Figuring out how much it’s going to cost to start a small restaurant is no easy task. According to RestaurantOwner.com, it costs between $175,500 and $750,500 to open a restaurant, this large range including establishments of all types and sizes. Usually, it’s hard to find information regarding small cafes, neighborhood pizzerias or local pubs.
Fortunately, this article gives a detailed breakdown of the cost to start a small restaurant. Once you have a better idea of what goes into becoming a restaurateur, you can better prepare financially for the journey ahead.
Breakdown of Restaurant Startup Costs
When opening a new restaurant, a lot needs to be done–and a lot of money needs to be spent–before you even serve your first customer:
Restaurant Permits and Licenses
- Business License: $50-$250
- In most areas you need to register with the state and local government in order to conduct business. A restaurant business license usually costs $50, but fees may be higher in some cities.
- Incorporation Fees: $50-$300 or more
- In order to become a legal business, you have to choose a business structure. Most restaurants in the United States are either LLCs or corporations, so the cost of incorporation varies from $50 to multiple hundreds of dollars, depending on the state and if you need the help of a lawyer.
- Food Service License: $100-$1,000
- You need a license to serve food to the public, as well as a passing score on periodic health inspections. Costs vary by location.
- Liquor License: $3,000-$14,000
- Varies by state. A license for only wine and beer is usually significantly cheaper than a full liquor license that includes hard alcohol.
- Buy: $100,000-$1,000,000
- Lease: average $2,000-$12,000 per month for 5-10 years
- As the saying goes, “location, location, location” is very important. A busy downtown area with many potential customers will be more expensive than a low-density area with minimal foot traffic.
- If buying, expect to make a 10% down payment. If leasing, a significant deposit is normal. Also, restaurant leases are a lot longer than apartment leases, so signing a 5 or 10-year lease is standard.
- The commercial space will likely be your biggest expense, so choosing one location over another can affect the cost to start a small restaurant dramatically.
- Renovations: a few thousand to $100,000
- The layout, HVAC, plumbing and electrical are all important. If you’re starting a small restaurant in a space designed for a food or beverage business, you may not have to make many changes. However, if you are moving into a former accounting office, the restaurant build-out will be much more expensive.
- Signage: $5,000
- Exterior decorations, outdoor seating: $100,000 and up
- A big, attention-getting sign tells people where you are and that you are open for business. Local permits included, a basic outdoor sign will likely be about $5,000. If you want more than just a sign, such as a high-end exterior with outdoor seating, be prepared to spend a lot of money.
- New: $50,000 for a small shop, $150,000 for a larger kitchen, $115,000 average
- Used: usually 10%-40% less
- Lease: $1,000-$5,000 per month for a full kitchen set
- Commercial kitchen equipment is one of the greatest expenses for a small restaurant, so buying used equipment or leasing appliances is a good money-saving strategy.
- Maintaining your restaurant equipment with real OEM replacement parts that extend the life of your machines saves money as well.
- Dining Area Tables and Chairs: $40,000
- Restaurant tables and chairs are surprisingly expensive. According to an article on Lightspeedhq.com, restaurant furniture for the dining area can cost $40,000. Since furnishing a small restaurant is so expensive, many places only offer take-out.
- Dining Room Area: varies, average of $120-$300 per square foot
- Creating a nice ambience with top-notch interior design can make a great impression on guests. Take-out only and lunch counter restaurants usually have minimal interior decorating, but spending $120 to $300 per square foot on restaurant décor is normal.
- Business Property Insurance: about $700 per year
- General Liability Insurance: about $800 per year
- Workers’ Compensation Insurance: about $1,500 annually
- Insurance company Farmers recommends that restaurants have three types of insurance:
- Business Property – for fires and other disasters
- General Liability – in case of injury or illness
- Workers’ Compensation – in case employees are injured at work
- Insurance company Farmers recommends that restaurants have three types of insurance:
- Lawyer: $500-$2,000
- Accountant: $100-$400 per month
- Good legal advice when opening a new restaurant is important, so expect to pay for it. Although an accountant may not be absolutely necessary in the pre-opening phase, it is a good idea to budget a few hundred dollars per month early on so that there are no surprises in the future.
