How Much Money Do I Need To Open A Small Restaurant?
For a leased building, the average restaurant launch cost is $275,000, or $3,046 per seat. If you wish to own the building, up the price to $425,000, or $3,734 per seat. Our restaurant startup cost checklist breaks down all of the expenses you’ll need to think about in order to turn your dream into a reality.
Depending on the type of cuisine you plan on serving, a small restaurant may cost a lot. The average restaurant startup cost is $275,000 or $3,046 per seat for a leased building. If you want to own the building, bump that up to $425,000 or $3,734 per seat.
Costs associated with opening a small restaurant
A small restaurant starts with high investment. This includes the cost of food and supplies to last through the opening period, such as paper products and drink cups. Other costs associated with running a small restaurant include training and certification for employees. Food costs are among the highest for new restaurants.
The National Restaurant Association estimates a 70 percent turnover rate each year. Additionally, a thriving restaurant needs to invest in proper sanitation and hygiene practices, essential to a quality customer experience.
The next step is to prepare a detailed business plan for the restaurant. The plan should include:
- Financial forecasting.
- Details of the funding required.
- General expenses associated with running the business.
A thorough business plan will significantly increase your chances of getting funding from outside sources. Although you will need a significant initial investment, the costs of opening a small restaurant can be covered through various methods.
Another high cost when starting a restaurant is the location. A great location will help in attracting customers. A location that is close to the business district is ideal. A space with adequate parking will help you attract customers and increase sales.
However, if the space you choose was previously used for an accounting office, the construction costs will be higher. You should allocate twenty to thirty percent of your gross revenue to paying employees during the initial buildout. You can use restaurant payroll software like Patriot Payroll, OnPay, or Xero if running your payroll. You can also hire a company to handle your payroll tasks. They will save you time and money.
Getting a loan for a small restaurant
Before getting a business loan for a new restaurant, you must prepare yourself with the numbers you will need to prove your creditworthiness. In addition to having a sample menu, you should have copies of all licenses, permits, and certificates. Bringing all of this paperwork will improve your chances of being approved. Another thing to bring with you is an estimated valuation of the property. A business owner with a stellar personal credit score will be more likely to be approved for a restaurant loan.
Before applying for a loan for a small restaurant, it is essential to find a lender willing to work with new business owners. Certain banks are SBA Preferred Lenders. These lenders have a proven track record for small business loans. Other critical criteria are that the restaurant must be profitable and have good equity to invest in. Furthermore, the business owner should not have a criminal record or be on parole.
Suppose you have bad credit or need funding for general working capital. First, taking a line of credit from a lender like Kabbage may be a good idea. Kabbage can approve applications within a day or two. Additionally, there are alternative lenders such as OnDeck Capital and Funding Circle. These lenders use more advanced technology than brick-and-mortar banks and may offer better repayment options.
Although there are many other ways to secure financing for your restaurant, banks are generally less likely to approve a large loan for a small restaurant because they consider it a high-risk industry. A study by Restaurant Startup & Growth magazine, for example, found that 23% of restaurant startups fail in the first year. Therefore, it is essential to find the best restaurant financing option. The right restaurant loan has the lowest fees and rates, so shop around and find the right one for your restaurant.
Buying second-hand equipment
Before buying restaurant equipment, plan your menu and decide on the exact number of servings you will need. Unfortunately, many people mistake buying equipment they won’t use. To avoid this, it’s best to create a budget before you start shopping. Then, use this list to shop.
If you can’t afford to buy all of the equipment you need at once, consider buying used restaurant equipment from a reputable store. These stores should guarantee that the equipment is in good working condition and safe in a commercial kitchen. Unfortunately, first-time restaurant owners face a high risk of failure, with 60% failing within the first year. However, you can find quality equipment at reasonable prices and ensure that the restaurant will have minimal downtime.
When purchasing used restaurant equipment, always make sure that the price is close to the retail value. It’s best to price second-hand equipment at 20 percent less than its retail value. In addition, you can ask the seller to run a full test on the equipment. Finally, it would help if you tried to emulate a working day since used equipment loses its value once you move it.
Suppose you’re in the market for restaurant equipment. In that case, it’s important to remember that new equipment is often cleaner and easier to maintain. Restaurant equipment is constantly changing and can have rust or missing parts. It will help to look for pieces in perfect working condition and rust-proof parts.
This can help you save money and make the necessary purchases while maintaining your budget. Furthermore, new restaurant kitchen equipment will be backed by a warranty so that you can be assured of their quality and safety.
Getting a business license
Getting a business license for a restaurant is crucial for any new business. There are several steps to complete to start your restaurant legally. First, you can quickly search for the government website in your area to find the information you need. You will also need to register a business name and domain name for your website and claim your social media handles.
First of all, it is essential to know where you live and how to acquire the necessary business licenses. Some states require that all restaurants acquire a federal and state business license. In addition, some states have special requirements for restaurants, such as those serving alcohol. The US Small Business Administration provides a state-by-state guide to obtaining a business license. The process may vary by state, so check with your local government for the specifics for your state.
Next, you should register a business name and get a federal tax identification number. A federal tax identification number is like a social security number for your business. Similarly, in Canada, you can incorporate both federally and provincially. However, if you plan to operate multiple restaurants in several provinces, you must incorporate both federally and provincially.
When applying for a small restaurant license in New York, you should ensure that you have everything you need to get started. The process is straightforward, and you can even complete it online! You will need an Employer Identification Number, or IRS EIN, and a range hood. You can also check your city and county’s regulations and license requirements. You must also get a sales tax ID from the state.
Getting a marketing budget
As a restaurant owner, you should be aware of the costs involved in marketing your business, especially when starting. Marketing your business should generate more sales and not add unnecessary expenses. A reasonable restaurant marketing budget should be trackable and effective.
If it’s not, it can be ineffective and overly costly. You can start by creating an initial list of objectives. Identify four or five main objectives and focus on them. While traditional advertising channels are still effective in generating awareness, digital channels also keep your restaurant top-of-mind.
Suppose your restaurant is still in its infancy. In that case, you don’t have to follow the same aggressive marketing strategy as established restaurants.
However, if you aim to attract new customers, you can allocate 60-70% of your budget to the most effective marketing channels. You can also spend up to 20% of your total sales to try new approaches every quarter. New marketing approaches take about three to four months to show results.
Once you’ve identified your sales funnel, you should map it. Observe which marketing tactics are most effective and which ones don’t. As you map out your funnels, you can decide which tactics to use. If some are effective, cut the excess.
Knowing your customers needs and wants will inform your marketing budget. You can give them free resources or social proof, for example. Once you’ve created these goals, you can set up a budget for marketing your small restaurant.
You can also use email marketing as an effective tool for restaurant marketing. Email marketing is a low-cost way to reach a large audience. Some email marketing software is even able to personalize your messages. For example, it will suggest menu items based on what your customers bought in the past and keep your guests engaged. You can even send them birthday and anniversary coupons. Depending on your restaurant’s audience size, this type of marketing will cost you about 10 to 15 percent of your total sales.