As with any food service enterprise, the costs of starting a restaurant can vary greatly depending on the location, size of the restaurant, and its working capital needs. Small restaurants can have startup costs ranging from $75,000 to $200,000 while large scale restaurants can often have costs from $300,000 to $5 million+. Generally, the two largest expenses for starting a restaurant are equipment costs and renovation. As it relates to renovation, a budget of $175 to $250+ per square foot should be incorporated into your startup calculations. For a 1,000 square food restaurant that is based in a suburban market, a $200 per square food cost is a good rule of thumb. This would equate to renovation costs of $200,000. For equipment costs, these figures can range greatly depending on the type of equipment that is needed. For a less intensive food service business or restaurant, these costs can range from $30,000 to $50,000 while gourmet restaurants can have equipment costs in excess of $250,000. The ranges for restaurant startup costs are as follows:
- Rent and Utility Deposits – $5,000 to $30,000+
- Renovation – $25,000 to $500,000+
- Equipment – $30,000 to $300,000+
- Working Capital – $25,000 to $500,000+
- Initial Marketing – $5,000 to $25,000+
- Staffing and Recruitment – $2,500 to $50,000+
For this type of business, there is no one size fits all approach given that each restaurant is unique. Most importantly, you will need to keep tight controls on your renovation budget. Unlike equipment that can be resold in the event that the restaurant does not work out as planned – the renovation budget is a sunk cost. In many instances, the landlord will provide credit toward rent or a renovation allowance if they see substantial promise in your restaurant. It is extremely important to receiving pricing quotes from numerous vendors when sourcing construction partners.
Furthermore, the working capital needs of a restaurant can vary as well based on the anticipated payroll, rent, utilities, and food costs. Most successful restauranteurs will often budget six months of working capital for their new locations. This allows them to bring their operations to early profitability or at minimum to breakeven.
Another major factor to consider is pre-launch marketing. This is an incredibly important part of starting a restaurant given that a substantial amount of buzz should be established prior to launch so that the restaurant is operating at near full capacity when it launches. Many restaurant entrepreneurs will often allocate 5% to 10% of their total starting budget towards pre-launch marketing including the development of the business’ proprietary website and social media pages.