You’re opening your first restaurant and ready to bring the world a whole new dining experience. Using your creativity is a must. But it’s not a time to wing it. Restaurant start-up costs can create an unfair burden for a small business before it even gets off the ground -- if you’re not prepared. Some restaurant start-up costs are standard, of course, like first month’s rent, security deposit (equal to the first month’s rent) and first month’s utilities.
You don’t want to underestimate just how much it cost to improve the space and create a restaurant location that is inviting to customers, offering the kind of environment that will be the foundation of future success. Why? You could wind up being short on funds at a time when you really need it. Remember, the build-out phase is not a game of precision – during this phase, unexpected expenses could and always pop up.
Another thing to consider is that financing approvals, terms and funding amounts tend to be a lot more generous and easier to come by the first time around. You might find that you are better off if you secure more funding than you need at the beginning of your project. You don’t have to use it all if you don’t have to. But at least you will be secure in knowing you have a little extra in case you need it.
There are a variety of ways to finance a restaurant. But here is a formula that we at Restaurant Design Concepts recommend for building out your restaurant to help you ensure that you’ve budgeted appropriately.
Starting Costs (Start Here with What You Think Your Budget Will Be):
Construction, including kitchen (60% of your overall budget). Keep in mind that the normal turnaround for restaurant construction is 4 to 6 months. If you want to speed up the process, costs could even be more.
Furniture, fixtures and equipment (40% of your overall budget). Remember, furniture that is unique to restaurants can be depreciated over five years, so don’t forget to include this in your tax return.
Additional Required Costs (Base This Off Your Starting Cost)
Professional Fees (includes architectural, interior design, engineering and other associated costs). This is typically 8 to 10 percent of your starting costs. Having the right partners in place before you undergo your restaurant build-out will set you up for the best financial gain, less stress and help you avoid mistakes that might cost you in the long run.
Small-ware -- glasses, tableware, etc. This typically ends up being an additional 10 percent. Don’t leave this to the last minute because the little things like pans, ladles, bussing carts or tubs, plates, silverware, stemware, salt and pepper shakers, and all front and back of house needs are going to be crucial to your opening.
Permit fees (for restaurant construction and build-out) can run an additional 10 percent. Permit approval from city or county officials can take three to four months. So, you will want to plan for this.
POS systems can run about 2 to 5 percent more as well. You’ll want to do your homework to make sure you are using a system that is easy to use and offers you the best rate.
Finally, signage can be up to 5 percent on top of your starting costs. Your sign is the first thing your customers will see. So, you may not want to scrimp in this area.
Whatever your budget may be, the devil is in the details. One of the biggest pitfalls is that restaurant owners forget to set aside money or plan for the finishing touches to complete your look. Remember, any additional add-ons, like a patio, may increase your budget significantly. You want to be prepared. By anticipating everything to the best of your ability ahead of time, you can avoid having to cut corners at the expense of your future business success.