Anyone planning to open a restaurant knows the process starts by determining how much money they’ll need to get the operation off the ground and keep it running for its first year, at least. A restaurant startup costs calculator is the perfect tool for accurately estimating the total expenses required to open a dining establishment, whether you’re planning to go on the road with a food truck or reach for Michelin stars with an elegant dining room serving haute cuisine.
How Much Does It Cost to Open a Restaurant?
At its heart, every business is an investment. You contribute your great ideas as well as your time, effort, and money and expect a return in the form of profit that allows you to grow your business and reach your professional goals. Like any other investment, you want to make sure you’ve got a good chance of succeeding before you commit to it. A well-thought-out business plan examines the profit and growth potential for your restaurant beginning with your initial monetary investment.
The first step in calculating a restaurant’s startup costs is to categorize your establishment by size, location, and type. Opening a food stand or pop-up restaurant requires much less upfront investment than a large, brick-and-mortar dining room with a modern kitchen that’s located in an upscale neighborhood. However, some startup costs apply to all types of restaurants:
- One-time costs include a loan, down payment, or lease security deposit, business licenses and permits, legal and other fees, building upgrades, kitchen and dining room furnishings, a modern cloud-based POS system, signage and other branding, and accessibility features.
- Recurring and ongoing costs include the mortgage or lease payment, worker salaries, food and beverage costs, utilities, marketing and advertising, insurance and permits, and other miscellaneous expenses such as repairs and other unforeseeable charges.
Restaurant Startup Costs Calculator Tips for Accurate Budgeting
A great place to start your research on restaurant startup cost estimates is the U.S. Small Business Administration’s “Break-Even Point Calculator”, which provides an estimate that you can include in your restaurant’s business plan. The analysis is intended to help you show potential lenders or investors that the business is viable.
To use the calculator, enter your restaurant’s estimated fixed costs, prices per unit for the food and beverages you’ll offer, projected unit sales, and your restaurant’s variable cost per unit. These five tips will help you with your restaurant calculations.
1. The Per-Unit Break-Even Formula
To determine the break-even point for each product and service you offer, divide the item’s fixed costs by its sales price minus its variable cost per unit:
- Unit break-even point = fixed costs divided by (unit price – variable cost)
To calculate the break-even point in sales dollars, divide fixed costs by the contribution margin, which is the difference between the price of a product and what it costs to make it.
- Sales dollars break-even point = (sales price per unit – variable cost per unit) divided by contribution margin
2. The Multiple-Unit Break-Even Formula
Alternatively, you can find the break-even point for all of your restaurant’s products and services in a month by combining the estimated totals for all sales in the period. However, keep in mind that many sales will be seasonal, so calculating for individual products will likely be more accurate. Add a margin of about 10 percent to this total to account for unexpected and unpredictable costs.
3. Avoid These Common Overspending Mistakes
Restaurant owners can sometimes overestimate their startup costs by about 15 percent. These are the five areas that new restaurants tend to overspend on:
- New equipment: Seek out discounts and look for bargains on used equipment.
- Technology: Cloud-based POS systems allow you to pay only for the features you need today while offering the scalability to grow with your operation.
- Sales and marketing: Take advantage of low-cost marketing techniques such as social media ads and old-fashioned paper flyers.
- Remodeling and redecorating: It’s often more effective to choose a handful of impactful design elements rather than to remake the entire dining room from the carpet to the lighting.
- Food costs: Look for local farmers and co-ops as suppliers rather than big-name food vendors. Establish relationships with several food sources, and lock in prices as often as possible.
4. Anticipate Changes in Markets, Prices, and Customer Preferences
Build adaptability into your restaurant’s business plan and initial budget by learning as much as you can about trends in your sector of the business and in your restaurant’s location. Be ready to change the prices of menu items and revamp your menu based on the products that customers prefer and those that will generate a profit. Don’t underestimate the value of frequent sales and financial analyses, many of which can be generated with a few keystrokes on your restaurant’s POS solution.
5. Take Advantage of the SBA’s Restaurant Startup Costs Worksheet
In addition to its break-even calculator for new businesses, the Small Business Administration (SBA) offers a customizable spreadsheet that automatically determines a restaurant’s startup costs. The downloadable document lists typical expenses for one-time costs and monthly costs. Simply enter your budget estimates in each category and the total startup expenses are calculated automatically. You can then compare your estimated budget with your actual expenses.
Make Opening Your Restaurant Easier With the Right POS
The many details involved in starting a restaurant can seem overwhelming to a prospective owner, but when you break down the restaurant startup costs calculation into smaller parts, the process becomes more manageable. It always helps to have an experienced hand available to provide guidance and answer questions.
Today, that guidance is likely to come from a knowledgeable POS vendor who can help you plan the technology foundation of your new business. The better prepared you are, the more likely your new venture will be successful.
When you partner with talech, you can expect guidance with your restaurant startup costs calculations. We devote our time to identify your business challenges and use this information to work with you to apply an innovative POS solution that accommodates you and your budget. Reach out to us today to sign up for a demo and to learn more about how talech can be your valued POS partner.
Want to learn more about calculating restaurant startup costs?
Get your free Demo