Restaurant startup costs are far higher than many would-be owners assume. One survey found costs range from $175,000 to $750,000+. Lowering initial expenses will allow you to have more capital to spend on:
- Reinvesting in the business
- Marketing
- Staying afloat during slow periods
We're going to cover some of the costs that you're overspending on and what you can do to cut back on them.
Overspending on Brand-New Equipment
You might want to buy everything new, but this is one of the common restaurant expenses that you can cut back on. It's not uncommon for owners to assume that they'll need more than necessary to open.
Instead of two commercial espresso machines and five grills, consider:
- One espresso machine
- Three grills
Scale your equipment as demand rises because if you have equipment sitting there, it's not making you money.
If you don't know where to start with your equipment needs, do this:
- Sit down with your head chef
- Ask what equipment they suggest you buy
- Forecast your average visitors in a day
Be prepared for opening day, but don't go overboard with your equipment purchases. You might even want to consider second-hand equipment. You can find pieces in good condition on Facebook Marketplace or by purchasing from restaurants that are going out of business.
We offer new equipment with financing options that will allow you to pay an affordable monthly price from the start.
Investing Too Much in Technology Upfront
One area that is easy to go overboard with during restaurant budget planning is your technology. You'll see a lot of vendors trying to sell you on cutting-edge solutions that will:
- Make your team more productive
- Save you money in the long term
- Allow you to do more with less
But do you need all of these solutions at the start? No. You need a point-of-sale system and a bookkeeping system. Over time, you can expand to table-side ordering, tablets for your workforce and custom apps.
Technology vendors will try to sell you on many solutions that may be good in the future, such as:
- AI-powered customer insight solutions
- Online ordering and delivery platforms
- Advanced inventory management systems
- Smart menus
Over time, you can add these solutions, but it's often best to start with manual processes that you can streamline and refine over time. You may find that you need to expand into online ordering, and if you do, then you can put these systems in place.
Otherwise, wait until the time is right before spending capital on something you may not actually need in the future.
Going Overboard on Sales and Marketing Costs
One of the main areas of restaurant cost control should be sales and marketing. It's easy to see why restaurant startups overspend on marketing. They want to attract customers and drum up business as quickly as possible.
Owners can also overspend because they don't have much experience or knowledge of marketing. Many wind up getting talked into lengthy and expensive agency contracts. They expect flashy launch campaigns and promotions before they've even done any market research.
But there are many low-cost marketing methods that can be just as effective.
Yes, you need to spend on marketing, but it's important to be realistic about your budget.
How can you tackle marketing without overspending?
- Get active on social media - it's free advertising
- Create blog content
- Reach out to podcasts or YouTubers to see if they will feature your restaurant
- Place low-cost social media ads
- Network with local businesses and hand out flyers
- Focus on video content and post it on social media
Digital marketing generates great returns and you can often do most of the heavy lifting yourself.
Spending Too Much on Remodeling and Décor
Ambiance is important. You have a vision for your restaurant and want to create the right vibe. You should be investing in creating a comfortable and enjoyable environment.
But it's easy to go overboard.
That's why one of the top new restaurant financial tips is to keep your remodeling and decor spending in check.
First, decide what's most important. Is it the art on the walls? That expensive chandelier? Or those gorgeous chairs?
Focus on the elements that will be the most critical in creating the vibe you want. A few high-impact pieces can make all the difference without busting your budget. Nice lighting, great paint colors and some inexpensive landscaping can make a great impression on customers.
Pinterest can be a great source of inspiration if you need some budget-friendly ideas.
When it comes to remodeling, try to avoid major overhauls, like moving walls. These are things that can be done later after your restaurant is established and growing.
Don't forget to budget for unexpected costs - because they will happen. That unexpected leak in the kitchen won't be as stressful if you already have a built-in contingency.
Paying More Than Necessary for Food Supplies
Reducing restaurant expenses is critical to your success. But it's easy to overspend on poor menu choices and food supplies.
But you can avoid overspending if you take the right approach.
Rather than trying to do business with expensive food vendors, reach out to local co-ops and farmers. Establish relationships with multiple suppliers to secure prices.
Make sure that you're weighing everything, too. Avoid overbuying. Purchase just enough ingredients to meet demand. Throwing away food supplies only adds to your overspending and increases the risk of going over budget.
Meanwhile, evaluate your menu. See if you can reduce your offerings to streamline purchasing and reduce your overall food costs.
Once you've launched, pay attention to your waste. How much food is coming back to your kitchen? If it's more than you anticipated, take a second look at your portion sizes. It may be time to reduce them.
And if you leave the costs the same while reducing your portion sizes, you raise your profit margins.
The Takeaway
Startup costs are one of the most important things to consider when learning how to open a restaurant. If you're not taking steps to keep your expenses under control, you can easily overspend and put your restaurant at a disadvantage. Use the tips in this guide to keep your costs in check.