Advice from RestoHub: Restaurant Startup Costs

The cost of launching a new business – particularly in the restaurant industry – can feel daunting. Our friends at RestoHub have shared a full breakdown of costs required to open a restaurant so you can take it one step at a time. If you’ve ever considered starting your own restaurant, here is some information to help you understand what it takes.

The number one question aspiring restaurant owners ask is: How much will it cost to open a restaurant? The honest answer is: It depends. Restaurant startup costs vary wildly. At the modest end of the scale, $100,000 could be enough to take over an existing restaurant. On the high end, an investment of $3.5 million might be needed to buy a coveted franchise location. 

What are Restaurant Startup Costs?

Startup Costs are the total amount of money you will need to open your restaurant for business. Because of the relatively high cost of entry, it’s common to seek financing from investors and lenders.

Here are the major operational expenses you should factor into your startup cost calculation:

1. Location
   
   You’re going to need a restaurant property, whether you lease or buy. Real estate values differ greatly depending on which area of the country you are going to operate in. Even within your own city, prices can vary a lot – think of the difference between real estate values in the city versus the suburbs.
   
   
2. Construction / Renovations
   
   Unless you rent or purchase an existing restaurant, plan for major property improvements to get your space restaurant-ready. Even an operational kitchen may need redesigning or renovating; or you may require funds to add a bar or upgrade washrooms. Accessibility for all customers is now the law, so you might need to adapt your property to be compliant. Construction costs could be your largest startup expense. 
   
   
3. Licensing & Permits
   
   There are several mandatory permits required before a restaurant can open its doors: business registration, liquor license, food service, water and sewage, occupancy, parking, signage…to name just a few! To find out what permits you need to run a restaurant in Canada follow the instructions on the Government of Canada permits search site. Depending on your location, it can cost up to $10,000. 
   
   
4. Point of Sale System for Restaurants (POS)
   
   There is no argument that today’s restaurant operators must embrace technology in order to stay competitive. One way they do that is with restaurant POS software – making it the hub of their restaurant operations. A dedicated POS system runs the business, inputs orders, tracks sales and inventory, manages staff scheduling, syncs up with back-end accounting (for error-free reporting), integrates mobile payments with payment processors, and so much more.
   
   
5. Kitchen Equipment & Furniture
   
   Commercial kitchen equipment purchases and front-of-house furnishings will likely be your biggest expense after real estate and renovations. Many new restaurateurs choose to purchase second-hand equipment, or lease large appliances, to save on costs.
   
   
6. Staff
   
   Hire the best restaurant staff you can afford. Food quality and customer experience are two vital ingredients for restaurant success. You no doubt have your chef lined up, who will create unique, delicious dishes; but don’t discount the importance of professional wait staff who have direct contact with your customers and can make – or break – their dining experience. 
   
   
7. Opening Inventory
   
   Set aside an adequate budget to get your pantry and fridge filled for opening day. That first inventory stock will cost you, but everything after that is just replenishment. Buy what you need according to your menu and be mindful of perishables and food waste. When you first start out, it may take time to cycle through all those ingredients.
   
   
8. Restaurant Menu Design & Marketing
   
   Your restaurant concept is your brand so it’s important that your menu and marketing materials reflect that. A good graphic designer can create a logo, menu, and signage, that supports your restaurant’s distinct personality. Solid marketing should bring them in, and a well-engineered menu will help maximize profits once they are seated.
   
   Consider setting aside a budget for your grand opening. Even if you have a soft open prior to ribbon cutting, an opening event is key to announce to the community that you’re in business – and gives focus to your marketing efforts.
   
   
9. Administration
   
   You will have to keep the lights on – literally. Plan for open expenses to include things like utilities, insurance, website hosting, WiFi and cell phone. You’ll need toilet paper, too.
   
   
10. Operating Capital
    
    Recommended operating capital to have on hand is around $15,000 per one month.
    

Calculating Restaurant Startup Costs

Average restaurant startup costs for 40 seat establishment will run about $300,000 (CDN). That number includes rent, some construction, kitchen equipment, furniture and decor, and insurance and licensing. Increase that to $500,000 if you factor in purchasing (not leasing) real estate, or take on a major renovation project.

How did we arrive at $300,000? We’ve gathered average restaurant costs and simplified them in this useful worksheet. To get an idea what it will cost to open your restaurant, fill in your own numbers and see where you land. 

Restaurant Startup Costs Worksheet

Expense	Sample Cost	Your Cost
Capital Improvements	$125,000 (based on $125/ sq ft for 1,000 sq ft)
Furniture / Tables	$ 50,000
Kitchen Equipment	$ 43,000
Insurance	$ 625
Kitchenware, plates, glasses	$ 18,750
Licence & Permits	$ 12,500
Opening Food Inventory	$ 12,500
POS System	$ 4,000
Website	$ 6,000
Marketing/ Printing/ Opening	$ 10,000
Rent & Utilities	$ 6,000
Office / Internet / Bank	$ 2,500
Operating Capital (1 mo) including staff	$ 15,000
Startup Total	$305,875

Disclaimer: These cost estimates are for illustrative purposes only. Costs may vary depending on location, equipment, and restaurant concept.

It’s a great time to open a restaurant in Canada. Most food establishments reported profits last year – particularly those in the speciality foods category. If you are interested in taking the next step, you’ll need to calculate your startup costs before approaching your bank, or your family, for financing.

About RestoHub

Always wanted to own a restaurant but didn’t know how to actually do that? Well, if you’re opening a restaurant in Canada, meet RestoHub. Our comprehensive resource library has been built with the successful restaurant owner in mind – complete with templates, checklists, and everything in between. 

Sources

RestaurantCanada.org Research
BrandonGaille.com Canadian Restaurant Industry Stats
Statistics Canada