The Master Chef’s Guide to Startup Costs for Your Restaurant

Up-front startup costs for your restaurant. 

Your up-front startup costs are the costs you’ll incur before you even open the doors on the big opening night. Before customers start flooding in, you need a physical space, tables, menus, ovens, employees, and much more. Let’s start with what are typically the most expensive assets of all—the location and property.

Typical startup costs for a restaurant

Here is a list of some common startup costs you’ll likely encounter as you prepare to open your restaurant:

1. Lease or purchase of property – The cost of leasing or buying a property can vary widely depending on location. Prime real estate in popular areas will be more expensive. According to restaurantowner.com, the median monthly cost for leasing a restaurant space is $5,000.
2. Renovation and interior design – Making the space fit your restaurant’s theme and ensuring it meets health and safety codes can be a significant expense.
3. Kitchen equipment and furnishings – This includes everything from ovens and stoves to commercial refrigerators and dishwashers. Tables, chairs, bar stools, and other furniture will be needed to make your guests feel comfortable.
4. Licenses and permits – Various permits and licenses are required to operate a restaurant, such as a food service license, liquor license, and health department permit.
5. Initial inventory – This includes food, beverages, and other consumables you need to start serving.
6. Staff wages and training – Before opening, you’ll need to hire and train staff. This cost includes their wages and any training materials.
7. Marketing and advertising costs – To attract customers to your new restaurant, you’ll need to invest in marketing and advertising.
8. Technology – A point of sale (POS) system, payment terminal, cash drawer, employee scheduling software, kitchen display system, and reservation tool are all basic technology to acquire.

Remember, these costs can vary significantly based on your location, the size of your restaurant, and the concept you’ve chosen. Be sure to do your homework to accurately estimate these costs.

1. Location and property

Location is a crucial consideration in the restaurant business. Choosing a back-alley spot with low foot traffic may be cost-effective, but a prime location in a busy area comes with a higher price tag. Unlike brick-and-mortar restaurants, food trucks have the advantage of mobility.

Before opening a restaurant, assess the market value of the planned location using tools like LoopNet. This will help you find a space that aligns with your budget and goals. Keep in mind that most spaces require some remodeling, which can range from a simple paint job to a full-scale renovation.

Consider the needs of your restaurant and the available space. Will you have enough room for a kitchen, serving area, and seating? Prioritize customer seating, if necessary. Take into account the costs of renovations, both inside and outside the restaurant. Don’t overlook branding expenses like logo design and signage, as they can add up quickly.

Buying vs. leasing a property

One of the first decisions you’ll encounter when setting up your restaurant is whether to buy or lease your property. Both options come with their own pros and cons.

Purchasing a property can be a significant upfront expense, but it means you own the space and have complete control over it. You can customize it to your heart’s content without having to get a landlord’s approval. However, it may tie up a large amount of capital that could be used elsewhere in the business.

Leasing, on the other hand, often involves a lower initial outlay, leaving more funds for operational expenses and growth. It also offers more flexibility if your business needs change. However, you’re at the mercy of your landlord when it comes to rent increases, renovations, and lease renewals. When making this decision, consider factors such as your budget, long-term business goals, and the real estate market in your desired location.

2. Renovation and interior design

An essential element of your restaurant’s startup costs is the renovation and interior design. This process makes the space align with the theme and vibe of your restaurant, giving it a unique personality and creating an atmosphere that resonates with your target audience. It’s not just about aesthetics—your restaurant’s interior design should also prioritize functionality and comply with health and safety standards.

The cost of renovation can vary dramatically depending on the scale of changes needed. If your space previously housed a restaurant and the layout suits your concept, you may need to do little more than a paint job and some minor updates. However, if you’re converting a different type of space into a restaurant, you could be looking at extensive plumbing, electrical, and construction work.

When budgeting for interior design, also consider the cost of hiring professionals, if needed. For example, an interior designer could help bring your vision to life, while a contractor will oversee the construction work.

3. Equipment and supplies

Now that you have the location, you’re going to need the equipment to get cooking and serving. There’s a lot to consider:

• Tables and chairs – Whether you’re splurging on chic restaurant chairs or going homely with long wooden benches, you’ll need to budget accordingly.
• Commercial cooking equipment – Your typical kitchen oven isn’t going to do the trick when you’re cooking for a room of 75 to 150 people. You’re going to need commercial-grade ovens, stovetops, blenders, deep fryers, and much more.
• Specialty cooking equipment – Don’t forget to incorporate the cost of specialty equipment. For example, if you need a stone oven to make your signature pizza, you’re looking at a $10,000 to $20,000 investment, at minimum.
• Plates, cutlery, and cooking utensils – You’ll need to supply everything from the napkin your customer uses to the spatula your chef wields to flip pancakes.  

