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How Much Does it Cost to Start a Restaurant Business

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This is a question I’m asked on a daily basis: Can I start my restaurant with $10k? What about $50k? $100k?

The short answer is that it heavily depends on the type of restaurant you want to open: whether it’s a bubble tea shop, a fine dining experience, or a fast food business.

Just based on industry standards, we’re talking about $100k to $175k for the low-end. The average median amount is $175k to $225k, and the higher scale goes from anywhere from $750k to over $1M.

But the reality is, there are so many different variables to consider…

Ready for the details? Keep reading to find out the cost breakdown plus five money saving tips. Let’s dive right in!

Breaking It Down

A big number we see a lot when budgeting is the cost per square footage. This amount includes all your expenses like the renovation budget, monthly rent, build out cost, equipment, etc.

You can expect anything from $100 to $800 per square foot to get your restaurant up and running. That gives you a median price of $450 per square foot.

But once again, these are very rough estimates because there are so many factors.

I know what you’re thinking… My location is only 500 square feet, how much do I need to pay? Do I still need to pay $100k? Or my place is 1000 square feet, how much do I need to pay? Is it going to be $300k?

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Here’s an example.

If you have a 500 square foot location, with no build out costs, and you’re using lower-end equipment and lower-end renovations then your cost per square foot could be as little as $200. So you can actually build out a 500 square foot restaurant for only $100k.

But for the same location and size, if you want more high end finishes and equipment, that cost could go up to $400+ per square foot, so you’d need to source $200k instead.

This is why it’s very hard question to answer! To help give you a better idea for your business, let’s dive into the five biggest variables.

1.) Location

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Location is definitely the biggest factor in determining your startup cost and there are a couple different ways to approach it.

One option is buying or renting a space that is completely empty to build from scratch. We’re talking about building a washroom, kitchen plumbing, the grease traps, hooded vents, HVAC, everything. Obviously this option requires the highest budget.

A less expensive option is to purchase an existing food and beverage place that you can just update with some minor renovations to get your shop up and running. This helps you save big on building costs.

Lastly, you could purchase an existing space that has all of the infrastructure already built in. These places will have higher purchasing costs but save lots of time and effort.

Not only is the type of space that you purchase a big factor, but rent prices are drastically different depending on where you live. Price out different options in your city to get a more accurate idea of the cost.

2.) Equipment

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Everyone wants new equipment, but this comes with a steep price tag!

You can choose this route or you can lease it. This way you don’t need the cash up front, you only have to pay a monthly rental fee.

Another alternative to save on equipment costs is to buy used or refurbished. A lot of F&B places go out of business so their equipment goes up for auction quite frequently for a much cheaper cost!

For example, when opening my ice cream shop, we bought two brand new Taylor Soft Serve machines for $60k. But within 3 months we realized they weren’t even the right kind for our business because they didn’t produce enough in the timeframe we needed.

This was when we discovered that we could find better second-hand equipment for so much cheaper. We purchased a better machine for only $10,000 from an auction place!

Learn from my mistake and take this advice to always search for secondhand equipment first!

3.) Opening Inventory

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The third variable to consider when budgeting that could either cost or save you tons of money is your opening inventory.

When you open your food or beverage business you’re going to have to buy lots of ingredients, whether it be ice cream base, boba, pasta, pizza dough, etc.

It’s important to manage these ingredients properly because a lot of them have a limited shelf life. If you buy too much, you’ll end end up spending lots on food that goes to waste.

If you order something in bulk, try to get it delivered multiple times a week to decrease spoilage and make sure that your food is always fresh.

I learned this the hard way when I kept ordering 50-60 jugs of milk for the ice cream base at the beginning of winter. We had so much less traffic because of the weather, that 20 jugs of milk (the the cost) were wasted!

Make sure that you always consider the different trends and how people are shopping and consuming. Always buy in small quantities and get it delivered as needed to keep more money in your pocket.

4.) Contingency Fund

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The fourth cost variable to consider when opening your restaurant is your contingency fund.

A lot of people don’t account for this! Although having a contingency fund increases your initial budget, it’s crucial to your success.

I say this because it takes time for any food and beverage business to gain traction. People need to try your food, talk about it, bring their friends… it takes a few months for traffic to pick up.

The bottom line is that if you don’t have enough funding and traction to last that six month period, you’re going to go out of business.

If you don’t have those funds, you’re going to compromise on your food offering, the quality will go down, and so will your reputation, making it very very difficult to recover.

Please do not forget to add this line item in when you budget This is CRUCIAL.

5.) Professional Fees

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The last variable to consider when opening up your shop is professional fees.

Things like franchise fees, accounting fees, architect pay, lawyer retainers, consultant fees, they all add up. Franchise fees alone range from $30-$50k! If you do not account for these costs, you can easily run into the red.

Unlike the first three variables, you don’t have control over these costs, which is why you must account for them in the beginning.

When we first started our ice cream shop we didn’t account for consultation or lawyer fees. Just setting up our franchise by itself cost us more than $40k! It was only because we were lucky and able to generate a lot of buzz that we were able to afford all these professional fees, otherwise we wouldn’t be in business today.

Make sure that you always account for professional fees when you’re budgeting. No matter how small they are, they always add up!

Get Down To Business

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There you have the 5 biggest variables to consider when budgeting for your restaurant, plus some expert tips.

Hopefully you now understand why there’s no straight answer to the question of overall cost.

Location, equipment, opening inventory, contingency fund, and professional fees should all be considered individually and factored into your bottom line.

Hopefully this has helped you budget and feel better prepared for the launch of your business!

Which one are you going to focus on? Get started and take action.

If you want to learn a more about staring a restaurant from concept to customer, I’ve written a step-by-step guide with everything you need to know, which you can find [here]!

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