Cost to Open a Restaurant

How Much Does It Cost to Open a Restaurant?

If you want to start your own restaurant business but feel unsure about making the financial investment, you're not alone. As with any new business, restaurant startup costs can be significant, but exactly how much does it cost to open a restaurant? The answer can vary greatly depending on the type of restaurant you want to open, the location, the size, and more.

On average, the cost to open a restaurant falls between $75,000 and $250,000, but it could be higher depending on the factors above.

In this guide, we'll outline a step-by-step list of the most common expenses, an average range of the cost, and recommendations to keep in mind as you estimate your own budget. Altogether, we'll cover 12 types of expenses to keep in mind as you develop your business plan. Click on a section below to jump to it or keep reading to see the full list.

  1. Space: Leasing vs. Purchasing
  2. Construction & Renovation
  3. Permits & Licenses
  4. Kitchen Equipment
  5. Furniture
  6. Dishes & Utensils
  7. Technology: Point of Sale System
  8. Food Inventory
  9. Employee Payroll
  10. Monthly Utilities
  11. Insurance Policies
  12. Marketing Expenses

Top 12 Restaurant Startup Costs

Space: Leasing vs. Purchasing

Average Cost: $6,914 per month to rent or $150,000 to purchase

First and foremost, you need to identify a location for your business. No matter where you choose, paying for the space will be one of the largest expenses you'll incur. With that in mind, it's important to carefully consider what combination of strategic location and property size will best make your restaurant accessible and profitable. Depending on your business goals, you should also decide whether you want to lease a space or purchase one outright.

  • Leasing: According to a Restaurant Owner1 survey, the average monthly lease for a 4,180-square-foot restaurant is approximately $6,914 per month. This may increase or decrease depending on the area you're searching in, but a good rule of thumb from Restaurant Real Estate Advisors2 is to ensure your monthly occupancy cost (rent + property tax + insurance) does not exceed 6 to 10 percent of your gross sales. Consider researching your competitors' sales and occupancy costs to estimate your rent.
  • Purchasing: If you prefer to own your space and go that route, the median price of purchasing a restaurant, according to Investopedia3, is $150,000. Of this, you could expect to pay between $22,500 and $52,500 (15 to 35 percent) upfront as a down payment for your loan. Restaurant owners typically like to sell their property for 25 to 40 percent of their annual operating income, so consider this and other factors as you evaluate how much a given space is worth.

If these numbers give you sticker shock and you need to cut back in this area to make your dream a reality, consider starting smaller by leasing a food hall space, creating a pop-up shop, or starting a food truck instead of leasing or purchasing a large dedicated space.

Construction & Renovation

Average Cost: Varies

Whether you choose to lease or buy your restaurant space, there will certainly be some costs to convert the interior from the previous look to whatever you've settled on as your concept. From decor to the physical layout of the space, the cost of these upgrades will vary greatly depending on the space you're working with. To stick to your budget, consider the following as you prepare your space:

  • Recycle: Carefully assess what you're working with to start. Does the existing flooring, paint or wallpaper, or trim need to be changed immediately, or can you work with the existing furnishings for the time being?
  • Essentials First: If anything absolutely must be changed, start with those items first. You can always make further renovations or decor changes down the road once your business has its footing financially.

Permits & Licenses

Average Cost: Varies

Another expense to consider as you plan is the variety of licenses and permits4 you may need to obtain to operate your business. Some are necessary, while others depend on the type of restaurant you open. Here's a list of several you may need before opening:

  • Business License
  • Employer Identification Number (EIN)
  • Certificate of Occupancy
  • Food Service License
  • Sign Permit
  • Building Health Permit
  • Employee Health Permit (Food Handler's Permit)
  • Seller's Permit
  • Resale Permit (Depending on State)
  • Dumpster Placement Permit (Depending on City)
  • Liquor License (Optional)
  • Music License (Optional)
  • Valet Parking Permit (Optional)
  • Pool Table Permit (Optional)

Kitchen Equipment

Average Cost: $30,000 to $100,000

Likely one of the largest upfront costs to open a restaurant, buying restaurant equipment should be a detailed, thorough process. While there are several types of equipment such as commercial refrigerators, prep tables, and kitchen utensils that most restaurants will need, you'll likely also need specialty equipment based on your specific restaurant model (brewery, deli, etc.). Here are a few tips to determine the right equipment for your business:

  • Plan the Menu: Determine what to include on your menu and how it needs to be prepared before you buy any equipment.
  • Trim the Fat: Identify any items on your menu that require expensive equipment. Consider leaving those off your initial menu or determine if there is an alternative way to prepare the dish without that piece of equipment.
  • Assess the Space: How much space do you have in your kitchen? Identify your essential equipment and how it'll fit together in the space you're creating.

