If your dream is to open a restaurant, chances are that the dream includes having the money to do so in style. Few people fantasize about starting a business on a shoestring budget or with limited funds; on the other hand, even fewer people are independently wealthy and able to fund a restaurant venture without financial assistance. We’re here to tell you, however, that there are ways to cut back on the start-up costs of realizing your dream and that “budget” is not a dirty word even when it comes to opening a restaurant.
Be Prepared for a Big Investment
The initial capital you’ll need to launch your restaurant is sizable – when you put it on paper, it’s a huge chunk of dough. According to a survey, the cost of opening an average-size restaurant (with room for roughly 90 to 100 diners) is $275,000, or around $3,000 per seat. From equipping your kitchen and furnishing the dining area, to outfitting the back office with the best technology, a restaurant eats up money the way you hope your customers will consume your menu offerings – voraciously. Once you get over the initial shock, however, you should adjust your expectations and think out of the box. In other words, there are ways to soften the blow, and things that you can do to lighten the financial load.
Choose the Right Location
In an ideal world, you want your restaurant to be front and center – in the heart of downtown, or in the most prestigious area of the city. However, keeping in mind that success is measured by profits (and not just by the number of customers your restaurant attracts), your expenses are the key to your future. Assuming that your budget will not allow you to buy a building – at least not at first – your lease and the rent you pay will be one of your highest recurring expenses. Therefore, with finances in mind, it’s a good idea to choose a more modest location to open your restaurant, one that is a little further from the heart of the action, and, therefore, less of a monthly strain on your budget.
Another way that location can have an impact is if you are lucky enough to find a venue that was previously used to house a restaurant. In such a case, you may not need to purchase and install many expensive pieces of equipment and machinery that you will need to operate your restaurant. Aside from pricey kitchen equipment, like walk-in fridges or commercial ovens, this could also include the heating, ventilation, and air conditioning (HVAC) system, and fire prevention system. Granted, these types of spaces are hard to find – other restaurateurs with a dream are searching right along with you. But if you get lucky, you’ll be able to reduce your start-up costs drastically.
New Equipment vs Used
While rent is a recurring expense, equipping your kitchen is a one-time outlay that can be a financial trap if you’re not careful. According to Chron, the cost of a equipping a commercial kitchen for a small restaurant usually starts at about $15,000. After that, the sky’s the limit.
As a start-up on a budget, however, you have no choice but to be careful when you purchase your kitchen equipment. New and shiny is beautiful but expensive, so look seriously at second-hand options, shop online, and limit yourself to only the equipment you will need to open up. Just like with the location, you could find dramatically reduced prices for previously owned restaurant equipment.
When Only a Loan Will Do
You may not like the thought of being in debt, but if you’re aiming to start big, you should look into outside financing. If only new will do – or if you’re having a hard time finding quality second-hand commercial equipment – you should consider looking for a reputable financing company or a bank that specializes in business loans to help you out. A loan may not have been part of your dream but it will allow you to move forward when you’re hitting a budgetary brick wall. Paying back the loan will mean an additional recurring expense, but you will be able to calculate ahead of time what those expenses are and work it into your monthly operating costs.
The Fine Art of Negotiation
You’re going to be dealing with many suppliers, workmen, vendors, etc., in the course of setting up your restaurant so, remember, don’t take the first price as the final price. You may be uncomfortable with the “market mentality” at first, but it is part of the game. Even a 10 percent discount on the initial price – over a long list of labor and equipment costs – can make a dent in your initial outlay.
Perhaps the most important negotiation you will have is regarding your lease. Take time before you sign a rental agreement and try to get the most you can out of your landlord. It’s not unheard of for a start-up to expect the first two or three months’ rent for free, or to have the ability to defer payment until the restaurant is up and running. Hire an experienced lawyer to do the negotiating for you if the prospect seems too daunting; his or her fee could easily be offset by the money you’ll be saving by having a good negotiator in your corner.
During the negotiation stage – before you sign on the dotted line – check out the
premises carefully, and review previously issued fire safety and health-inspection reports, if relevant. If extensive repairs are necessary, negotiate with the landlord as to what expenses he is willing to share with you. Typically, landlords pay for – or at least participate in – the cost of repairs that will become permanent parts of the building, such as plumbing and air-conditioning work.
Ensure, as well, that your lease has an exclusivity clause, which prevents your landlord from leasing nearby property that he owns to your restaurant’s direct competitors.
Cutting Down on Marketing Costs
As you get closer to Opening Day, you’ll have to start thinking about advertising your restaurant. However, even if you allocate only modest amounts of money for marketing you can still spread the word successfully with minimal outlay.
Invest in a Good Website
Your restaurant’s website should be considered an investment – not an expense. It’s the best way to attract customers and showcase your menu. With proper SEO (search engine optimization), you can place your business at the top of Google search results to maximize your exposure and bring in business.
Social Media and Blogging
Today, no business – especially one with a tight budget cramping its style – can succeed without social media. Facebook, Twitter, and Instagram are free, and nothing else you do can spread the word about your restaurant as effectively. True, “time is money,” and setting up this type of media presence is time-consuming; on the other hand, there is virtually no other way to attract customers to your business and to put your name “out there,” that will have as big an impact as social media. Get your friends to “like” your pages even before you open your doors. A pre-launch buzz is one of the keys to success, and your mouthwatering dishes on your Instagram feed will attract clients to your restaurant.
Start Small, Dream Big
We’ve shown here that while you may have a small budget when you start out, you can still fulfill your dream of becoming a restaurant owner. Make careful purchases, find a location that balances cost and accessibility, consider outside financing, and always remember the most important words for a start-up – negotiation, negotiation, negotiation. “Invest” heavily in free advertising and let social media spread the word about your enterprise. Being careful with money – and exercising caution and patience – will allow you to launch the restaurant of your dreams, with a smaller outlay than you imagined.