How much does it cost to open a restaurant?
While every project is unique, opening a new restaurant will generally cost between $125,000 and $1,400,000 with a median cost of about $450,000. The fluctuating variables which most greatly impact the cost of your new restaurant are local commercial real estate values, the amount of build-out required, and most importantly the size. After you calculate how much it should cost to open your restaurant, tack on an extra 15%-20% for unexpected expenses and delays, as you never know what problems might arise by the time your doors open.
Rent and Mortgage Costs ($25K - $180K)
One of the most costly aspects of opening a new restaurant is paying for the property. Most small business owners we work with lease the property from a landlord, this article will focus on some things to consider before signing a lease. If you’re buying the property, you’ll have mortgage payments that will likely be higher than you would pay in rent, though you’ll have the property as a tangible asset even if for some reason things don’t work out.
Commercial rent is a huge variable that will be unique to your location. Commercial real estate in Manhattan is going to run a lot higher than a strip-mall in the suburbs of Raleigh. Generally, higher rents are associated with a larger amount of foot traffic, which should result in higher sales and a quicker return on your investment.
When searching for a location, insist on a landlord that will grant you ‘build-out time’ while you’re converting the space for your restaurant’s use. While most commercial landlords will grant a 3-6 month build-out period where you won’t be expected to pay rent, ideally the lease would provide additional build-out time in case there’s a delay in getting your doors open. (Pro-tip: There’s always a delay.)
Failure to secure enough build-out time can doom your project to failure before your doors are open. Projects are commonly delayed by hiccups in licensing, contractor delays, and a myriad of other things that can go wrong and are out of your direct control. An additional three months of rent at $25,000 might pose an existential threat to your project. This is where that having that extra 15%-20% of estimated startup costs available can be a life-saver.
Legal and Accounting Fees ($2K - $25K)
You’ll need to create some type of business identity by creating a sole proprietorship, partnership, LLC, S-Corp, or C-Corp which all have different costs, benefits, and varying degrees of liability associated with them. Make sure to talk with an accountant before you commit to a business structure as it is costly and incredibly annoying to transition at a later date. This will be one of the first things you’ll want to do in order to get a federal tax identification number, which is a prerequisite for most of the other licences and permits you’ll need.
Some of these business structures will absolutely necessitate the hiring of a corporate accountant whose services typically run from $150 – $400 per hour. With some effort, you might be able to find an accountant who specializes in bar and restaurant bookkeeping at a lower monthly rate, though they’re likely to require an initial payment. Unless you’re a sole proprietor, you’ll need a partnership agreement drawn up by an attorney. Attorney rates vary greatly, but keeping one on retainer for any potential disputes or roadblocks might pay for their fees several times over. Depending on your situation and the extent of services you require of them, you might spend anywhere from $1000 – $10,000 in attorney fees.
Permits and Licensing ($7K - $60K)
While a full liquor license in New York City typically runs under $5,000, other states have quota systems that might leave you with no option except buying an existing license. In quota system states, liquor licenses in desirable locations like downtown college areas, can sell for as much as $250,000 – $1,000,000+ although we won’t be including this in our estimate. Some localities might require approval from a Community Board, which can take months after your first meeting with them if they have concerns. (Pro-tip: They frequently do.) Make sure to do your research into your state and local liquor laws before moving forward with a project.
There are a host of other licenses and permits you’ll need to operate. You’ll need a food permit from your local department of health. Local fire departments and/or the department of buildings will need to sign-off on floor plans and safety precautions. Many cities, New included, require permits for outdoor seating, which can run upwards of $5,000 and take several months for approval.
Simple mistakes in the application processes for these permits can delay your approval for months, so be sure to do your homework before hand. While bringing in a professional to manage your permits and licenses can add initial cost to your startup, you should consider the potential costs of delays if you overlook a detail during what is sure to be one of the busiest and most hectic times of your life. In New York and other major cities, you’ll find a number of former Health Department officials who provide ‘mock inspections’ to insure that you’ll pass your inspection the first time. Many of these will also deal with other licensing and permit issues for your new bar. Bringing in one of these consultants is recommended for first-time restaurant owners to avoid preventable delays.