Also, look for spaces to lease or purchase that already include some of the equipment you need. This can help you save on upfront costs. As you create your list, here are a few types of equipment to consider purchasing:

Furniture

Average Cost: $10,000 to $40,000

Whether you want your restaurant to be a quick-service joint, a casual sit-down spot, or an upscale dining experience, choosing restaurant furniture is a large part of bringing your vision to life. Just like designing a menu, taking time to find the right furniture by mixing and matching materials and styles can be a rewarding part of the process. Here's a list of the types of furniture you may need:

As you can see, the cost to fully furnish your space will vary greatly depending on the concept and aesthetic you're going for. Carefully plan out how many of each item you need and create a layout of how everything will fit together in your space to make sure you only purchase what you need.

Dishes & Utensils

Average Cost: $5,000 to $20,000

Essential for any restaurant are dishes and utensils to serve your customers their food. From plates, bowls, and glasses, to silverware, quick-service trays, and pitchers, determine how many of each item you need to keep things running smoothly throughout the day.

A good rule of thumb is to take the expected maximum capacity of your restaurant and, for common items such as plates and glasses, order 3 to 4 times that number. This accounts for any breaks, helps your dishwashing staff keep up, and allows sufficient time for washed dishes to dry and cool before use.

Here's a list of some of the most common items you may need and the range you can expect to pay. As with other aspects of this process, the price will vary higher or lower depending on the type of restaurant you plan to open.

Technology: Point of Sale System

Average Cost: $1,000 to $10,000 (plus ongoing software costs)

There are several smaller technology costs to account for as you plan, but the most important by far is your point of sale (POS) system. A POS system is designed to handle order tracking and payment at a minimum but many systems today support menu management, inventory tracking, online orders, analytics, and other applications. A typical implementation in a sit-down restaurant would include hardware such as card readers, terminals, and kitchen displays to track orders, along with software to enable order placement and reporting. Additional features include payroll and employee schedule tracking.

The amount you spend on a POS system often depends on the size of your restaurant and how much you're willing to spend for the convenience of automating processes such as revenue, inventory, and payroll tracking instead of handling these tasks manually. According to Toast5, basic implementations of just a terminal and card reader will run around $1,000. However, a more complex operation with needs for additional terminals, receipt printers, kitchen displays, and other hardware will be much more expensive.

We recommend researching various POS systems to identify features and functionalities that will have the largest positive impact on your business. If you're starting small and need to keep costs down, this could be a good area to cut back initially.

Food Inventory

Average Cost: 28 to 32% of total revenue

Food purchases will be one of your largest ongoing monthly costs. According to Restaurant3656, it's best practice to keep your food expenses between 28 and 32 percent of your total revenue to maintain your profit margins. This percentage is calculated as follows:

  • Formula: ((Beginning Inventory + Purchases) – Ending Inventory) / Total Food Sales = Food Cost Percentage

So, for example, if you have $7,500 of inventory to start the month, you purchase $4,000 more during the month, you have $7,000 of inventory left at the end of the month, and your food sales were $15,000 during the month, you would calculate your cost percentage as follows:

  • Example: (($7,500 + $4,000) - $7,000) / $15,000 = 30%

If your percentage runs higher than 32 percent, consider increasing menu prices, reducing portion sizes, or switching to a less expensive vendor.

Determining how much to spend on your initial inventory will be a little different since you don't have sales yet, but you can estimate as you build your menu, choose a vendor, and price your items. Spending on initial inventory and monthly costs thereafter will vary depending on the type of restaurant you own, but we recommend tracking your food cost percentage on a consistent basis. In the long run, it'll improve your profitability by helping you identify margin leaks such as wasted inventory or under and overpriced menu items.

Employee Payroll

Average Cost: Varies. National average per employee is $12.92/hour or $2,319/month

Another ongoing cost to factor in as you prepare your business plan is the cost of your employees. According to Indeed7, the average salary for restaurant staff in the United States is $12.92 per hour, which equates to $2,319 per month. Of course, this number will vary depending on your location and the type of restaurant you're opening. Here are a few other roles you may need to fill before you open, along with estimated monthly salaries from Payscale8:

  • Head Chef: $4,100 per month
  • Restaurant Manager: $4,000 per month
  • Kitchen Manager: $3,675 per month
  • Waiter/Waitress: $2,085 per month
  • Dishwasher: $1,675 per month

As you approach opening, determine how many staff members you'll need and hire them over time by importance. For example, hire your head chef and kitchen manager well ahead of time and focus on hiring smaller roles such as dishwashers and a host/hostess in the weeks ahead of opening.

Monthly Utilities

Average Cost: $1,000 to $2,000 per month

Depending on your approach, there may or may not be upfront costs to connect your restaurant to electricity, natural gas, and water. For the purpose of this guide, we'll run through what you can expect to pay on a monthly basis for your utilities once you're open.

