Whether you’ve lived in the United States your entire life or you recently moved here, you can’t help but be inspired by the country’s attitude, which is to have big dreams and an endless motivation to accomplish goals. Your own sense of inspiration is at an all-time high, enough so that you’re in the early stages of planning your US-based restaurant. Before you proceed too much further, you’re curious about something. How much would you spend to open a restaurant in the US?
Per 2019 data from Restaurant Engine, in the United States, you may pay around $275,000 to open a restaurant in a building you’re renting or leasing. That cost can skyrocket to $425,000 if you own the building.
Yes, that’s a lot of money, but it can take you pretty far. In this article, we’ll dive deep into a breakdown of your spending so you can prepare to allocate funds appropriately. We’ll also share some tips for where you can save some cash, as every dollar counts! You won’t want to miss it.
This Is How Much It Costs to Open a Restaurant in the United States
According to 2020 statistics from restaurant management software company Upserve, the US has more than one million restaurants spread across its 50 states. What’s popular very much depends whether you’re on the east or west coast and more north or south.
Thrillist published an article in 2018 on the most preferred types of restaurants in the US, and it was truly a mixed bag. Unsurprisingly, the southern half of the country prefers Mexican restaurants with some barbeque joints thrown in there.
The middle of the country is even more varied, with preferences for establishments serving seafood, burgers, and sandwiches. Then, there’s a large swath of the country that prefers pizza, especially Iowa, Mississippi, and Illinois. Much of the east coast are pizza and sandwich lovers as well.
Keeping all this information in mind, the prices we’re about to share from Restaurant Engine will certainly vary. You can expect to pay much more to open and run a seafood restaurant than a small pizzeria. Regardless, it’s better to have more capital to funnel into your restaurant than less.
The lower end of restaurant ownership costs is $275,000. If you break down that information per seat, the price is $3,046. Remember, this estimate assumes you don’t own the building where you run your restaurant.
Owning a building nearly doubles your restaurant startup prices to $425,000. If you’re curious about the price for each seat, it’s $3,734 this time.
2ndKitchen says restaurant ownership costs in 2020 can climb as high as $750,000, but that the average price is about $375,000. That’s in line with the Restaurant Engine data, even though it’s somewhat older.
What Does the Money Go Towards When Opening a Restaurant?
Even if the pricing of your restaurant is on the lower end of the above spectrum, you have to anticipate you’ll spend at least six figures to get your dreams off the ground. That’s by no means a small amount of money. If you’re wondering how you’ll afford the whole thing, we recommend you check out our recent post about opening a restaurant with little to no money.
Once you decide whether you’ll use crowdfunding, investors, and/or loans to get the capital needed for your restaurant, you’re probably wondering where the money goes, right? It’s allocated into two general areas: one-time expenses and recurring expenses. Here’s some info on what spending is included in both categories.
As the name suggests, your one-time expenses are initial startup costs that you won’t have to worry about again once they’re taken care of, at least for the most part. That said, there are a lot of these expenses to sift through, so they can suck up most of your restaurant funding.
Let’s take a closer look at these one-time expenses now.
Disabled Persons Accessibility - $30,000
This first expense isn’t necessarily a mandatory one, but it will depend on the design of your building. If your restaurant doesn’t already have it, you need ramps for disabled people to get into and out of the establishment. You also have to pay to get the bathrooms expanded and remodeled to accommodate these patrons.
For this change alone, you could be looking at a hefty price tag of $30,000. If your restaurant would need disabled persons accessibility, you can always make the establishment takeout only to skip paying this fee.
Advertising and Signage - $30,000
We’ve talked on this blog about the importance of marketing yourself. This goes beyond your website and social media to offline advertising avenues as well. For example, you may pay to get your restaurant advertised on the radio, on television through commercials, in restaurant publications, newspapers, and even on billboards around town.
So much advertising doesn’t come cheap. On the lower end, you might get away with shelling out $20,000, but expect this to cost up to $30,000.
Point of Sale Systems - $20,000
A point of sale or POS system is an absolute must. If you were on a seriously tight budget and you had to skip some things, your POS system would be the last thing you’d want to omit. Without this system, it’s much harder to manage reservations, know who’s sitting where, who ordered what, who paid, and which orders are still outgoing.
