The Real Cost of Starting a Restaurant Brand
Introduction
Starting a restaurant is a dream for many culinary enthusiasts, but it comes with significant financial challenges. Did you know that the average cost to open a restaurant ranges from £250,000 to £500,000, sometimes even £1m or more depending on the size? Understanding these costs is crucial for aspiring restaurateurs. In this post, we will explore the top costs of starting a restaurant brand, why they are essential, how the money will be used, and provide top tips to avoid wasting money when starting your restaurant.
Top Costs of Starting a Restaurant Brand
1. Lease and Renovation Costs
The right location can make or break a restaurant. High foot traffic areas often come with high lease costs, but they provide visibility and accessibility. Expect to spend on monthly rent (often paid quarterly in advance), security deposits (typically around 6 months’ rent for new restaurants), and extensive renovations to meet health and safety and building regulations’ requirements and create an inviting atmosphere. Renovations might include kitchen modifications, dining area improvements, and toilet upgrades. Remember a restaurant in a prime location, no matter where you are in the world can severely impact your long term business health so be smart.
2. Equipment and Supplies
Quality kitchen equipment ensures efficiency, consistency, and safety in food preparation, which directly impacts customer satisfaction and operational success.
Funds are used to purchase essential equipment like ovens, fryers, refrigerators, dishwashers, and smaller items such as utensils, pots, and pans. Initial inventory for the kitchen and bar is also included. You can of course lease your equipment, especially larger items which can reduce those initial costs but this can be more expensive in the long term. Even the most basic restaurants can have equipment costs well into the tens of thousands up front, so this will form a large part of the initial budget.
3. Licenses and Permits
Compliance with local council and health regulations is non-negotiable to operate legally and avoid costly fines or shutdowns. This includes fees for food safety registrations, business licenses, alcohol licenses, food safety training, and more. The costs vary widely depending on location and restaurant type. It is critical you have this in place before opening to ensure you are delivering the highest safety standards for your customers, and ultimately to prevent your premises being shut down mid service one day.
4. Staffing and Training
Skilled staff are essential for delivering quality service and maintaining operational efficiency. Employee turnover can be high in the restaurant industry, making training crucial. Salaries, benefits, and training programs for chefs, front of house staff, bar staff, and management. Initial training sessions and ongoing staff development are critical.
Remember labour costs typically account for 30% of a restaurant's revenue. Competitive wages and comprehensive training programs help attract and retain quality staff, reducing turnover costs, but higher wages also pressurise the financial model considerably, so it’s a very careful balance.
5. Marketing and Branding
Effective marketing attracts customers and builds brand identity, which is vital for establishing a loyal customer base and driving sales. Costs include brand design, website development, social media campaigns, local advertising, and initial promotions like discounts or grand opening events. A robust online presence is essential, website development and strong social campaigns are critical in the early stages of a restaurant's success.
Start up Restaurant budget breakdown
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Start up Restaurant budget breakdown 〰️
Lease and Renovation Costs:
£250,000 - £500,000 for prime locations, including design and construction.
Equipment and Supplies:£75,000 - £200,000 for essential kitchen and dining equipment.
Licenses and Permits:
up to £5,000, depending on whether you use consultants to assist with building regulations and premises licensing, but this will vary widely by location, size and type.
Staffing and Training:
Approximately 30% of projected revenue for salaries, pension, benefits, and training. In the early stages you might find it difficult to keep staff costs at or below 30%, but this is a really essential ratio, so aim to get there as quickly as you possibly can, and stay there.
Marketing and Branding:£10,000 - £50,000 initially for a robust online and local presence.
Top Tips to save money when first starting a restaurant
1. Conduct Thorough Market Research
Understand your target market to make informed decisions about location, menu offerings, and pricing. Utilise surveys, focus groups, and competitor analysis to gather insights.
2. Create a Detailed Business Plan
A comprehensive business plan helps identify potential financial pitfalls and maps out a path to profitability. Include sections on market analysis, financial projections, and operational plans.
3. Negotiate Smartly with Suppliers
Build relationships with suppliers to get the best deals and favourable terms, such as bulk purchasing discounts or extended payment terms. Research multiple suppliers and negotiate contracts to ensure you get the best value for your money.
4. Invest in Quality but Not Excessively
Balance between quality and cost, especially with equipment and decor. Opt for essential quality without overspending on non-essentials. Consider gently used equipment or phased upgrades as the business grows. Ask other restauranteurs if they have a contact, never be afraid to reach out!
5. Monitor Finances Closely
Regular financial audits and adjustments can prevent overspending and ensure the restaurant stays on budget. Use accounting software to track expenses and revenue in real-time, and adjust budgets as needed. You need to ruthlessly manage your cashflow and value every single penny. In the restaurant business, margins are slim and small errors can cost huge amounts of money, so ensure you have a clear financial model and you stick to it.
Conclusion
Starting a restaurant brand involves significant upfront costs, but understanding and managing these expenses can pave the way for success. From leasing and renovations to marketing and staffing, each cost plays a vital role in your restaurant's journey. By following our tips to avoid wasting money, you can navigate the financial challenges and build a thriving restaurant brand.
Our experience
The Silverwood Rose team have 8 years of experience in starting, growing and scaling a restaurant brand from scratch. If you’d like to learn more or want us to help with a complex problem, please do get in touch, we’d love to hear from you!