Restaurant Management Software
- Point-of-Sale (POS) Software: $1,500-$5,000 setup, $200-$500 installation; $6-$400 per month
- A Point-of-Sale system tracks orders, payments, and inventory, allowing restaurant managers to manage workflow digitally.
- POS systems also offer analytics reports, such as best-selling menu items and busiest times of the day, so that restaurant managers can make changes to be more profitable and efficient.
- A POS system includes both software and hardware, so getting your new restaurant set up will likely take a few thousand dollars. Once set up, most POS systems also have a monthly payment.
- There are many POS systems on the market with varying features and prices, so be sure to shop around.
- Employee Scheduling Software: about $10 per month
- With many part-time employees, new restaurants need a way to manage their schedules. Scheduling software makes planning and adjusting schedules a lot easier.
- Food Handler’s Permit: minimal to $100-$500 including course and test
- Depending on the state, some or all restaurant employees must obtain a food handler’s permit by taking a self-directed course, passing an exam and then paying the permit fee. Check your state health department for more information.
- General Training: a few hundred to a few thousand
- Your employees need to know how to do their jobs, so a few hours to a few days of training on the POS system, the menu and other aspects of the business is necessary.
- The cost of training new restaurant staff depends on the number of employees and their experience, so this figure varies widely.
- Website: none to a few thousand
- Nowadays, almost everyone expects any legitimate business to have a website, so creating a website for your small restaurant is essential. Options range from a free, do-it-yourself site to a large, impressive website that requires you to hire help for thousands of dollars.
- Social Media: none to a few thousand
- Social media can help a new restaurant build its customer base. Although you could build a Facebook page or Instagram account on your own, hiring someone to help would make life easier.
- Traditional Media: none to multiple thousands
- Even though a lot of restaurant marketing has gone digital, other forms of marketing are not dead. Things like flyers and radio commercials can definitely make people aware of your new pizza place or café.
Initial Food Inventory
- Pre-Opening Food: average $5,000-$25,000
- Although it is important to not overstock and overspend, you do not want to run out of food on the first day. Depending on the type of restaurant and if you serve alcohol, stocking your new restaurant with food will likely cost between $5,000 and $25,000.
Average Cost To Start a Small Restaurant
Total Startup Costs: Between $100,000 and $300,000
After going through the breakdown, it’s clear that there are a lot of expenses associated with opening a restaurant. Even though you can save money by doing things like buying used equipment or forgoing a liquor license, it’s still going to cost a lot of money.
Considering the range of expenses, the cost to start a small restaurant is between $100,000 and $300,000. In terms of cost per square foot, restaurant consultants say a good estimate is $100 to $800 ($450 average) per square foot to get your new restaurant up and running.
Don’t Forget “Startup Runway” When Opening a Restaurant
In addition to the significant initial investment, there are even more expenses over the first few months. As stated in an article on the Binwise.com blog, the average restaurant takes 2 years to become profitable. So, you need extra money to cover expenses as your business grows.
The entrepreneurial world calls this extra money startup runway, a fund you use to support the business until it can “fly” on its own. Just like any other entrepreneur, you will need at least a few months of startup runway to cover costs like rent and salaries until revenue takes off, so plan accordingly.
As you can see, the cost to start a small restaurant is very significant. Realistically, opening the café, pizzeria or pub you’ve always dreamed of is going to cost at least $100,000 of initial investment, along with extra money to cover expenses as the business grows.
With this information in mind, you can better plan your finances by choosing to spend less on things that are not important and more in areas that are essential. Now that you know what to expect, you are much better prepared for the entrepreneurial journey ahead.