Yes, you can keep track of all this with a pen and paper…at least at first when you have maybe 50 customers a day. Once you grow, without a POS system, that growth will be severely hindered. Part with the $20,000, as it will be worth it.
Furniture - $80,000
Unless it’s your aesthetic, a bare-bones restaurant won’t do. You need décor, tableware, furniture, and tables or booths for your patrons to sit. The quality, sizing, style, and quantity of this furniture will vary depending on your budget and the size of your restaurant.
That makes the $80,000 price we quoted extremely flexible. You might spend that much money if you have a larger, more upscale establishment, but you can just as easily halve that price and still operate a very nicely decorated restaurant.
Cooking and Kitchen Equipment - $50,000 to $150,000
With the front end of your restaurant taken care of, now it’s time to focus on the back. Your kitchen staff will need all sorts of tools and equipment to do their job. Maybe the building you bought was a prior restaurant, so some equipment is included. It’s still in pretty good shape, too, so you can use it for at least a few years.
Another situation in which you might not have to spend as much is if you have some of your own equipment to lend. A smaller restaurant won’t need quite as many tools, so you can shave costs there, too. In all three of these scenarios, you can look towards the lower end of equipment costs, so around $50,000.
For a bigger restaurant, one with a more complex menu, or an empty building that’s being renovated into a restaurant, prepare to spend more. You could shell out $150,000 for tools and equipment such as griddles, industrial mixers, ovens, stoves, dishwashers, refrigerators, freezers, and the like.
You don’t want cheap stuff here, but do try to stick within the budget. If you blow all your money on restaurant equipment, you could undercut your own success.
Building Remodeling - $350,000
Only if you own your building do you need to worry about paying for renovations. Renters and leasers will have their building updates covered by the rental company or the building owner.
A new building, while it may cost more upfront, won’t need quite as much remodeling out of the gate, perhaps none at all. If you opt for a well-loved building that’s a little older, renovations may cost you in the ballpark of $350,000.
Legal Fees - $2,000
Becoming an official business that’s licensed to be in operation is not free. We recommend you hire a lawyer to guide you through the ins and outs of all the documentation that will come your way in the weeks and months ahead. You would hate to sign something that chips at your rights or could hurt you down the road.
It’s much better to put forth about $2,000 for a quality lawyer now than pay for things like violations and infestations later.
Business Permits and Licenses - $300
We’ve written about this before on the blog, but you must have health and safety and other compliance permits as well as liquor permits (if you serve alcohol) and city licensing fees to run your restaurant.
Depending on how many permits and licenses you need, your fees in this area can climb quite high. A single permit or license may set you back $100 to $300, so getting all the documentation above could cost you something like $900. You can’t legally operate your restaurant without the right permits and licenses, though, so this isn’t something you can afford to skip.
Down Payment or Security Deposit - $12,000
You also have to put down either a loan payment or a security deposit for a lease to secure your restaurant for later use. It’s hard to say how much you’ll spend here, as many factors can influence cost, such as your location and your restaurant size.
On the lower end, you may pay as little as $2,000, but you should expect a more realistic estimate to look more like $12,000. After all, most loan lenders expect you to have 10 percent of the loan ready upfront as a down payment.
Whew! That sure was a lot of money you spent. As you remember, those are one-time expenses, so for most of them, you won’t have to pay them again. You may have to renovate your building a second time or invest in another billboard to get more people at your restaurant. For the most part though, once you spend money on the above areas, you’re done.
The same cannot be said for these expenses. They will come up every now and again over the life of your restaurant.
Permit Renewal and Insurance - $10,000
You may have your permits now, but they don’t last forever. Before they expire, you want to get the permits renewed. On top of that, you have to pay insurance, such as liability insurance, inventory insurance, and building insurance. If you add new permits to accommodate for restaurant growth, like food handlers or business permits, your expenses in this area will grow as well.
Overall, expect to pay about $10,000 for all the new and renewed permits as well as the insurance.
Utilities - $30,000
Without electricity, the ovens don’t work. With no lights, patrons can’t see the menu. An average utility cost estimate is $2,500 monthly. That’s $30,000 a year. Your utilities may cost more or even less depending on the size and location of your restaurant.
