In the following sections, we deconstruct these fees, so you understand what youre paying for. Then there are the other expenses that need to be considered, such as marketing, utilities, equipment upgrades, capital improvements, and supplies. The downside is that money can cause tension when it comes between family and friends. While we understand that you want to run a tight ship, ensure you do the research and that the company you choose is reputable (check reviews online) and has a solution that's right for your restaurant. When youre deciding which licenses and permits you need, factor in the initial costs and the fixed renewal fees as well. Let's say your restaurant does $8,000 in sales over a four-week period. Download the restaurant startup cost Excel worksheet Food service licenses cost between $100 and $1,000. In order to run a legitimate bar or club, operating costs will need to include all the necessary licenses, permits, and insurance: Installing occupancy sensors in walk-in coolers and storage areas that power down equipment automatically. Conquer the rush, maximize margins, and boost loyalty with a powerful cafe POS. When reading this section keep the following in mind: Your total restaurant startup cost will vary depending on whether you're renting or owning the space, which equipment you will need, how much you plan to renovate, and more. Rather than avoid dealing with payment processing providers altogether, we suggest comparing providers and finding the one with the most favorable rates for your business. There are two types of food cost restaurants need to manage: Food costs are one of the most important costs to track. In the United States, a food handlers permit costs between $100 and $500 and can be obtained online in most municipalities. Prime cost is your most important key performance indicator. Here are four ways you can control labor cost without sacrificing service: Proper training improves efficiency, which means you can have a leaner workforce without sacrificing customer service. For example, though food costs are running costs, you should budget for beginning inventory when opening your restaurant, Many of your startup costs will be one-off costs, though some are subject to annual renewals, Business registration fees of $100$1,200 plus renewals (vary by state), Music license (ASCAP License, BMI License, and SESAC License) will cost you $200 to $2,000/year, Building permit, health permits, food handlers permit, zoning permit, and alcohol tax permit, Insurance varies by provider and type. Indeed, controlling restaurant costs is one of your biggest challenges. The bottom line: The right tools simplify scheduling and save you time while helping you achieve an optimum cost ratio compared to salesall of which reduce operating expenses and boost profits. If you dont keep an eye out for these expenses and include them in your initial budget, you might find yourself in a tight spot when you least expect it. Labor Expenses Another high cost most restaurant owners face is labor expenses. The good news is you can better manage labor cost with the right cost control tactics. What should average food cost be? A full-service, white-tablecloth restaurant, however, is likely to have a higher labor cost percentage comparing to . For a typical restaurant, labor costs will make up about 30% of revenue. The best thing you can do to market your restaurant is to focus on customer satisfaction and retention. Somewhere between $8,000 per month for a barebones, skeleton-crew staff, and $80,000 per month for a well-oiled team of professional food-slingers. But with the recent developments in the US labor market, rising wages and shrinking workforces are putting even more pressure on restaurant owners. If any other fees or filing requirements apply, your attorney can help you navigate these as well. A. from TSYS found that 81% of money spent at restaurants in the United States was charged to a card. This means the eatery will need to work on lowering its labor costs to maintain profitability. Make sure your restaurant has a website utilizing a responsive design for mobile compatibility, and ensure all content is high quality and adheres to current SEO practices. Katherine is the Content Marketing Manager at TouchBistro, where she writes about trending topics in food and restaurants. 1. Before making any plans to start a restaurant business it is important to get an in depth understanding of the start-up costs of . Below is a breakdown of average labor cost percentages in Q4 of 2017: The total average was 30.5%, which is a 0.7% increase from 2016. The average cost of setting up a new franchise restaurant business is around 42,000. Here youll be looking at two different metrics. By For example, if February sales are $65,000, then your prime cost is 0.49 or 49% ($32,000 $65,000 x 100). In fact, the State of Restaurants Report found that seven in 10 restaurants struggle with filling roles in the labor shortage. The easiest way to spend 80% less time scheduling your restaurant staff. In case any serious damage was done to your property, you might also want to pay for restaurant insurance, which usually costs around $180 per month. Though rent is an inevitable expense (unless you own your space, in which case youre paying a mortgage), there are some innovative strategies you can employ to shrink that number: Now that you have a better understanding of the kinds of costs involved in running a restaurant, well show you how to run your own numbers and find out where your hard-earned dollars are going. Streamline FOH-BOH communication to deliver a seamless dining experience. Although it might seem near impossible to reduce labor costs in the current climate, we encourage you to plan for the long term. The following are common delivery fixed costs to take into consideration: 1. Findoutmore, Poster POS helps you bring down the costs of your restaurant, with faster, smarter restaurant automation tools. Cost of goods sold is the raw material cost of your beverages and food, and labor cost includes actual labor, employee benefits, payroll taxes, healthcare, and bonuses. You need to make enough money each month to cover both variable and fixed costs (like labor and rent) and still have net profit leftover. Social media goes hand in hand with a robust digital presence. Broken glasses are part and parcel of running a restaurant. However, the amount you choose to take can affect the money youre left with and, subsequently, the amount you have to invest in your business. Februarys food cost percentage is 35% ($21,000 $60,000*100). Restaurant Operating Costs. Courses and white papers from industry experts, Discover valuable tips to help you grow your business. It will be much easier for you to factor these expenses into your budget, as they dont tend to fluctuate. Prime cost does not include equipment and supplies, utilities, menu design, signage, decor or any other costs unrelated to the production of your product. Your prime cost will now be $32,000 ($7,000 plus $25,000). How you can use today's tools to get the word out about your restaurant company to draw new customers and build repeat business. The fixed costs of a restaurant do not vary, so managers will know exactly how much they will need to pay. One thing that . You might also want to have a look at the costs of rent or loan payments with your accountant. A