In the restaurant industry, there’s a common joke: “What’s the difference between opening a restaurant downtown and burning $1 million on the street?” Answer: none.
Despite the known upfront costs in starting a restaurant, one of the most common mistakes restaurateurs make is to underestimate the initial capital and budget requirements associated with starting a restaurant.
While every business endeavor – restaurants included – are up to particulars and unique in their own way, we’ve expanded our previous guide to further break down the upfront costs and estimates related to starting a brand new restaurant. When combined with our other resources, this should better equip your company to prepare for the ups and downs associated with budgeting, equipment and build out, and dealing with a potential landlord.
How Should I Calculate My Monthly Restaurant Rent?
The amount you’ll pay for restaurant space each month is dependent on the market, location, and specific terms you established with your landlord. The easiest way to predict properties that might be in your price range is to analyze the listing, check for the cost per square footage (which is pre-tax), then multiply that number by the square footage of the space listed.
Some landlords will establish different monthly rental terms based on length of lease, your finances, whether you have proven experience in the restaurant business, and the duration the property has been vacant. While these factors aren’t guaranteed, they’re useful leverage when starting a lease negotiation.
What Should I Expect to Spend on Equipment and Build Out?
The primary thing you’ll need to secure in order to start a restaurant is equipment. After all, it’s difficult to cook without a stove. A recent survey by the Restaurant Owners puts the average cost of building out a 1,000-square foot bar and kitchen with the proper gear and equipment at about $75,000, or $80 per square foot.
Secondhand equipment is likely available, as other restaurants may have closed and need to offload their assets. But just because you’re getting a deal doesn’t mean you’re in the clear. You’ll want to hire an equipment technician to evaluate the equipment before you make a purchase.
And as far as remodels, upgrades, and repairs are concerned, you’ll need to negotiate with your landlord. Who’s responsible for what? What happens if a larger issue is discovered during the build out? With the demand for architects, construction contractors, and subcontractors in major cities at an all-time high, it’s important to factor in the length and cost of these improvements. Simply installing a new floor in the restrooms could run you as high as $50 per square foot – if you’re lucky.
How Should I Prepare for Cost Overruns and Delays?
According to the Restaurant Owner, the average restaurant remodel goes over estimates by about 34%. Anything from construction delays, permitting issues, and contractor and subcontractor schedules can throw a wrench in your plans. Meanwhile, you’re still paying rent and likely have your top-level staff and management hired. Should delays continue, you may lose those you’ve trained to other jobs, which is why budgeting for a six-month rent and labor contingency is recommended to avoid further headaches.
How much does it cost per square foot to build a restaurant?
Depending on the market and location, it’s estimated that the total investment in building a new restaurant (in addition to purchasing the land and associated soft costs) could range between $250,000-$2.5 million for square footage between 1,000-10,000 square feet.
For example, opening an Applebee’s franchise location requires significant total investment. In addition to the $35,000 franchise fee, it’s estimated that franchisees will need to invest between $1.97-$7.1 million.
How much does building a commercial kitchen cost?
According to the Restaurant Owner’s survey, the average cost of equipping an existing 1,000 square foot bar and kitchen is about $75,000, or $80 per square foot. Building a commercial kitchen from scratch within an existing space, however, could run anywhere between $250-500 per square foot. This takes into account flooring, walls, lighting, ventilation, electrical connections, fire prevention measures, plumbing, gas connections, and equipment.
How much does a restaurant remodel cost?
In order to renovate or remodel an entire restaurant (dining room, bar, and kitchen), you’ll want to budget $250-500 per square foot in the kitchen/back of house area and between $150-300 per square foot in public-facing areas.
If you have a kitchen with 1,000 square feet and 2,500 square feet in the dining area for a total space of 3,500 square feet, you can expect to spend between $400,000 to $800,000 for a complete remodel.
Depending on materials used, quality of finishes, and craftsmanship, you may be able to cut down costs – or send your budget through the roof.
How Can I Save Money While Opening a Restaurant?
- Buy used equipment: This is one of the easiest ways to significantly cut down on initial expenses. Because the installation of a commercial exhaust hood alone could run into the tens of thousands, cutting down on the actual purchase is highly recommended. Chances are, if you’re moving into an existing restaurant space, the previous tenant will be willing to part with the already installed equipment. If not, look for auctions, restaurants going out of business, or local restaurant supply stores that buy and sell used kitchen equipment.
- Cut corners where needed: You probably don’t need a full staff until 2-3 weeks before your soft open. Rather than keeping them waiting for your restaurant to open and risk losing them to more immediate opportunities, hold off on the initial orientation, training, and trial shifts until you’ve got your soft open dates secured. Furthermore, investing in high-quality menus, signage, and decor right off the bat might not be worthwhile until you’ve had an ample sample size of customer feedback. While it’s important to make a first impression, you won’t know what your customers think of your establishment until you’ve had a steady stream of repeat diners.
- Don’t jump on a full liquor license right away: Unless you’re going for a high-end cocktail bar, you can get by with a partial liquor license and serve beer and wine. Because full liquor licenses are often more expensive and time-consuming to secure, offering a full bar at the outset could delay your open date.
- Invest in the important stuff first: High-quality tables and chairs, dining and glassware, and reliable point-of-sale systems will carry your business further than cheap, “it’ll do” solutions that can break down and require replacement. Plus, these elements are highly valued on the secondary market, so even if the restaurant closes, you’ll be able to recoup much of the initial investment.
- Don’t splurge on advertising: While sales and marketing are crucial for getting the word out about your new restaurant, your best chance at earning repeat customers in your area is to keep them informed about your open date. Post flyers, keep your social media feeds current about your restaurant’s progress, and place a limited advertising run in local outlets or social media. You might also invite local media figures, business people, local politicians, social media influencers, and other restaurant professionals to an exclusive soft launch to spread the word and put your best foot forward ahead of a public opening.
If you’re feeling lost in the dark as your dream restaurant project begins to take shape, you’re not alone. Every restaurateur needs help determining the value of a location, the content of their menus, and researching their prime demographic. But with this information in mind, you’ll be better equipped to handle the turbulent nature of the restaurant and culinary business no matter what city or market you’re hoping to operate in.