Five Start-up Costs to Think About When Opening a Restaurant
Opening a restaurant is an ambitious – yet incredibly exciting – business venture. Starting-up in this industry promises many challenges and opportunities. Aside from the personal benefits of crafting a culinary dream into reality, the profitability potential of running a food service franchise can be high.
In the UK the restaurant industry has undergone a period of recent growth, with consumer expenditure on casual dining reaching close to 88 billion pounds in 2017. However, the restaurant industry is known to be one of the toughest for start-ups. There are lots of big brands to compete with and a constant stream of new restaurants opening their doors. In order to open restaurant that will last, a strong understanding of the food service industry and restaurant start-up costs is crucial.
Beyond serving up delicious food, the end goal of opening a restaurant is to make money, and for a restaurant to be successful it requires a lot of careful consideration and cost-efficiency. As is the case for all profitable business, the key to success lies in the financials. Running a restaurant has various service and premises-based costs, some of which can catch first-time restaurant owners off-guard.
In the UK, typical restaurant start-up costs vary from a few thousand to a few million, depending on the size, location and a number of other factors. To get an idea, take a look at the total investment costs of some of the franchises in our franchise directory. The total investment for Loaded Burgers is £150,000, Harry Ramsden’s is £250,000, Bella Italia is £700,000, Wolf is £200,000, Las Iguanas is £700,000, Humpit is £70,000 and Auntie Anne’s is £135,000.
Before making any plans to start a restaurant business it is important to get an in depth understanding of the start-up costs of opening and running a restaurant. Consider the checklist below in order to gage whether opening a restaurant business is a financial option for you.
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What are the costs for running your own food business?
1. Gross margins
Firstly, it is crucial to calculate your prices and gross margins for the food and drink menu you are offering. These costs can vary depending on location, for example, a Central London restaurant would have to ensure that its gross margins are higher in order to accommodate the more expensive premises costs.
In general, the average gross margin for food is 65 percent. This means if you retail a dish for £10, you should have £6.50 left after taking off ingredient costs of approximately £3.50. Understanding these margins is necessary in managing food waste and theft. If you serve items that must be bought in or use expensive ingredients for, margins will be lower. It’s also important to remember that a more varied menu results in more inventory and a larger range of dishes means there is potential for more loss.
2. Staff costs
A major outgoing will be the wages you pay your staff. Running a restaurant requires a capable team of front-of-house staff, chefs and kitchen porters, a management team and perhaps extras such as bar-staff or cleaners.
When opening a restaurant, consider how many staff you require for both front-of-house and kitchen duties, and what level of wage you are willing to pay. While waiting staff often receive close to minimum wage, chef salaries vary due to experience, with entry level chefs receiving on average £9.47 per hour in the UK and head chefs earning around £30,000 per year.
Recruitment and training costs can also be a factor, especially when opening a restaurant and starting-up your own new dining establishment.
3. Premises costs
Following staff wages and food costs, rent will be one of the highest monthly outgoings. In the UK, in order to serve hot food an A3 planning licence is required. Due to these licences being essential to anyone looking to enter the restaurant industry, they are in high demand and often carry a premium. The premium is paid up front to the landlord or current tenant and covers a fee for equipment and any fixtures already on site, for example in the kitchen. This can cost over £5,000 but in popular cities like Manchester and Bristol, it can be upwards of £100,000.
As you are paying for the total available square footage, it’s practical to use as much of the space as possible, maximising customer turnover, sales and profits. For instance, by choosing a location that has a large basement and opting to use this for storage, you could be wasting the opportunity to turn this into a further dining area. You will be paying the same rate regardless of what you do with the space, so utilise every inch.
There are many other associated costs related to the premises that are important to consider, including:
- Building insurance (while this can be paid by the landlord, sometimes it must be covered by the tenant)
- Waste management (it is standard to have a monthly rolling contract)
- Rental or lease costs (you will need to pay a deposit, following which you’ll pay monthly rent, usually upfront - you can expect to pay between £12 and £20 per square foot in suburban London)
- Service charges (these are often paid to the landlord every month or quarter)
- Pest control (you can either manage this internally or bring in a professional)
- Business rates (bear in mind small businesses can apply to be exempt from these)
- Utility bills (running a restaurant will use a large amount of gas, water and electricity)
- Property tax
- Renovations (even if the property already has refrigeration, kitchen equipment and running water, extensive renovations may still be needed to create the desired appearance).
Renovations could cost up to £3,500 in paint and £35,000 in flooring, subject to the size of the restaurant. When choosing a property, opt for somewhere built out for food services, as a customised kitchen could set you back as much as £190,000. This is a huge expense that many new start-ups fail to factor into their budget.
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4. Legal costs
When starting-up in the restaurant industry, you will need to ensure that you have public and employee liability insurance, buildings and contents insurance and stock insurance. The costs all depend on the size and location of the restaurant, the menu you serve, the number of staff, the opening hours and whether you serve alcohol. But to give a rough idea, a 20-seater café in a London suburb would pay between £600 and £800 a year in insurance costs.
In order to manage the legal costs for your restaurant franchise, you may choose to hire a solicitor to help with contracts with the landlord or estate agents, any license applications you need to make through the council, and maybe even a partnership agreement. Solicitors usually charge £100 per hour for consultations, £10 for a phone call and £20 for a letter.
5. Marketing costs
Whether opening a new start-up restaurant of your own or opening a new branch of a restaurant franchise, marketing and promotion is essential in order to get customers through your door. Especially for new independent restaurants, you want to get your name out there as soon as possible.
According to the 2019 Restaurant Success Report:
- 67 percent of restaurants pay for social media ads
- 53 percent pay for community, event or charity sponsorships
- 42 percent pay for Google or search engine ads
- 32 percent pay for newspaper or magazine ads
Depending on a restaurant’s marketing goals, any one of these methods could be done for free or require large funds. For small businesses that don’t have thousands to dedicate to marketing, social media can be a powerful yet cheap means of enticing customers.
Restaurant opportunities with Point Franchise
Our franchise directory contains many investment opportunities with existing successful restaurant enterprises.
Humpit is the only 100 percent plant-based food franchise in the UK. It’s looking for regional franchises in all parts of the UK, offering great food to an increasingly vegan population. With sit-down and takeaway service, it is possible to operate from small sites with low fit-out and running costs, making a Humpit franchise affordable and accessible to people wanting to run their own food business.
Marugame Udon is an established Japanese restaurant concept serving freshly made Asian dishes from an open kitchen. The quick self-service food outlet can settle orders in as little as 30 seconds and its generous portions and affordable price points make Marugame Udon a great value proposition within the quick casual food market. The successful franchise is on the lookout for UK franchisees to expand its business.
The Avocado Show
The Avocado Show is a restaurant AND lifestyle brand targeted towards avocado fans across the UK. The items on its menu all revolve around its one key ingredient – the avocado – and its dishes have gone viral, attracting attention from all over the globe. Join the franchise in providing pretty healthy food and fun and get in touch today.
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Preparation is key
Opening a restaurant franchise involves many start-up costs to think about. Besides the day-to-day costs of your menu, staff and premises costs, a first-time restaurant owner needs to ensure they are legally ensured to serve food to the public and generating enough interest to attract them to the tables.
Knowing what costs to expect makes it much easier to prepare for your new restaurant venture ahead. With careful consideration and cost calculation, you’ll be ready to turn your dream of opening a restaurant into a profitable reality.
Sophie Cole, Point Franchise ©
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