Why Starting a Restaurant Can Be So Expensive | Way before the fun of entertaining customers, restaurateurs have to consider the costs of getting things off the ground. Realistically, it takes a lot of planning and effort to get things started, financially, mentally, and physically.
Despite the effort put into planning, it is not uncommon to find new restaurant owners shocked at the financial costs of starting a restaurant. This is because they fail to consider every aspect of the business when planning. On that note, here are five reasons why starting a restaurant can be so expensive.
Equipment Costs
Several factors contribute to a restaurant’s charm, from the ambiance to service and the food. As such, if you intend to run a successful restaurant, you should deliver top-notch customer service and delicious meals. One of the best ways to deliver these is by having efficient working equipment in your kitchen, from the knives to the stove, freezer, ice machines, and grill.
Purchasing new restaurant equipment is typically one of the areas where restaurateurs spend a lot of money because commercial kitchen equipment is not cheap, and it can affect your cash flow. So, if you’re worried about overspending or going beyond your equipment budget, you should consider used equipment options, as well as a financing option for your kitchen equipment
It’s worth your while to consider a restaurant equipment financing option. Realistically, this is a preferable option because, as a new restaurateur, you need as much working capital as possible. So instead of paying the full purchase price for equipment, you can consider taking out a restaurant equipment lease agreement or a restaurant equipment loan.
If you don’t have a good credit rating, don’t lose hope. You can opt for a private leasing company where the equipment serves as collateral. However, although traditional banks’ interest rates may be lower, the private company offers a faster and more convenient equipment financing option.
Operating Costs
The operational cost of starting a restaurant contributes to why venturing into the restaurant industry can be so expensive. Admittedly, the factors that contribute to these costs vary, and they could be one-time or recurring, like utility bills and insurance deposits.
For starters, there are many licenses and permits that you’ll need to get to run your business legally, like a business license and food service license. Other licenses include liquor license, dumpster placement permit, live entertainment or music permit, certificate of occupancy, and building health permit. Furthermore, you must remember that any employee whose duty involves working with food will need a food handler’s permit. This is to ensure that they are knowledgeable about how to handle and store food.
Another thing that affects the operating costs is setting up organizational and inventory tools or processes. For instance, you will need an equipment sign out sheet to help ensure that you do not lose track of your equipment. As you know, it costs a lot to get this equipment in the first place, and the last thing you want is to replace appliances or small wares too soon.
An equipment checkout template captures the personal information of every borrower, such that, at a glance, you can see the type of equipment that was borrowed, the start date and expected return date, and the contact information of the borrower.
Labor Costs
If you think staffing a restaurant is a piece of pie, you’re in for a shocker, as labor costs account for one of the most significant startup expenses. According to the National Restaurant Association, restaurants in the United States have an employee turnover rate of about 70%. Let’s not forget that recruiting a new employee can cost up to $3,000 or more.
With this information, you can see that while the cost of recruitment is high, you’ll need to commit time, effort, and resources to employee retention. So, don’t forget to keep your employees happy and provide adequate training that will aid both professional and personal development. An excellent example of such training is the OSHA outreach training program.
The OSHA certification program is an occupational safety and health administration training program that’ll educate you and your employees on avoiding, recognizing, preventing, and reducing workplace hazards. This outreach training program will develop your employees and help make your restaurant a safe work environment, so it is a win-win.
Sales and Marketing Costs
As a new restaurant, you will likely be competing with other established restaurants. As such, you’ll need to double down your marketing efforts to ensure that as many people as possible know and visit your restaurant. You can achieve this by setting up a digital marketing campaign or offering promos and discounts to first-time visitors.
Unfortunately, many of these tasks do not come cheap, especially if you intend on using a fancy marketing agency or firm. Nevertheless, there are ways you can curb your marketing costs. For instance, you can delegate your digital marketing responsibilities to staff or team and increase their paycheck.
Alternatively, you can find ways to boost the motivation of your sales team to increase their sales productivity and word-of-mouth advertisement. One of the best ways to achieve this is through employee rewards or creating an incentive for the top performer, like bonus pay or half workday privileges. By creating an employee recognition program or reward program, you not only motivate employees but also promote employee engagement, making your restaurant maintain a positive work culture and environment. It shows that you acknowledge and appreciate their hard work.
Food Costs
From menu choices to sourcing the foods and vendor contracts, food expenses can quickly add up and contribute to one reason why the cost of starting your restaurant is so expensive.
To reduce your food costs, start by reviewing your menu. Besides implementing the psychology behind menu creations, you’ll need to ensure that your food choices are practical and efficient. This means that it is better to make the food ingredients interrelated to avoid wastage.
Furthermore, avoid expensive and fancy vendors. Instead, reach out to local farmers, create and maintain relationships with different suppliers and work with them to derive locked-in prices. Besides, this will also increase your outreach and engagement in the community.
Lastly, make sure you weigh everything and avoid overbuying irrespective of how juicy the deal may be. For instance, those fresh tomatoes you have won’t last over a week so ensure you shop in the best way.
