The romantic notion of owning a restaurant leaves many business-savvy foodies asking, “How much does it cost to open a restaurant?” Read on to find out the answer and the challenges you can expect to face on your journey to becoming a restaurateur.
What’s the average cost to open a restaurant?
The average cost to open a restaurant was $498,888 according to a survey of 700 restaurateurs conducted by RestaurantOwner.com. This amount factors in land and building costs, construction costs, kitchen and bar costs and startup costs.
The amount you’ll sink into a new restaurant depends on many factors. Will you require a new construction versus a remodel? Will you be a tenant in a building with multiple occupants or have a free-standing building to yourself?
The cost will also depend on the restaurant’s service type (limited service, full service, bar, etc.), location, style, decor and size.
Is it possible to start a restaurant with less money?
Can’t swing the half a million dollars needed to start a new restaurant? Some business owners do successfully start a restaurant with less capital. Census data surveying 700,000 food services and accommodation businesses found that only 13 percent of those surveyed started their business with less than $5,000.
Another 20 percent each started their restaurants with $100,000 to $250,000 and over $250,000. Modern modes of food delivery, like food trucks, allow you to start a restaurant for far less than a brick-and-mortar restaurant.
But in most cases, starting a restaurant requires considerable capital. If you’re after a dirt-cheap business idea, starting a restaurant probably won’t be at the top of your list.
How hard is it to open a restaurant?
There are other complexities to consider when starting a restaurant beside the cost. You may think running a restaurant is easy and fun. You’re wrong. The realities of running a restaurant are not for the faint of heart.
This is a business niche that requires both culinary and logistical mastery. As a business owner, you don’t necessarily need to possess culinary skills yourself. But even if you hire a virtuoso chef, you still need to please guests, manage your staff and constantly consider profits in light of costs.
Here are some of the challenges you’ll face:
- Ideating a restaurant concept with broad appeal
- Obtaining the financing if you don’t have the funds to construct or open it
- Obtaining the proper insurance and licenses
- Complying with food regulation statutes
- Starting with no salary
- Long and irregular work hours that might tie you up on evenings, weekends and holidays
- Handling different personalities on staff and among guests
- Maintaining a consistent customer-friendly attitude throughout the service shift
- Dealing with negative guest feedback and coordinating with staff to make improvements
- Managing the online reputation of the restaurant
- Taking on responsibilities and dealing with unexpected events outside your area of expertise e.g. doing dishes or handling a plumbing fiasco or natural disaster
- Handling the stress of being the universal point of contact for the restaurant
- Staying on top of the ongoing and often growing costs of ownership
- Continually reinventing the restaurant brand and menu over time
Should I open a restaurant?
If you have the funds, are aware of industry needs and the potential drawbacks, owning your own restaurant may still be worthwhile to you. Those with prior experience working in a restaurant either on the culinary or business side are best equipped to succeed in this arena.
What are some of the tax deductions for restaurant owners?
Along with ordinary business expenses for legitimate business activities, major deductions restaurant owners can uniquely deduct include the following.
Capital expenses. Deductible capital expenses primarily cover equipment and infrastructure improvements. For example, tables, chairs or a vital remodel could all be considered deductible. Depending on the purchase, it can be deducted in the year it was purchased or “depreciated,” that is deducted its value over the useful life of the purchase. However, its value would depreciate with each passing year of that useful life.
Food expenses. These include direct or indirect expenses involved in preparing or serving food. For example, you can deduct the cost of main ingredients or of items like oil used in the preparation of food.
Labor expenses. This covers the cost of your staff, for example, your waiters and chefs. If you employ a restaurant manager, what you pay him or her is also deductible but the profits that go to you as the owner are generally not.
Advertising and operating expenses. This includes everything from utilities to the cost of printing and delivering flyers to promote your restaurant. The reason for the deduction is that operating and advertising for a restaurant are typically higher than those of an average business.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.