The True Cost of Opening a Restaurant

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Have you ever dreamed of opening your own restaurant and wondered what the costs were like? Let's talk about the numbers for the real costs that can make or break your entrepreneurial dreams. Most sources tell you it takes between $175,000 to $750,000 to open a restaurant and it’s far more nuanced than some would like to believe.  

For those ready to dive into a full-scale restaurant, here's what you're looking at: small restaurants (under 1,200 sq ft) typically need around $275,000, medium restaurants (1,200-2,500 sq ft) about $450,000, and large restaurants (2,500+ sq ft) $750,000 to $2,000,000+. These numbers can vary depending on location, build-out costs, and the type of cuisine served. 

Where Every Dollar Goes

The first major hurdle most aspiring restaurateurs face is location costs. Your restaurant location is like buying a house – it's probably your biggest expense, but also your most important decision. The reason why this decision is so important is due to product market fit! Let’s say you wanted to get into Italian cuisine and you have the best pasta in town but the demographic in your location lean towards Chinese cuisine. 

You can see the issues you’ll be running into. 

On the flip side, your Italian restaurant is located in a demographic where a large percentage of the locals are Italians. Congratulations! Product market fit is much more favorable for you and can lead to higher chances of success, however, you’ll have much more competition to compete against. It’s also important to recognize that restaurant renovations play a huge factor in your decision. That "perfect" $2,000/month location might need $100,000 in renovations before you can even think about cooking. Which comes out to $150-$300 per square foot, and that's before you factor in first and last month's rent, security deposits, and utility deposits. A great location has a combination of the right demographic as well as a healthy amount of competition that isn’t completely saturated. This leaves room for your restaurant to thrive while keeping renovations within your budget!

Now, let’s talk about kitchen equipment. 

Your kitchen equipment represents the heart of your operation and it's going to run you around $75,000 - $115,000 to own basic equipment, with small-wares and utensils adding another $15,000 - $30,000. However, there is an alternative option that owners use, consider leasing major equipment initially. A $5,000 monthly lease payment is much more manageable than a $200,000 equipment purchase, especially when you're just starting out. But there are great benefits to both options! Here’s our breakdown in leasing vs. buying and what’s best for you, click here. 

Then there are the invisible costs that seemingly never end! Licenses and permits add up faster than your grocery bill – business licenses, liquor licenses (which can range from $10,000 to an eye-watering $400,000 depending on your state, city, local laws, etc), health permits, and even music licenses. Don't forget insurance: liability, workers' comp, and property insurance are non-negotiable expenses that protect your investment.

Here's some real advice about budgeting: take whatever number you think you need and add 20% for surprises. Why? 

Because construction always costs more than quoted, equipment prices can change mid-project, and something will inevitably break in your first month. You'll also need operating capital for at least six months because restaurants rarely turn a profit immediately.

Creative Ways to Make it Work

If these numbers are making you sweat, consider starting smaller than your dream. A food truck ($50,000-$175,000), ghost kitchen ($10,000-$50,000), or pop-up restaurant ($5,000-50,000) can be great ways to enter the industry with less risk. Many successful restaurant owners started small and scaled up strategically. You might begin with lunch service only or operate with a limited menu and add services as you grow.

Beyond the dollars and cents, success requires industry experience (or a great mentor), a solid business plan, strong location research, a unique value proposition, and a solid marketing strategy. It's better to open a fully-funded small restaurant than an underfunded big one. Some of the most successful restaurants I know started in unexpected ways:

• A fine-dining chef who built his empire starting with a food truck

• A family restaurant that began as a weekend pop-up

• A ghost kitchen that evolved into a local hotspot

Remember, these numbers aren't meant to discourage you but to prepare you. Having a clear understanding of the true costs involved will help you make informed decisions and increase your chances of success in the competitive restaurant industry. After all, the best ingredient in any successful restaurant isn't money – it's thorough preparation and realistic expectations.

Ready to start planning your restaurant budget? Begin by researching your local real estate market, getting equipment quotes, talking to local restaurant owners, and consulting with a restaurant-savvy accountant. Plan for the best, worst, and likely scenarios. Your restaurant dream is possible and many have done it before you! It just needs the right financial planning and, most importantly, execution to become reality.