Insurance ($10K - $60K)
You’ll need some basic liability insurance for your business. While costs and coverage requirements vary from state to state, bars are generally more expensive to insure than restaurants. Costs also increase with the size of your establishment and the size of your staff.
Build-Out ($6K - $600K)
For many launch projects, build-out will be the most expensive aspect of opening your new restaurant. If you’re trying to open a restaurant with limited capital, this is the area you’ll probably find the most flexibility. Although there are plenty of large restaurants that spend $1M or more on build-out, I’ve set the upper end of build-out costs at $600,000. If you’re in a position to spend more than that amount, chances are you’ve done this before and probably don’t need much help estimating costs.
If you’re starting from scratch you’ll have no option, but even if you’re doing a moderate amount of build-out, you’ll probably require the services of an architect. Like most professional services, you’ll tend to get what you pay for. An architect for a restaurant needs to be able to balance both form and function, and unfortunately many architects, even those that specialize in hospitality aren’t especially great at balancing the two. You’ll also want to work closely with your architect to make sure that their desire to be the next Frank Lloyd Wright doesn’t add unnecessary costs to your build-out.
At this point you should consider hiring a food and beverage consultant (rates vary) to work alongside your architect. Your architect will inevitably present you with plans that don’t adequately take into account the flows of service and congregation patterns that restaurants require to operate smoothly without the input of someone experienced in the food and beverage industry. An architect will run you anywhere from $2000 – $50,000 depending on the size of the project and their experience.
The majority of your build-out costs will go to contractors. If you’re starting from scratch or you have a large build-out on your hands try to find a contractor that is large enough to cover most of your needs, even if they’re actually subcontracting some of them out. When project managing a build out, there’s a lot of contingencies that can cripple your time-line. Situations will arise where certain contractors won’t be able to do any further work until another contractor completes there’s. Dealing with them all separately can add months to a build-out, whereas a larger contractor will have the ability to juggle schedules to complete the work faster as it allows them to move on to their next job. Direct payments to contractors could range anywhere from $2,000 – $500,000.
Equipment ($38K - $150K)
The equipment needed for your restaurant will be determined by the needs of your concept. Consider bringing in a food and beverage consultant as equipment costs are substantial and quality is not necessarily tied to price points. More importantly, poor equipment choices will limit what you’re able to produce as well as how fast you can produce it.
You’ll have a hard time putting together your basic kitchen equipment for less than $20,000. Some of the big ticket items that might push your kitchen equipment costs beyond that include:
- Walk-in cooler $15,000-$25,000
- Fridges and refrigerated work stations $1500 – $3500
- Dishwasher $3000 – $8000
- Oven / Griddle Stove Combination $2500
A very basic bar setup will run you at least $12,000. Some of the big ticket items on the bar side that can increase costs considerably are:
- Walk-in Cooler $15,000 – $25,000
- Fridges and freezers $1500 – $3500
- Draft System $1000 – $6000
- Ice Machine $1500 – $5000
You’ll need an office to run your business from as well as some basic infrastructure to collect your sales data. Between a desktop computer, point-of-sales system, and other office equipment you’re likely to spend $5000 – $20,000 dollars on office equipment and general supplies for your new business.
Inventory ($7K - $30K)
Your initial inventory costs will be determined by your menu and the size of your restaurant. Save money in the long term by taking advantage of case breaks on alcohol (discounts for buying in bulk). You’ll need to reserve capital for at least two to three weeks worth of inventory. Additionally, you’ll need to take into account inventory required for training and soft opening purposes.
