Know Your Restaurant’s Start up Cost

The cost of opening your own restaurant business is one very important matter to be dealt with and often the hardest to determine because, to a great extent, it depends on the type of restaurant that you desire to open.

Your restaurant “start-up costs” are outlined as expenses incurred for the acquisition or creation of your restaurant business. “Start-up costs” are comprised as any incurred amounts or out-going capital in relation with your restaurant’s activity directed for income generation before your restaurant business starts. 

“Start-up costs” generally include the following expenses:

•  Potential markets surveys.

•  Evaluation of available supplies, labor, facilities, etc.

•  Advertisements.

•  Business equipment and fixtures

•  Equipment and fixture installation

•  Decorating and remodeling

•  Employee uniforms

•  Salaries for employees undergoing training and their trainers.

•  Costs of travel for acquiring prospective suppliers, distributors or customers.

•  Fees and salaries for consultants and executives and other similar services.

Estimating your restaurant business’ “start up costs”:

It is a wise decision to study your “start-up costs” estimate with a qualified accountant.

1.       Begin by recording then add up your entire restaurant’s equipment which you consider is necessary to begin and manage your restaurant. See the chapter on selecting equipment and furnishings for more help on this. 

2.       On your list, mark off certain items or equipment that aren’t really necessary and can wait.

3.       Determine what kind of equipment needs to be bought brand new, and what type can be purchased used.

4.       Determine what things may be leased, for the moment.

5.       When adding up the physical cost (building or office) of your restaurant, remember to also add in the remodeling costs, decorating costs, fixtures, installation and delivery fees for equipment and fixtures.

6.       Include professional fees, utility deposits, permits and licenses.

7.       When computing your advertising costs, make sure to add trademarks, logo expenses as well as other graphics to be used.

8.       Come up with ways where you may be able to lower some expenses. Call vendors and suppliers and work out certain deals.

9.       Estimate that all expenses will be much higher than expected. It is sensible to add about 1-5 percent to your estimate.

10.       Write your business plan before you come to your final estimate for “start up costs”. Generally, a business plan functions to reveal more “start-up costs” that weren’t really thought of.  Again, see the chapter on preparing your business plan.

11. Include your restaurant’s first 3-6 months operating investment in your “start-up costs”.  These expenses will usually include employee salaries, advertising, rent, supplies, delivery expenses, utilities, taxes, insurance, maintenance, professional services, loan payments, inventory, etc.

Before opening your restaurant:

1.  Work in or volunteer in a similar restaurant like the one you want to open.  In doing this, you will be able to menu development, restaurant marketing, payroll and many other important elements of the food business.

2.  Determine your “target market”.  What type of crowd do you want to cater? Is it teenagers, family or seniors? Determining your target customers before you begin planning will help you organize your menu and will help establish your décor, atmosphere and location of your business.

3.  Pick out a food concept and style of service.  Generally, your service style can be fast-food, offering fries, burgers, sandwiches and hotdogs; mid-scale offering value-priced full “course meals”; or upscale, providing high-class ambiance with “full service meals” with higher prices.

4.  Develop your business plan.  Again, see the chapter on preparing your business plan but make sure the plan includes:

•  Your restaurant’s general concept and objective;

•  Detailed financial projections and information; your menu and pricing;

•  Employee and equipment details;

•  Marketing and advertising plan;

•  Possible exit strategy.

5.  Create your menu.  Know that your menu can either “make or break” your restaurant, therefore it must be in conformity with your restaurant’s overall concept. 

6.  Choose your location.  Look for a location where there is a continuous flow of traffic, accessible parking, and near or along other businesses.   The chapter on location will be helpful.

7.  Know restaurant safety regulations.  Typically, restaurants are controlled and are subject to inspection.  You must know the local regulations and conform to them.

8.  Hire your employees.  Make certain that your employment announcements specifically declare your specified requirements. 

Starting a restaurant business has its challenges and also its rewards. Before starting any business, research first. Make sure you are suited for entrepreneurship as well as recognize that there is significant effort required. Therefore, it is necessary that you enjoy whatever you are venturing into as well as you have confidence in your service or product because it will consume most of your important time, especially when it is still beginning.