4. Licensing and paperwork

This is probably the least fun part—sorry! To avoid the government kicking down your doors, you’ll need to obtain all the necessary licenses and permits.

Toast provides a handy checklist of all the licenses and permits you’ll need. Here’s a quick list for reference:

1. Business license
2. Employer identification number (EIN)
3. Certificate of occupancy
4. Food service license
5. Sign permit
6. Music license
7. Resale permit
8. Building health permit
9. Employee health permit
10. Seller’s permit
11. Liquor license
12. Valet parking permit
13. Dumpster placement permit
14. Live entertainment license
15. Pool table license

The cost of any individual license can range from $100 to $5,000 or more, depending on your state.

5. Initial inventory

When estimating how much food you’ll need and how much it’ll cost, try working backward. Look at your menu first and determine what ingredients you’ll need for each dish. Then, figure out the price of the amount of ingredients in that single dish. Once you know how much it costs to produce that meal, multiply that by the number of meals you plan to serve in your first week.

6. Dream team hiring and training

Before your restaurant can open its doors, it’s crucial to assemble a team that will help deliver an exceptional dining experience. The number of employees you’ll need can depend on factors such as your restaurant’s size, layout, and service style. For instance, a small cafe may only require a handful of staff members, while a large fine dining restaurant may need a significant team across various roles, including kitchen staff, waitstaff, bartenders, hosts, and managers.

Budgeting for staff involves not only their wages, but also the costs associated with recruitment, training, and employee benefits. When determining how much to budget for staff, start by considering the roles you need to fill and the industry’s typical pay rates for these positions. Then, factor in additional costs, such as uniforms, training materials, and payroll taxes. Also, keep in mind that labor costs can fluctuate and may increase during peak times when you may need additional staff.

7. Marketing and public relations

Regardless if you’ve secured a prime location in the heart of the city or if your to-die-for burrito is absolutely irresistible, you’re going to need a healthy marketing budget to gain momentum. Don’t make the mistake of thinking social media and word of mouth will suffice—there’s only so much a few tweets and your best friends’ network can do.

Signage, ads, PR services, and digital marketing could cost you thousands of dollars, even before the grand opening. You don’t want to get talked into an expensive, lengthy contract with a marketing agency before you’ve seen the ROI (return on investment), but you also don’t want the opening night to be a penny-pinching ghost town. You’ll need to find the delicate balance and decide how much you’re willing to invest in marketing your restaurant.

Do some market research and see what similar businesses and competitors did for their initial marketing efforts. What do you feel went right? What went wrong? A basic analysis like this will help you decide where (and where not) to invest your valuable capital. 

8. Technology stack

Lastly, you’ll need to consider the cost of the technology you use. This stack is everything from your POS system to your reservation management tools to your kitchen display systems.

Different options for a POS system

Choosing the right POS system is pivotal in the smooth operation of your restaurant. The POS serves as the central component for your business, where sales, inventory, and customer management merge. Here are a few options to consider:

1. Square POS – Square is a popular choice for small businesses, including restaurants. It offers a free software option and affordable hardware with a unique pay-as-you-go payment processing system. A square payment reader can cost as little as $10.
2. Toast POS – Designed specifically for the restaurant industry, Toast offers features like tableside ordering, menu management, and real-time reporting. It also comes with a robust kitchen display system. The pay-as-you-go model provides all of the software and hardware up front at no cost with a slightly higher processing fee than if you pay for the hardware up front.
3. TouchBistro – TouchBistro is an iPad-based POS system designed for restaurateurs. It provides tableside ordering, floor plan and table management, and the ability to process cash, card, and mobile payments. Pricing starts at $69 per month.
4. Upserve – Upserve by Lightspeed offers an all-in-one restaurant management system that includes an intuitive POS, inventory tracking, and detailed analytics—all aimed at improving your bottom line. Pricing starts at $69 per month.
5. Clover – Clover offers both small handheld devices and larger countertop setups, making it a suitable option for various types of restaurants. It’s a versatile system with an app market for customization. Pricing starts at $100 per month.

