Thursday, December 31, 2015

An Overview of the Costs Associated with Opening a Restaurant

One of the most important steps in opening a new restaurant is creating a realistic, viable budget. The costs involved with opening a restaurant can vary wildly according to the concept, location, and several other factors. Opening a restaurant in Manhattan will prove much more expensive than finding a commercial space in suburban Indiana. Likewise, creating a classic French bistro with table service will cost more money than opening a deli.

Regardless of the location or concept, however, restaurant developers need to take into account all of the possible expenses to ensure that their business will be viable. The startup budget should also include cushion for the unexpected expenses that will undoubtedly arise.

Costs Associated with Space

Rents charged for commercial spaces vary widely across regions, cities, and even within a neighborhood. Individuals should research the general neighborhood in which they would like to open a restaurant and figure out the range of rental rates. Importantly, restaurant developers should do more than investigate the rents of nearby businesses, since that may not reflect current market rates. Hiring a professional to negotiate the lease can be a good decision as well.

The typical startup costs associated with space include the security deposit, first month’s rent, and the first month of utilities. Typically, security deposits equal the first month’s rent, but this practice can also change across geographic locations.

Restauranteurs should not neglect the cost of utilities, which routinely cost thousands of dollars. This includes phone service and Internet, as well as water, electricity, and gas. Predicting the exact costs can prove difficult, especially if the space was never previously used as a restaurant. However, local utilities providers may offer tools for estimating costs.

Some restaurant developers may choose to purchase a space or build a new structure to house their restaurant. While both can be viable options, they may also include additional local government fees and permits, so restauranteurs should be sure to consult with experts about these potential costs and regulations.

Costs Associated with Location Improvements

Even if a retail space was previously used as a restaurant, owners will still likely need to make improvements or updates to the kitchen or dining area. While some spaces have kitchens that are adequately initially, it’s important to include the cost of future updates in the budget. These building expenses can quickly mount into the hundreds of thousands of dollars.

Another major expense is tables and other furnishings. While this cost largely depends on the restaurant’s concept, it is critical that restaurant developers conduct research to ensure their estimates are realistic. Bar and kitchen equipment, as well as utensils, dishes, and other tableware, typically cost more than furniture. In fact, it is not uncommon for these items to cost double what restaurant developers pay for tables and chairs.

Costs Associated with Business Operations

Starting a new business involves buying insurance, obtaining necessary permits and licenses, and paying the professional fees associated with these expenses. Many restaurant developers hire a legal professional to ensure compliance and help file the necessary paperwork, which can add to the expenses. In addition, restaurants need point-of-sale systems and other ordering and payment technology, which can cost several tens of thousands of dollars.
bread baker restaurant operating cost

In addition, all businesses need an accounting system. Today, several cloud-based systems are available for smaller businesses, but successful restaurants can outgrow these quickly. Purchasing accounting software developed specifically for restaurants can be a wise choice, and hiring an accountant on a part-time basis can ensure more accurate bookkeeping. In all cases, it is important to investigate the possibilities before deciding on the best course of action.

Business expenses also encompass payroll for any staff brought on, as well as the benefits provided to this staff. While these expenses may not become extremely important until the restaurant begins to expand, restaurateurs should have an idea of the cost per employee and build this figure into their budget.

Costs Associated with Marketing and Advertising

Restaurants are businesses and they require a marketing and advertising budget to pull in crowds. While the Internet has made advertising cheaper in some respects, restaurants still need a budget for public relations to promote the opening. This should include the cost of purchasing attractive signage, which is important in drawing customers off the streets. A good website is also important, and it may be worthwhile to hire a professional designer to build one. The site needn’t be extensive, but it should feature an attractive design, include the menu, and provide clear information about the restaurant’s location. The startup marketing and advertising budget also involves costs associated with printing menus, fliers, and other advertisements. In addition, restauranteurs may want to create business cards.

Many restaurant developers choose to have a large opening party to boost hype for their new business. While this is a great idea in terms of generating excitement and building brand loyalty before the restaurant opens, such an event can easily cost tens of thousands of dollars, and this price tag must be factored into the budget.