What is the Restaurant Startup Cost in The United States?

Starting and running any business requires money, energy, and time. However, not all businesses make it through the first couple years. According to the data compiled by the Bureau of Labor Statistics from 1995 to 2015, more than 20% of businesses failed within 1 year, and the business failure rate increases to over 50% in five years. So why do some businesses fail within years of launching? Well, there could be many reasons.  Lack of planning and preparation, under-estimating the challenges, money crunch, or just plain bad luck are a few of the reasons.

How Profitable is Owning a Restaurant?

The restaurant business, although competitive, can be a lucrative venture. With over 660K restaurants across the United States, the food and drinks industry generated over $799 billion in sales in 2021. Needless to say, owning a restaurant business can be a profitable affair if you get the business model right. How much does it cost to start up a restaurant? Read on to know about restaurant startup costs and how you can improve your chances of succeeding in the industry.

List of Restaurant Startup Costs Every Owner Must Know

Budgeting for a restaurant startup contains two items – initial costs and expenses. A restaurant start up cost is a one-time expense for the commercial space, renovation, equipment, kitchen utilities, etc. On the other hand, expenses are recurring charges you pay to keep your restaurant up and running, like rents, payroll, supplies, etc. Now you know the difference between these two, here is the restaurant startup costs breakdown that every restaurant owner must know:

1. Premises, Equipment, and Resources

Planning for any restaurant startup budget begins with finding the perfect location. The area, location, resources, and equipment you will require depend on the size and type of your proposed restaurant. Rent is usually charged on a per square foot basis, and varies in different parts of cities. While some restaurant premises come fully equipped with furnishings, others require costly renovations that can shoot up the investment cost.

Here are some of the crucial costs you must consider:

• Security Deposit: $30,000 to $60,000 (equivalent to 3 – 6 months’ rent)
• Renovation Charges: $5,000 to $50,000
• Restaurant Tables & Chairs: $40,000
• Kitchen & Bar Equipment: $115,000
• Initial raw material costs (food and drinks): $8,000
• Rent: $10,000 to $12,000 per month
• Utilities & Supplies: $2,500 per month

2. Hiring a Team and Finding Vendors

The restaurant is a part of the hospitability industry, and its success depends on the staff you select. While preparing your restaurant business plan and restaurant startup costs checklist, you must have a clear idea of how many staff members you will need for the smooth operation of your restaurant. Although the federally mandated minimum wage in the United States is $7.25 per hour, it varies from state to state. It could be as low as $5.15 per hour in Georgia and as high as $15 per hour in California. The average salaries of the typical staff members of a restaurant are:

• General Manager: $50,000
• Chef: $40,000
• Assistant Manager: $38,000
• Servers/Bartenders: $24,000

Any restaurant’s dish is only as authentic as the ingredients are. Therefore, you must partner with the right vendors to get the best quality raw materials. Most restaurants have a markup price of about 300% for their dishes. For beverages and cocktails, the markup price can be significantly higher.

3. Getting Your Paperwork Done

Opening a restaurant in the United States requires several licenses and permits like:

• Business License (~ $500)
• Food Service License ($100 to $1,000)
• Liquor License (around $12,000)
• Food Handler’s Permit ($100 to $500)
• Sign Permit
• Employer Identification Number

The price of these permits and licenses (excluding liquor licenses) varies from state to state and could easily cost you
about $5,000 to $6,000. Additionally, you must protect your business by investing in appropriate insurance coverage,
whose premiums can cost around $6,000 per year.

4. Payment System Setup & Restaurant Technology

Any modern restaurant is expected to have a point of sale (POS) system which is fast, portable, and safe for online
payments. While some payment gateway service providers charge a monthly fee, others charge a percentage for every
transaction.

Similarly, investing in restaurant technology helps in the effortless management of front-end and back-end processes by
automation. More importantly, you collect data for analyzing customers’ preferences and feedback to improve their dining experience. Restaurant business startup costs for some of the hardware and software requirements associated with a restaurant are:

• Hardware:
  • iPads or handheld devices for POS and kitchen display systems: ~ $300 and up
  • Payment Terminals
  • Receipt printers: $100
• Software:
  • Point of Sale (POS) System: $69 per month onwards
  • Employee Scheduling Software: $18 per month onwards
  • Kitchen Display System: $12 per month onwards

5. Branding and Marketing

We live in a digital age where running any business is impossible without marketing. Marketing helps in increasing your
restaurant’s visibility to stand ahead of the competition and create a brand image. You can select from various
marketing techniques – from social media to billboards, from PR services to radio campaigns to draw customers. The
average costs of different marketing tools are:

• Fliers/Ads/Discount-coupons: $5,000 to $10,000
• Signage: $15,000
• Opening Event: $15,000
• PR Services: $5000 – $6,000
• Menu Designing: $1,500
• Radio Ads: $20 to $80 per ad campaign broadcast
• TV Ads: $200 to $1,500 for every 30-second spot

In a nutshell, marketing costs for your new restaurant can easily cost upwards of $30,000.

If you want to market on a budget, you can consider hiring content writers or freelancers for a robust digital presence in
the form of blogs. Social media content creators follow the most-efficient Search Engine Optimization (SEO) practices to
create high-quality content, which usually costs less than $500.

Restaurant Business Startup Facts

According to the National Restaurant Association, here are some interesting restaurant business startup facts:

1. Restaurant industry sales in 2021 were around $799 billion.
2. The restaurant industry employed more than 14.5 million workers in 2021.
3. Around 90% of the restaurants in the United States operate with less than 50 employees.
4. The cost of opening a restaurant varies between $175,500 and $750,500.
5. 90% of the restaurant-goers research the restaurant before dining.

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