As the restaurant industry recovers from the closures and steep sales declines caused by the pandemic, there are new opportunities for people who want to open a restaurant. But there are as many questions as there are opportunities when it comes to making it a reality. The first question to answer is how much will it cost to get the new business off the ground and to sustain it until it turns a steady profit. Answering that question will lead to even more questions like the type and size of the restaurant, how it will interact with customers, and where it will be located.
These are only some of the questions a restaurant owner needs to answer when preparing to launch their new venture. Here’s a look at the most important questions that arise when calculating restaurant startup costs.
What’s the Average Cost of Starting a Restaurant?
Restaurant service 2nd Kitchen estimates the median cost of opening a restaurant in 2021 is $375,500 in a range from $175,500 to $750,500. The costs can be broken down into six categories:
These will vary based on whether you’re starting with a new building, refurbishing an establishment, or simply redecorating an existing facility. This category includes occupancy costs which typically are between 6% and 10% of gross sales and include rent/mortgage, property taxes, and insurance. Decor should not be overlooked, though, as this encompasses furniture and interior design which will be the overall ambiance and aesthetic of your restaurant.
This includes equipment, much of which can be purchased second-hand to keep costs down, and licenses and fees, including your business license, food service license, and possibly liquor license. Other operations expenses are utilities, janitorial costs, and organizational costs such as insurance, accounting, and payroll services.
Wages and benefits for front-of-house staff, kitchen employees, and managers fall under this. It includes the cost of hiring and training workers, support services such as legal and accounting, and what the owner will receive in salary. It may also include the cost of labor-management software, although many restaurants will need only the employee management features built into their modern cloud-based POS system.
Your POS system is the centerpiece of your business; this serves as the foundation supporting all business processes related to your restaurant’s operation. In addition to handling orders and sales transactions, the POS system tracks employee schedules and performance, helps you manage your menu, organizes your table layout, tracks inventory to the ounce or gram, and provides a wealth of sales analytics.
Advertising and Marketing
New restaurants often spend too much on this. While it is important to get the word out about your new eatery, it’s best to take advantage of low-cost options such as digital ads and social media as well as paper flyers and radio ads. In some instances, it’s beneficial to work with an advertising agency.
These can be reduced without sacrificing quality by establishing relationships with local farmers and vendors. Limiting the number of items on your menu helps to minimize the number of inventory items and gives customers a clear concept of your restaurant’s specialty.
How Long Does It Take for a New Restaurant to Break Even?
While a quick-service restaurant with a single location could reach its break-even point within three to six months, it typically takes about 18 months for a casual dining establishment to reach profitability, and a fine dining restaurant may require two to three years to break even. One way to calculate a new restaurant’s break-even point uses fixed and variable expenses and total sales for a set period:
- Subtract variable costs from total sales.
- Divide that figure by total sales.
- Now divide the result by fixed expenses.
For example, if a restaurant’s fixed costs for a quarter are $100,000, its variable costs are $50,000, and its total sales are $120,000, its break-even point would be calculated like this:
- $70,000 (sales minus variable costs)
- .583 ($70,000 divided by $120,000)
- $171,526 ($100,000 divided by .583)
The restaurant will need to record total sales of $171,526 in a quarter to reach its break-even point.
What Sources of Funding Are Available for a New Restaurant?
Securing funding for a new restaurant begins by determining the type of business it will be: sole proprietorship, partnership, limited liability company (LLC), or corporation. This is among the information that will be included in the new venture’s business plan, along with its concept, a competitive analysis, and sources of funding.
Initial funding for many new restaurants is a personal installment loan from a bank or other lender. Some banks will extend an open-ended line of credit to a new restaurant whose limit may increase as timely payments are made. Alternatively, restaurant owners may seek financial assistance from an angel investor, which is an individual or company offering funds in exchange for an ownership share, so they’ll be seeking a sufficient return on their investment.
How Can a New Restaurant Qualify for a Small Business Loan?
A restaurant startup cost calculator can be a vital tool when preparing to apply for a small business loan to finance a new restaurant. One benefit of the calculation is in helping you prepare all the necessary financial statements and other information that the lender will require to approve the loan. Much of this restaurant startup cost information can be gleaned from a cloud-based POS system, even before you’ve opened your doors.
For example, the unlimited secure storage available in the cloud ensures that the financial documents and information you’ll need can be imported into the loan application safely and securely, which facilitates loan processing. The scalability and low initial costs of the POS system keep startup expenses down while supporting future growth. The system also offers advanced analytics and reporting to support your business decisions.
Modern POS Technology Simplifies Your Restaurant Startup Costs
Managing the many pieces of the restaurant startup cost puzzle is made simpler by relying on a modern POS system as the centerpiece of your restaurant’s operations. It delivers the complete, accurate, and up-to-date data that is required to plan a restaurant opening and secure the necessary funding. Potential financial backers will be just as impressed with your careful preparation as your restaurant’s patrons will be with your kitchen’s tasty offerings.
When you want to get the most from your restaurant startup costs, partner with talech because we devote our time to identify your business needs and stay on 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.
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