The big question when looking to open any new business is, “How much is this going to cost me?” Which is also the question of, “Do I have enough money to make my dream come true?”
Unfortunately, it’s difficult to give you a straight answer on budget because of so many variables such as location, decór, floor plan, style of food, types of equipment, quality of your furniture, etc. What I can tell you is how to get to the number for the restaurant you have in mind. Following what I teach, you will be able to answer, “How much does it cost to open a restaurant I want to own?”
Here are things you must have in place so you know where you need to be.
The first is a capital budget.
What is the money you need to open your restaurant? For example, you have to figure out what equipment you need, what kind of kitchen arrangement you need. But to really determine this budget, you should have your menu figured out and have recipe costing cards. This will tell you how to design your restaurant. Are you going to have more grilled, or more fried items? This answer tells you what kind of equipment you’ll need. What’s the style of your restaurant? What’s the price point? Is it a fast-casual concept that can be built out pretty inexpensively or will you have a higher-end restaurant that has real oak on the walls? What kind of tables and chairs are you going to have? High quality or value-engineered? Your area will play a big role as well. Are you buying a building or renting space?
The second thing is to develop an operating budget.
This is how much does it cost to operate and what will your sales be like? What is your sales mix, or how much food are you going to sell vs how much alcohol? Are you 85 percent food, are you a bar and only selling 50 percent food? That answer affects your budget.
You also need to determine your cost of goods sold target. Break it down into food, bottle beer, draft beer, wine and liquor. Each category will have its own target cost of goods sold.
Next is your labor. Break out your labor by position. If you’re full service, you’ll have servers, hosts, food runners, bartenders, bar backs, cooks, prep cooks, dishwashers. List out all your positions including your management team and categorize them by hourly or salary. If they’re hourly, what percentage of sales is their target?
In this operations budget, you’re aiming for a 55 percent prime cost. (The prime cost formula is the grand total of your total cost of goods sold, which includes both food cost and liquor or pour cost, and total labor cost.)
Prime cost covers your variable expenses for your operations budget, but you also need to include your fixed expenses, such as rent/mortgage, loan payment, paper supplies, linens, etc. This builds your targets and tells you where you need to be to make money. Then you can put a plan in place to make sure you hit those targets.
With your budget you can also plan for extra cash to deplete that covers the loss during training and opening. Your operating budget will tell you when you can expect to turn the corner and start making money.
These two budgets will help you get money from the bank. They are going to be looking for a ratio of 1:1.25. If you borrow $1 million to open the restaurant, you should make $1.25 million for them to feel good about your loan. That’s not what I would use to determine your potential for success, but it’s what the bank will use. If your prime cost is 55 percent or lower, you’re well on your way to running a profitable restaurant, no matter what it costs you to open.