Beverage and Food Costs
You need beverages and food ingredients to serve your customers or you have no restaurant. It’s really as simple as that. You will need to order in large quantities and often to ensure you can meet the demand of your patrons. This is another area in which it’s tough to estimate costs, but you can expect the bulk of your spending to go towards food and drink expenses.
Marketing - $150,000
You may have your radio ads and your billboard on the avenue, but you can’t give up marketing after that initial burst. Promoting your restaurant is an ongoing process that will keep your establishment drawing in new business.
You get to pick your marketing budget, which may not be as high as $150,000 if you’re newer and don’t have a large revenue stream yet. Do keep in mind that the bigger your marketing budget, the more services you can take advantage of to bring in even more hungry diners.
Salaries - $55,000+
Your employees expect payment several times a month. Their salaries will be different based on their job, with prep and line cooks earning about $650 a week and head chefs up to $1,800. If you hire a salaried manager, their annual income may be between $28,000 and $55,000.
Mortgage or Lease Payments - $12,000
If you don’t own your building, then every month, you have to pay rent. The same would be true if you’re renting an apartment. Like you’d pay a mortgage if you’re a homeowner, you also have to pay a monthly mortgage if you own your restaurant.
The monthly payment for leasing may be lower than owning, such as $2,000. With some leases as well as mortgages, your monthly fees could be $12,000, which would make annual costs quite high.
You also have to factor in for miscellaneous costs. Maybe set aside a few thousand dollars here. From emergencies to things you forgot to last-minute expenses, having a rainy-day fund, so to speak, will serve you well.
Areas to Avoid Investing Too Much Money Into
As a first-time restaurant owner, you want to be as savvy as possible. That means avoiding common mistakes that befall many others in your shoes.
One of the biggest errors new restaurateurs make is overspending. There are four primary areas in which you may push too many funds towards: decorating, marketing, technology, and equipment. It’s not that these aren’t important areas for the success of your restaurant, as they absolutely are. They’re crucial, even.
It’s just that you can probably get by with spending less. Here’s how.
You have a Pinterest board with your favorite restaurant interiors as well as cut-outs of restaurant magazines showcasing the most posh-looking establishments. You may want to mimic the styles of these, but it’s important to remember that Rome wasn’t built in a day.
Decorating costs money. You do need a furnished restaurant to attract patrons, but it doesn’t have to be perfect yet. Temper your expectations and know when to stop. Once your restaurant begins bringing in a healthy revenue stream, then you can take some of that money and put it towards working further on the decorating.
No, we’re not telling you to skip the marketing. It’s just vital that you set a marketing budget that doesn’t cut your restaurant at the knees. We cited a budget in the last section of $150,000. You may find after all those one-time expenses, you can’t put anything close to $150,000 into marketing.
That’s okay, especially at the beginning. Please don’t put yourself into potential bankruptcy to market yourself or there won’t be anything left to market.
Our everyday lives are driven almost purely by technology. All the cool gadgets and devices can be tantalizing. When you see other restaurants with the latest tech, you think you need it, too.
Not so fast. Get your POS system and a bookkeeping system going first. Look at the other areas of your restaurant you want to prioritize, such as décor or marketing. Then, when you have money left over, you might add table iPads for digital ordering. Until you reach that point, this tech isn’t necessary.
Undoubtedly, if there’s one area you may overspend in, it would be kitchen equipment. You need it, right? That’s how you can justify dropping thousands of dollars at a time for sinks and ovens and fridges.
The good news is you have plenty of ways to get your hands on great kitchen equipment that won’t blow through your funding. Look at restaurants that recently failed, as the staff there may be willing to sell their newer equipment at a bargain since they won’t need it anymore.
Also, don’t be afraid to go used. The equipment should still be in working order, of course, so make sure you see it and test it for yourself before buying it.
Opening a restaurant in the United States is far from cheap, as you may pay upwards of $425,000 to do it. Most of this money is used for one-time and recurring expenses.
You should expect to part with a lot of cash, but take care to ensure you don’t overpay on kitchen equipment, technology, decorating, or marketing. Best of luck!