Reservation systems for restaurants

Managing reservations effectively is crucial to the smooth running of your restaurant. A reliable reservation system can help you manage your tables efficiently, reduce no-shows, and enhance your customer experience. Here are a few options to consider:

1. OpenTable – OpenTable is one of the most widely used reservation systems worldwide. It allows customers to make online reservations and reviews, and it offers a rewards program for frequent diners. Its comprehensive features include table management, reservation management, and guest management. Pricing starts at $39 per month.
2. Resy – Resy is a robust platform that offers not just reservations, but also waitlist management, table management, and ticketing for events. Resy’s system is designed to give restaurants greater control over their dining rooms and a direct line to their guests. Pricing starts at $249 per month.
3. Yelp Reservations – Yelp Reservations comes with table management, waitlist management, and a reservation system. It’s perfect for small to midsize restaurants looking for a straightforward, user-friendly solution. Pricing starts at $99 per month with the first 60 days free.
4. EatApp – This system is a comprehensive restaurant management software that provides online booking, table management, sales analytics, and more. EatApp also integrates with other systems, including POS and delivery platforms, making it a fitting option if you prefer an all-in-one solution. Pricing starts at $0 per month.
5. Tock – Tock is a more expansive platform that offers pre-paid reservations, deposit reservations, and traditional reservations. This system is ideal for restaurants that offer unique dining experiences or host special events. Pricing starts at $249 per month.

Upkeep expenses for your restaurant. 

Once the doors are open, you’ll also need to plan for how you’re going to keep them open. Some of your upfront startup costs will suffice, but you’ll need additional cash on hand to handle the upkeep.

1. Cost of goods sold

The cost of goods sold (COGS) is the total direct costs of producing the products or services you sell. It includes all expenses related to purchasing and manufacturing your menu items, such as ingredients, packaging, and labor. Tracking your COGS is essential for managing costs and setting prices that will help generate a profit. You’ll need to watch inflation, supplier cost fluctuations, and demand to make sure you’re adequately stocked and correctly pricing your menu.

2. Ongoing hiring and training

Unless you magically solve the restaurant turnover problem, you’re going to need to account for ongoing hiring and training. With most restaurant employees lasting less than a year, you’ll be continually hiring and training new employees—it’s a never-ending process. Plus, you’ll need to keep current employees’ skills and discipline fresh, as well.

Investing money into training your staff can also help you avoid costly mistakes. Trained staff may be more expensive, but they’ll also work more efficiently and improve the customer experience.

3. Building and equipment maintenance

No matter how new or nice your equipment is, it’ll eventually break—it always does. Instead of waiting for your equipment to die so you can replace it, invest money to regularly clean and maintain your existing machines and devices. If disaster strikes and your necessary equipment kicks the bucket without much notice, look into getting equipment financing to help cover the immediate fixes.

An unexpected burnt-out oven can put a real dent in your financial forecasts—plan ahead! Make sure to include building and upkeep costs in your monthly and annual budgets. 

4. Permits and licensing renewal

Remember all those fun permits and licenses we talked about before? Unfortunately, you’re going to need to renew most of these licenses at one point or another—and some you’ll need to renew annually. While it’ll only cost you a few hundred dollars here or there, keep these expenses in mind when doing your budgeting.

5. Ongoing marketing

Marketing is far from a one-and-done deal. After your grand opening and as time goes on, you’ll secure (or hopefully you’ll secure) a favorite place in the hearts of a select few. You can count on these people to be your regulars. Not only will these individuals feed themselves on the regular at your restaurant, but they’ll also advocate for you and occasionally bring in some new business. 

But unless you’re being featured as a top restaurant in town—or you have a gigantic fluorescent sign that everyone in a highly foot-trafficked location can see—you’re going to need to further market your restaurant. Digital ads, social media, email marketing, review sites, local news coverage—anything will help! Try new ideas, drop old ones, and continue experimenting to see what works best. But whatever you do, never stop marketing your business…ever.

6. Utility costs

You can expect to spend around 5% of your total costs on utilities, and while that might seem tiny, it’s an expense you have to plan on month after month. Depending on the size of your restaurant, you could be paying anywhere from $5,000 to $20,000 annually. Here are the utilities you’ll need to budget for:

• Electricity
• Water
• Natural gas
• Internet
• Cable

These are the major ongoing expenses you can expect, but your unique restaurant will likely have unique expenses. Don’t forget to budget for those, too.

