Start a Restaurant

This is one of the most frequently asked questions in starting a restaurant, and one that people often get wrong by seriously underestimating the actual answer.

That may not be a problem, if there is plenty of cash in reserve and sales pick up quickly, or it may be a devastating problem if there was very little reserve, the estimate was way off, or sales are much slower than expected in taking off.

Because many restaurant entrepreneurs have no real experience in these matters, it may seem like a difficult job to accurately estimate the cost to start a restaurant. It doesn’t have to be. Using good financial projection software, designed specifically for a restaurant can give you the exact cost answers you are looking for when presenting your plan to a bank or investors.

Here are the main cost considerations for startup costs when starting a new restaurant:

Lease

This includes not only the monthly payments, from the time of taking the keys, but also a deposit that may be required, which could run anywhere from a few hundred dollars to several months worth of payments.

Leasehold Improvement

Once you have the space, you may need to make changes to the interior, including adding or removing walls, rewiring, replumbing, adding finishes, lighting, shelving, fixtures, etc. to make the space into your actual business.

Beginning Inventory

This is includes all the food, beverages and liquor you will have on hand to be ready on your opening day. Depending on the terms you can get with yourvendors, you may be able to finance some or all of this cost. Being a new restaurant, however, getting good terms right from the start will be more difficult and depend on your good credit and business experience and to some extent your industry knowledge and contacts.

Printing

Virtually every restaurant requires some printing. This may be as little as business cards and menus, or it may be much more.

Restaurant Equipment

You will need to buy or lease the necessary equipment to operate it. Don’t forget the small things, like fax machines, phone systems, computers, desk chairs, filing cabinets, etc. which every restaurant needs, and although no one thing costs a lot, the collection will add up.

Utilities and Deposits

You will need to turn on the electricity, phone and any other services you need to operate. Some of these will require a deposit or hook up fee, or both, that will make the first payments double or more of the typical payment you can expect.

Permits/Licenses/Taxes

While not usually an excessive amount, you will need to budget some money to cover your business license, health permit and any other permits or taxes you will be required to pay. Some states require a deposit for your sales taxes. If you incorporate or form an LLC, there will likely be fees and taxes associated with the registration.

Professional Services

If you use a lawyer, accountant or other professional services in starting up, there will be expenses associated with these services. Most restaurants can avoid these, unless there is a complicated investor relationship or partnership agreement needed.

Your Staff

You may start your business alone or with only partners, but if you need more help then you will have the cost of employees. You will also have the added expense of payroll taxes, social security, etc. which adds an additional $.20 or more cents to every dollar of payroll cost. (more…)

Restaurants that serve just about any type of beverage can usually benefit from beverage costing, but restaurants that serve alcoholic beverages are the best candidates for beverage costing analysis for increased profitability.

Beverages are one of the easier ways to maximize profits for your restaurant due to the lower costs and far greater profit margins than with food.

How To Calculate Beverage Costs

Similar to calculating food costs, you need to designate a time frame where you will analyze the beverage costs for your restaurant. This can be one week, one month or several months. Typically, the longer time you allow for analysis, the better and more accurate the information you will gain from the report. Usually, non alcoholic beverages like soda, coffee, juice, water etc, are not included in your beverage costing calculations, instead these should be included in your food costing analysis.

After the reporting period, you’ll then need to total the beverage sales for each variety of beverage, such as beer, wine, mixed drinks, etc. You’ll then need to figure out your total beverage purchases from that same time period, which will be your cost of beverage sales. You’ll then need to determine your inventory adjustment. This means you compare the inventory at the end of your reporting period to the inventory at the very beginning of the reporting period. For instance, if the beginning inventory level for whiskey is $250, and at the end of the reporting period, the inventory level is valued at $170, then the inventory adjustment is the $80 difference. (more…)