The economics of starting and running a restaurant are daunting, with dozens of different costs and factors going into making it successful. Not everyone makes it: Although failure rates are hard to track, an estimated 30% of restaurants fail within the first year of opening, and 80% close within the first five years, according to the National Restaurant Association.

The initial cost of purchasing or starting up a new restaurant is your most important consideration before committing. When planning for this cost, it is important to have sufficient liquid assets over and above your planned initial expenses. That's because the largest financial risk to your restaurant business is underestimating the amount of capital you'll need to begin operations and continue to bring in a positive 澳洲幸运5官方开奖结果体彩网:cash flow.

You have three options to get up and running: franchising, purchas♛ing an existing restaurant, or starting from scratch.

Opening a Franchise

Franchising with a successful national chain can bring instant brand recognition and programs for coaching new employees with assistance for getting to the grand opening of the business. With those value-added services comes a 澳洲幸运5官方开奖结果体彩网:franchise fee that can average between $25,000 and $50,000 per restaurant.

In addition, some well-known national chains are likely to require liquid assets in excess of $1 million. Startup costs for a traditional 澳洲幸运5官方开奖结果体彩网:McDonald's, for example, range from $1.47 million to $2.64 million. Costs like these can put franchising out of reach for the average middle-class entrepreneur.

Buying a Restaurant

The 澳洲幸运5官方开奖结果体彩网:purchase price of a restaurant depends on th𝔉e quality, location, and profitability𓆏 of the establishment. The more profitable a restaurant is, the higher the upfront costs are likely to be. But the quality of the building can save you thousands on potential remodeling costs and repairs.

Once you have found a promising opportunity, you will want to hire an experienced third-party appraiser to evaluate the restaurant's worth. The appraiser will examine the restaurant's financials, including it's profit and loss statements, supplier contracts, cash flow, assets, liabilities, and more. The growth potential and brand equity are also factored into a fair market value. You can use this figure to negotiate the purchase price.

Starting From Scratch

Whether the cost of franchising is too much or you ꦓwant to begin fresh with your own ideas, starting from scratch has many fixed and potentially unexpected costs.

The usual costs include equipment, furniture, fixtures, initial food and inventory, signage, insurance, build-out, security deposits, and the first month's rent and utilities.

The benefit o✨f starting your restaur💟ant from scratch is a clean slate for your own ideas without the royalty fees and upfront costs of franchising.

How Expensive Is a Restaurant to Operate?

Building a new franchised location or a from-scratch restaurant has similar construction and build-out costs along with employee hiring and training. If you buy an existing restaurant, it can be a 澳洲幸运5官方开奖结果体彩网:turnkey operation from day one with positive cash flow, b♎ut it may not exactly fit your needs and desires.

Operating costs such as salaries, marketing, inventory, and maintenance are often underestimated, especially with new restaurants. Around 85% of total revenue at profitable establishments are typically eaten up by these costs, plus taxes. According to Ambassador Group Insurance CEO David DiLorenzo, who has owned and operated 13 restaurants over his career, in 2024 restaurateurs may be fortunate to see a 10% profit after all expenses are paid. And any major decreases in revenue or increases in costs can quickly lead to a negative cash flow. In these circumstances, you may have to consider a restaurant business loan in order to stay afloat.

Ways to Keep Expenses Under Control

To keep expenses in check, you may consider shopping for equipment and utensils and using second-hand options. Many of the 💖restaurants that fail liquidate their inventories and equipment to restaurant supply stores, which in turn resell it all for much less than you would pay when buying new.

Try to use all of your available word-of-mouth tools to promote your restaurant. This includes leveraging social media, which is often free. It may be worthwhile to use restaurant reservation software, which allows guests to reserve tables online, to help manage your business and keep the restaurant filled. Use energy-saving lights, equipment, and fixtures. It may cost slightly more upfront,✤ but it should pay dividends over time.

Next to food, labor is the largest expense for restaurants. In high-volume locations, a qualified manager is worth the expense to ensure proper 澳洲幸运5官方开奖结果体彩网:inventory management and employee scheduling. Having employees standing around and letting food go bad unnecessarily will kill already thin profit margins that only average between 6% to 9% for quick-service restaurants.

The Bottom Line

Initial costs can vary dramatically based on the quality, s🌸ize, and location of your establishment. With sufficient planning and capital, opening your restaurant can be successful; however, to avoid going o🀅ut of business, your restaurant must keep operational costs in check and grow revenue to ensure a positive cash flow.