space valued at $1 million, for example, would require a $150,000 to $350,000 down payment. For example, you may choose to lease and not incur construction costsThe cost ranges are only guidelines and your cost will differ, The suggested expense to sales percentages are only recommendations, Some costs will be both startup and operating costs. restaurant easier. A restaurant in the Rest of Central Region (RCR) costs around S$10 to S$12 per square foot, and the Outside of Central Region (OCR) has venues that can go as low as S$6 per square foot. A liquor license can cost between $12,000 and $400,000 with a beer and wine license costing as little as $3,000. A $250 solo or duo requires the sale about $370 worth of drinks (assuming a 75% profit beyond the cost of goods), or about 61 drinks and a larger band charging $400 requires $530 . This process. You have to find capital, manage 24/7 employee schedules, optimize processes and control costs. Build your restaurant menu in minutes When you sign a commercial lease, youll need to commit to several years of occupancy at once and pay a refundable depositusually three to six months worthto secure your spot. The upcoming section details these costs across two categories: restaurant startup costs and operating costs. The first and most fundamental restaurant rule of thumb is "every independent restaurant is unique." However, rules of thumb regarding the financial and operational aspects of restaurants can provide a valuable starting point for evaluating and understanding the financial feasibility and performance of proposed and existing restaurants. Dont approach investors without a rock-solid business plan and pitch deck. . Most people dont have several hundred thousand dollars saved to self-fund a new restaurant, so they have to get creative with fundraising. When investors see that you have a strong vision, theyll know you mean business. If your labor cost percentages continue to rise, your first reaction may be to schedule less staff or reduce wages. Profit goal = $7,000 for media, But it's one that can end up paying for itself in any number of ways. Download our free menu templates to get started. According to a recent study by BDO, the average labor cost percentage across all types of restaurants has risen to 31.6%. For example, if your monthly salaries are $15,000 and wages, $ 10,000, the total labor cost is $25,000. Pro tip: Use this labor cost savings calculator to see how much you can save on labor costs using a scheduling app like 7shifts. Food costs should be no more than 28% - 38% of sales. If you plan to serve alcoholic beverages at your restaurant, youll need a, . Construction costs average $250,000, with $85,000 of that comprised of kitchen and bar equipment, and $20,000 dedicated to pre-opening and training costs. Also, ensure all employees have access to your employee handbook to prevent any human error from costing you money. According to one study, restaurants in the U.S. spend an average of $2.90 per square foot on electricity and $0.85 per square foot on natural gas annually, which breaks down to about 3% to 5% of your restaurant's overall operating costs. Posters ready-to-use solution allows you to launch a delivery platform for your business. The median cost of workers' compensation insurance is about $125 per month for a restaurant, or $1,480 annually. Profit margins average 7-8% for catering service businesses. Carolines total labor costs for April were $18,000. You can calculate wages by multiplying the hourly rate by the number of hours worked. Kitchen supplies and equipment Budget $________, Rent and building fees Budget $________, Payment processing fees Budget $________. While most licenses and permits have an initial cost, you may need to renew some of them annually. We also recommend that you check your contract to see if your utilities are covered by the landlord or if youll have to pay for them out of your own pocket. When starting a restaurant from scratch, you will need the basic kitchen equipment and furniture such as tables and chairs. While it helps to be aware of what they are so you can plan better, dont let them discourage you from your goal of becoming a restaurant owner. In this post, youll learn how to project the following costs for your restaurant-to-be: Once you project each of these expenses, youll have a good idea of how much it will cost you to open and operate a restaurant. You now understand the five major costs of opening and running a restaurant and know exactly how to calculate three essential costs: Prime, labor and food cost. You can find insurance plans with low-cost principles, but we advise you to make sure that youll be able to afford the cost of your deductibles in the event of an accident if you decide to choose insurance plans with low cost principles and high deductibles. The biggest advantage is that you immediately get the equipment you need without a large capital outlay. Not sure how much staff to hire from the outset? Like Caroline, your labor cost percentage may be a bit too high for your liking. As mentioned above, operating a fully integrated POS system is an expense. When you add up all of your fixed costs, variable cost, and semi-variable costs, you get the total operating costs for your restaurant. Part of planning the budget for a new restaurant is understanding expenses. Budgeting for this may be hard at first, but youll quickly find a monthly cost baseline within a few months of being open. This license is governed by the local health department, which will stop by your restaurant from time to time to ensure that your kitchen is up to code. In this scenario, youd need to have between $17,700 and $35,400 for a deposit. To learn more about how to market your restaurant more efficiently, check out this article! You can purchase from resales stores, auction houses, private sellers, and online suppliers. And on average, restaurants pay $2.90 per square foot on electricity and $0.85 per square foot on gas on a yearly basis. This money is there to cover unexpected expenses, such as repairs, or cash flow problems. Most restaurant owners pay themselves a percent of expected sales, while others just take the bare minimum needed to make ends meet. Manage your dining room and your wine shop with the all-in-one solution wineries prefer. A restaurant expense is a recurring payment like rent, food costs, payroll, marketing and utilities. Download our free menu templates to get started. To find Carolines total operating costs, well add her prime cost to her fixed costs from earlier. Without going into too much detail, the payment processor manages the entire payment process, incurring several fees along the way: The payment processor charges these fees back to you with a markup on the cost (either a percentage or flat fee). The average regional, per ad spot on the airwaves, while a costly, TV ad can require a total of $200 to $1,500, Hidden costs of owning a restaurant include things like. Understand the market values first. If you need help pricing your menu items to account for your expenses (or figuring out what all your expenses are in the first place), consider hiring a seasoned restaurant consultant with experience in the field. However, you can minimize damages by training staff on proper glassware handling and ensuring glass racks are the right fit and dont put unwanted pressure on the glasses.