries. If you have a local restaurant then social media, such as Facebook, Instagram, and TikTok, can be the best way to grab more customers. So, fix a monthly budget depending on your location and continue on that platform. Hopefully, you will have a better response from the customer side.

10.2. Enhance Average Order Size

We always want to maximize our sales and earn profit. Though it is not easy at all if you adopt the right way then it is possible from the beginning. Enhancing ordering size can avail the order accepting chances. You may open an online ordering system for all customers. 

In that case, decorate a menu with the easiest option. So that customers can easily make an order. You may use the restaurant app, waiter app, and customer app to manage these jobs conveniently.

There is a boost strategy to get more sales. Those items are up-selling, you may bring some opportunity for that. Bring offers on those items to keep low food costs. This strategy can bring profit margins higher and you can completely minimize the food waste. So, follow that strategy, earn more profit, and take your restaurant business to the supreme level.      

10.3. Turn New Customers into Regulars

Collect customer ordering data. Figuring out most frequent customer ordering items. Use this data to upsell the item and whenever you intend to make an offer then count them to get your promotional notification. In this way, you will have vast customer data and spread the offer to them. 

To get new customers into regulars build email, automatic text messaging, and marketing campaigns. Many customers order again and again. So, connect with them and notify them whenever offers are available. Obviously, provide amazing food to keep them happy and get in touch with your restaurant business.     

11. Restaurant Licenses and Permits Cost

Opening a restaurant requires some documents: a business license or trade license and a food license. A business license is a government-issued license that allows the restaurant owner to run the business legally. In the USA, obtaining a business license requires $100 to $300 depending on the business type. Document processing and filing fees are included with that. This amount may also increase depending on the state regulations.

On the other hand, food license costs include around $100 to $1000. It is noted that this amount can be higher than that due to state regulations in the United States of America. Moreover, to open a restaurant in the USA requires 5 more licenses. So, take a look at a complete view of what type of license is necessary to open a restaurant in the USA.

  • Trade license. This license includes legal permission to run a restaurant business.
  • Food service license. It allows you to serve food legally.
  • Business entity license (LLC, or corporation, etc.). This license includes taxes, insurance, and others.
  • Employee Identification Number (EIN). This establishment gives you the right to hire employees from anywhere else. (This certificate is not mandatory at the beginning stage).
  • Employee health permit license. This license permits specific employees who have passed all food safety tests.
  • Certificate of occupancy. This document refers to your local restaurant building for brick-and-mortar counter service restaurants, coffee shops, and cafes.

How Much Does It Cost To Open A Bakery Café?

Bakery café opening cost relies on several factors: location, space of the shop, decoration, furniture, restaurant equipment, and others. In the USA to open a bakery café requires $10,000 to $50,000 for a small, home-based bakery café. If you require large commercial space then you may require $100,000 to $300,000. This amount may increase depending on the current situation and owner sense.

Cost To Open Pizza Shop

cost to open pizza shop

Pizza is a popular food item in the USA. The statistic shows that 93% of US people purchase pizza at least once a month. However, how much does it cost to open pizza shop? The cost ranges from $75,000 to $150,000 depending on the location in the USA. It is noted that you may require more cost to build a commercial kitchen. However, this cost includes many things in the list, such as

  • Pizza ingredients.
  • Pizza boxes.
  • Booths.
  • Pizza counters.
  • Shop decoration and furnishers.

It is noted that in the USA, the location is rent per square foot. To take a rent for a profitable pizza shop an entrepreneur should pay $100 to $800 per square foot. This cost varies on location, business concept, shop size, materials, existing or new location, etc.   

How Much Does It Cost To Open A BBQ Restaurant?

Finding a location for a BBQ restaurant is a difficult task. There are many BBQ restaurants or stands located on the roadside. BBQ (barbecue) restaurants in the US can vary depending on some crucial factors: location, restaurant size, restaurant quality, and type of establishment. 

However, take a look at a rough estimate of startup costs for a BBQ restaurant can range from $100,000 to $500,000 or more. Why is the average food cost of a restaurant higher? BBQ restaurant monthly expenses is also higher due to using expensive restaurant components, such as

  • BBQ grills and smokers.
  • Ovens, stoves, and prep tables.
  • Kitchen utensils.
  • Cooking equipment.
  • Interior design.
  • Monthly per unit electric cost.
  • License and permits.

On the other hand, starting a roadside BBQ stand requires a low amount. They don’t require renting a room or kitchen, and extra dining space for customers. You just require approval from a local government and a food license. Then you can start a roadside BBQ stand.  

Final Thought

The restaurant is a profitable business. If you have an actual roadmap and the right planning then success will be in your hand as soon as possible. Many entrepreneurs are scared about money before starting a business. Most of them have almost the same question: how much money needed to start a restaurant? 

I have shown the average cost to start a restaurant, monthly expenses, monthly rent, food costs, and many more things. Hopefully, that will be very helpful and give you the best idea about the different types of restaurant opening costs. So, decide your decision, create a smart roadmap, fix the destination, and rush.

Disclaimer

The information given above (restaurant start-up cost, food cost, document cost) may vary from time to time. This information has been collected from some authentic sources. If that cost may fluctuate. If it does then Restora POS will never be responsible for that. Because it is a guideline and idea to open a restaurant. So, judge marketplace and decide by yourself. How much you should spend on your business?