7. Professional services

As a small business owner, you’re likely tempted to go it alone and wear all the hats: owner, floor manager, baker, waiter, accountant, lawyer, and more. Don’t get stuck in this trap—learn early on to delegate, delegate, delegate. Starting day one, consider who you can pay to help you and if they’ll be worth it:

• Attorneys – There are permits to be had, licenses to be acquired, and regulations to be followed. Instead of sifting through mountains of paperwork and legal jargon, think about paying for some help.
• Accountants – From your taxes to your bookkeeping to your business strategy, accountants can help with it all. Don’t wait until tax season to finally get some financial help.
• Construction contractors – We all want to be Chip and Joanna Gaines, but this desire could lead your restaurant construction to drag on like your unfinished garage project. Let the pros do it right from the start.
• Marketers – The physical and digital marketing landscapes are tricky beasts to navigate. If you don’t have any marketing experience, consider hiring a freelancer or an agency to lend you a hand. 

8. Insurance

Insurance is an indispensable part of operating a restaurant business. It safeguards your investment against unforeseen circumstances like property damage, employee injuries, or customer lawsuits. Here are the types of insurance you should consider:

• General liability insurance – This broad insurance coverage protects your restaurant from claims such as bodily injury, property damage, or personal injury. It’s essential in handling customer injury or property damage claims.
• Property insurance – This policy covers your restaurant building, the property inside it, and loss of income due to a disaster. It’s vital if you own your restaurant building or have invested heavily in kitchen equipment.
• Workers’ compensation insurance – It’s mandatory in most states if you have employees. This policy covers medical treatment, disability, and death benefits in the event an employee is injured or dies as a result of work with your business.
• Liquor liability insurance – If your restaurant serves alcohol, you’ll need this policy. It covers your legal fees and damages if you’re sued over a patron’s actions after they consumed alcohol at your restaurant.
• Food contamination insurance – This covers your losses if you have to close your restaurant temporarily due to a contagious disease outbreak or if a power outage spoils your food.

The cost of insurance varies based on your restaurant’s location, size, and offerings. It’s advisable to work with an insurance agent who specializes in restaurant insurance to get the most suitable coverage.

9. Payment processing fees

Every time a customer pays with a credit or debit card, your restaurant will incur a payment processing fee. These fees are charged by the card networks (like Visa, MasterCard, and American Express) and your payment processor. The exact amount varies, but it typically ranges from 1.5% to 3.5% of the transaction amount.

Keep in mind that premium cards and online transactions usually have higher fees. Also, don’t forget about PCI compliance costs and any fees associated with your POS system. To manage these expenses, shop around for a payment processor that offers competitive rates and fully understands the needs of your restaurant business.

Raising funds for your restaurant.

Raising funds for your restaurant can be a challenging task, but with the right approach, it’s attainable. Here’s how to secure funding for your gastronomic venture:

1. Personal savings and friends and family – Personal savings are often the first source of funding. You might also consider reaching out to friends and family who believe in your vision and are willing to invest in your restaurant. Make sure to formalize all agreements to avoid any misunderstandings in the future.
2. Bank loans – Traditional bank loans are a common source of funding for restaurants. You’ll need a solid business plan, a good credit history, and possibly some collateral. The SBA offers loan programs that can make it easier to qualify for a bank loan.
3. Online lenders – Online lenders can be a good option for restaurant owners who need funds quickly or don’t qualify for traditional bank loans. These lenders often have less stringent criteria and faster approval times, but their interest rates can be higher.
4. Angel investors and venture capitalists – These are individuals or firms who provide capital to start-ups in exchange for equity. They are typically interested in high-growth businesses, so you’ll need a compelling business proposal and a clear path to profitability to attract these types of investors.
5. Crowdfunding – Crowdfunding platforms like Kickstarter and GoFundMe allow you to raise money from the general public. This can be a great way to generate funds and create buzz for your restaurant, but it also requires a strong marketing strategy.
6. Equipment financing – Equipment financing allows you to borrow money specifically for buying restaurant equipment, often with the equipment itself as collateral. This can be a good option if you need expensive kitchen appliances or other equipment.

Remember, every funding option has its pros and cons, so it’s crucial to thoroughly research and consider each one before deciding. Professional advice from a financial advisor or accountant can also be beneficial in making your decision.

Put it all together.

After researching and selecting options for each of the categories discussed, create a final budget for your restaurant.

1. Building rent or mortgage
2. Renovations
3. Equipment and supplies
4. Reservation system
5. Cost of goods sold (COGS)
6. Hiring and training
7. Building and equipment maintenance
8. Permits and licensing
9. Marketing
10. Utility costs
11. Professional services
12. Insurance
13. Payment processing fees

Looking for funding for your restaurant? Learn more about restaurant business loans.

_{Information provided on this blog is for educational purposes only, and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content up-to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.}