Wages ($30K - $300K)
The entire process of launching a restaurant generally takes nine months to a year. You’ll need to be able to pay your own salary during this time, as your new restaurant will become a full time job very quickly. You’ll also need an increasing amount of help as you get closer to your launch date, which will result in climbing labor costs and possibly consultant fees.
After all the costs outlined in this article, one of the final things you’ll need to pay for is training your staff. It’s hard to emphasize just how critical this frequently neglected step is to insuring the success of your new restaurant. Ideally, you should spend an entire week with your staff training and running mock service. Another week should be spent doing a few ‘soft openings’ and/or ‘friends and family nights’. You’ll also need to be able to cover at least the first two weeks of labor after you open your doors. This amounts to an entire month of labor that needs to be set aside. For larger establishments this can be a huge chunk of change.
How to reduce the cost of your new restaurant
Consider something smaller
You might have noticed that there’s quite a difference between the low range ($125K) and high range ($1.4M) of these pricing estimates. The largest variable determining this difference in cost is the size of your restaurant. Opening a small dive bar with four tables a few bar seats s is always going to be less expensive than a fine dining bar/restaurant with fifty tables. Additionally, larger projects require larger staffs and an increased amount of delegation, which is probably not ideal as a first-time owner. New York and most other localities have additional requirements and licenses for larger venues, typically drawing the line around 80-120 occupants.
Beware of going to small. You should keep in mind that the smaller your establishment, the less money it is capable of making. Make sure you have enough seats to produce the sales required by your business model. Recouping an initial capital investment of several hundred thousand dollars takes a long time when your sales are capped at $500K due to a limited amount of seats to serve your guests.
Avoid starting from scratch
There’s nothing quite as satisfying as designing your restaurant from the ground up as you can make sure it perfectly fits your restaurant’s needs and identity. That said, starting from scratch will definitely place your startup costs in the medium to high end of these cost estimates. Consider picking up where someone else left off.
One option is to buy an existing restaurant that’s still in operation. Restaurant owners retire, move, or change careers just like everyone else. By buying an existing business you’ll have the option of either continuing where they left off or rebranding and/or restaffing, allowing you to bypass the time-consuming and costly phases of seeking permits and selecting a location. Additionally you’ll slash the costs of your build-out and equipment costs if not eliminate them almost entirely. While the price of businesses can vary wildly, the cost might be offset by the previously mentioned savings.
Another option is simply limiting your location search to properties that have previously existed as bars or restaurants. One advantage of going this route is knowing that zoning and occupancy permits won’t be an obstacle. Additionally, the physical infrastructure will be in place to save dramatically on build-out costs. Properties that operated as restaurants will most likely have proper ventilation for kitchen fumes, adequate sewage, and meet all the requirements for the building and fire department. Modifying an existing commercial property with none of these features can add hundreds of thousands of dollars to the cost of your restaurant. You’ll also frequently find large equipment like ice machines and stoves left behind by previous tenants as the cost of storing, moving, and selling them is often greater than their value.
Keep in mind that the business or location you’re taking over went out of business for a reason. Be sure the problem was with the previous restaurant’s concept or execution, not the location. Be especially wary when buying an existing business if you plan on keeping the previous staff or concept in place.
While bringing on business partners comes with its own set of risks and rewards, it might be necessary in order to secure the capital you need for you new restaurant. Avoid partnerships where any one person (other than yourself) has more than a 50% share. Try to find business partners that have more to offer than just capital. Partnering with a food and beverage professional, contractor, consultant, or accountant can offset other costs and help insure your new bar’s success.
Bring in a consultant
When money is tight, it’s essential that you don’t waste a penny more than necessary. Bringing in a food and beverage consultant who has experience project-managing a bar launch can save you their fee many times over. Many restaurant consultants, Express & Discard Consulting included, offer free initial consultations to assess your needs.
Our consultants can help you get that spark ignited behind your bar via staff training as well as help empower you to keep the passion alive and self-sustaining long after we leave.