June 14, 2022 • 5 MIN READ

How to Keep Restaurant Startup Costs Down

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In this article, we will focus on the main costs which a business may incur at the opening stage

When creating a food business, it is necessary to lay down a financial business model. Unsuccessful calculations by novice restaurateurs, who are not specialists in the field of hospitality businesses, are the main and most common reasons for startup failure.

In this article, we will focus on the main costs which a business may incur at the opening stage. We will analyse some typical mistakes and areas where excessive expenses may occur. How is it most convenient to count expenses? What exactly needs to be taken into account? How can you run a business legally? These are the questions that we will try to answer.

Restaurant Startup Costs

For your restaurant to work successfully, you need to build an initial, well-thought-out business model. One of the mistakes is to first create some kind of concept or choose a premise and think about how to decorate the interior. Instead, the first rule is to create a plan and determine your budget. 

Restaurants are a competitive industry, so a ready-made food business plan with calculations copied from the internet is an extremely poor option, as it may not suit your unique situation or environment. You need to think through everything to the smallest detail. Opening a restaurant from scratch is risky. However, if you plan, you can reduce some of the initial risks and potential overspending. 

You’ll need to calculate how much you have to spend, determine the type of restaurant: regarding food and drinks, the number of seats, and calculate staff salaries, taxes, rent, utility costs, etc. The project depends on the chosen format, especially on the calculation of the food cost (the cost of products for each dish) and the lost costs. It may seem that products are cheap, and dishes in restaurants are expensive; nevertheless, the average profitability of such establishments usually ranges from 10 to 30%. 

Let's take a closer look at the crucial points and add a few more fundamental expenses for a startup in the restaurant business.

  • Property fees (to pay your real estate agent and your inspector to compile an energy efficiency report)
  • Premise costs (the biggest restaurant financing you will have to face)
  • Employee costs (depending on the size of your staff, labour could be one of the highest startup costs)
  • Kitchen equipment 
  • Decorating costs, dining room furniture

Every novice restaurateur who wants to do business legally should be ready to meet with government agencies. As for licensing, you will need:

  • Food business registration (to state that your business exists); 
  • Food premises approval and premises licence (to be sure that the place you chose is appropriate or a restaurant or cafe);
  • Personal licence (to approve that you are allowed to run a business or sell alcohol);

It is necessary to have liability insurance for business in case of emergencies, technical breakdowns, or injuries and to check products for compliance with high standards. Insurance compensates for costs, so you will need:

  • Employer's liability insurance (in case an employee receives injuries at a workplace);
  • Public liability insurance (in case a guest receives injuries on your premise)
  • Building's insurance (in case any damage to the building occurs)
  • Pest control regulations (to ensure pest control and get approval from the Food Safety Regulator)
  • Food hygiene certificate (is not a legal requirement, but will help to ensure that your restaurant is a safe place to eat)

Initial Startup Operational Costs

There are certain rules and standards for launching a business startup in the country where you live. It is important to take into account the legal requirements and comply with them. The initial costs of starting a food business in the UK include the following:

Business Rates in the UK 

This fee is imposed on real estate premises, including restaurants, by the finance department of the local government. The amount to be paid each tax year depends on the estimated value of your property. Since it is possible to reduce the payments, pay attention to the benefits available to you.

Waste Disposal Costs

Restaurants, as a rule, do not use all the products and facilities that they originally purchased. Some quantities will be sent for recycling or utilisation. It is important to consider that to get rid of food waste and empty wine bottles; you will need a third party. Many restaurants prefer monthly rolling contracts.

Franchise Fees

Buying a franchise has both pros and cons. On the one hand, you get the right to become part of a large popular brand and enjoy its reputation and ready-made customer base. On the other hand, the initial franchise fee may not be suitable for your budget. Also, additional legal costs may arise.

Where Do Restaurant Owners Overspend and How to Prevent It?

Let's say you have carefully figured out where you’ll need to spend your money in order to set up your restaurant. It sounds like starting a business is very expensive and time-consuming. However, two points can definitely help a restaurateur: an analysis of competitors' mistakes and a review of where overspending may occur.

Equipment

For your concept, cuisine, preferences, and needs of the team of chefs and to ensure comfort in the dining room, you will need equipment of high quality. Сhoose everything you need carefully, as this is the main long-term investment.

Technology

The modern market offers many opportunities to make your business technologically advanced. For example, it is important for a restaurant to have a proper POS system.

Decorations and furniture

The restaurant should be a pleasant and atmospheric place, the interior decoration of the premise is one of the points for customers choosing a restaurant for celebrations and banquets.

Marketing

Marketing strategies help to present a restaurant competently and attract the attention of visitors. Advertising, holding regular promotions, increasing publicity, and presenting new dishes and drinks require investment, but it usually works well, distinguishing you from your rivals.

Payment hardware

Small portable terminals are replacing cash payments at the checkout, cash desks are becoming more digitised. To replace outdated equipment, Payrow can become your best assistant for businesses related to restaurants, cafes, and hotels.

Payrow is a platform with an abundance of financial services that can optimise your customers' payment experience. We offer reliable, practical, and affordable global solutions for making payments. We allow our customers to process payments quickly and automatically, avoiding problems with refunds and unnecessary fees. 

You can set limits and assign categories of expenses for corporate credit cards so that you receive full control over your employees' expenses. You have an opportunity to get detailed information about payments for any selected period and upload statements in a convenient format. We are planning a new technology: a digital tipping solution, so customers could tip using QR codes or links. 

The most important reason to choose Payrow is that you will get a huge number of necessary functions for payment, transfers, and control in one place and profitably. Our price list is as follows:

  • £0/m – One account with all features available
  • Small £29/m — Four additional accounts for your team
  • Medium £99/m — A complete package, including team spend management

Due to non-transparent pricing, errors, and inaccurate calculations, you may lose revenue. To avoid such problems, consider the possibility of using our services. Work fast and safely to retain and ensure your clients’ loyalty — use Payrow!