  • Electricity: According to 7shifts9, the average annual cost of electricity for restaurants is $2.90 per square foot. Based on the average restaurant size of 4,180 square feet from the Restaurant Owner1 survey we mentioned earlier, that comes out to around $1,000 per month. Of course, your rate will vary if you have a much larger or smaller space.
  • Natural Gas: 7shifts also estimates the average annual natural gas cost at around $0.85 per square foot, bringing the monthly average to around $300.
  • Water: The monthly cost of water is less predictable and can vary greatly depending on your usage needs and region.

To save money, take steps to reduce usage, such as adding efficient lightbulbs, setting lights and fans to timers during core hours, installing efficient faucets, and more.

Insurance Policies

Average Cost: $2,000 to $25,000 annually

Like any business venture, there's risk involved in opening a restaurant. As such, there are several types of insurance policies to consider depending on the unique risks your business may encounter and the value of your property. These are the most common policies for restaurants, as well as their cost, according to Tabak Insurance Agency10:

  • Business Owner's Policy ($1,100 to $10,500): A BOP is a unique policy that typically combines general liability insurance, business interruption, and commercial property insurance at a discounted rate. Among other things, this will cover things such as customer accidents, income loss from closing following a disaster, as well as property loss or damage from theft, natural disasters, or vandalism.
  • Workers' Compensation ($600 to $10,000): Required in most states, this policy covers staff who are hurt on the job. The size of your premium depends on location and the number of employees you have.
  • Liquor Liability ($350 to $3,000): This policy protects you against liability for personal or property damages caused by guests who have been served alcohol at your restaurant. If you plan to serve alcohol, this policy is required in most states.

While some of the ranges above are wide, the average annual cost of insurance for restaurants is around $4,300. Whether yours comes in above or below that number will depend on your sales, payroll, and property values.

Marketing Expenses

Average Cost: Varies

From handing out flyers to advertising on social media, there are many ways to promote your new business leading up to opening and beyond. Which path you take and how much you choose to spend is ultimately up to you but investing time and money into advertising can be a great way to build awareness in the community. Here are a few common methods as well as estimated costs:

  • Create a Website ($200 to $6,000+): Having a site can be a great way to gain exposure. According to Website Builder Expert11, upfront costs for an out-of-the-box solution can be as low as $200 plus $50 per month from there. If you need a developer, upfront costs are usually closer to $6,000, with ongoing fees of as much as $1,000 per month. Start by determining the functionality you need from your site and researching potential solutions from there.
  • Social Media (Free): Creating profiles on various social media sites and posting to them is an effective way to connect with fans of your restaurant, but it'll take time to build that following. Starting out, consider paid social media promotions to reach your target audience.
  • General Advertising (Varies): Leveraging other advertising channels can run between a few hundred and several thousand dollars depending on your location, method, and scale. Advertising agencies can also help take promotion to the next level but come at an increased cost.
  • Create a Google Business Profile (Free): Quick and easy to set up, having a Google Business Profile is a must for new restaurants. By adding information such as your address, website, menu, and phone number, your restaurant will become more visible to potential customers in your area using Google Search and Google Maps.

Due to the time and energy commitment required for many marketing campaigns, it may be helpful to hire a dedicated employee to handle these responsibilities. For context, Payscale8 estimates that the average Marketing Manager for restaurants makes $52,550 per year.

Planning Ahead

So, how much does it cost to start a restaurant? While there's no firm number, we hope this guide is helpful in outlining some of the expenses to plan for as you work toward opening your restaurant. Take your time as you prepare to ensure every necessity is accounted for and consider leaving extra room in your budget for unplanned expenses that may arise along the way. If you need help pricing or purchasing restaurant equipment or supplies, browse our selection at KaTom or reach out to our expert customer care team and we'll be happy to assist you.

Resources

  1. Restaurant Occupancy Cost. Restaurant Owner. Accessed March 2022.
  2. How to Determine the Right Rent for a Restaurant. Restaurant Real Estate Advisors. Accessed March 2022.
  3. How Much Would Buying A Local Restaurant Cost? Investopedia. Accessed March 2022.
  4. How to Navigate Restaurant Licenses and Permits. Bentobox. Accessed March 2022.
  5. How Much Does a Restaurant POS System Cost? Toast. Accessed March 2022.
  6. How to Calculate and Optimize Food Cost Percentage at All Your Restaurant Locations. Restaurant365. Accessed March 2022.
  7. Restaurant Staff salary in United States. Indeed. Accessed March 2022.
  8. Salary for Industry: Restaurant. Payscale. Accessed March 2022.
  9. Restaurant Utility Costs: 8 Ways To Save Energy, Money & the Planet. 7Shifts. Accessed March 2022.
  10. How Much Does Restaurant Insurance Cost? Tabak Insurance Agency. Accessed March 2022.
  11. How Much Does a Website Cost in 2022? Website Builder Expert. Accessed March 2022.