5 Things Startup Restaurants Typically Overspend On


5 Things Startup Restaurants Typically Overspend On

A few high-impact elements deliver a big bang for the buck.

Starting a restaurant is an ambitious undertaking. Many startup restaurants begin with a dream, one that consists of crafting a fabulous menu served inside a restaurant with gorgeous décor and an inviting atmosphere.

That dream should be tempered with a bit of reality, too, as the restaurant business is one of the toughest industries. Your end goal, besides serving delectable food, is to make money, so you’ll have to avoid overspending to make your dream a reality.

Yet, many startups spend too much money from the outset. We’re going to discuss five things startup restaurants typically overspend on, but first let’s take a look at average startup costs.

Average restaurant startup costs vary from a few thousand to a few million. According to a survey, the median cost to open a restaurant is $275,000 or $3,046 per seat. If owning the building is figured into the amount, the median cost is $425,000 or $3,734 per seat. Most survey respondents estimated these median costs were 15% above their projected budget.

So, before we even start discussing the ways startups overspend, we can see overspending is a wide-reaching and very common problem.

Before you think you have to spend millions on your new startup, let’s discuss some things startup restaurants typically overspend on along with some ways to keep control of your budget.

#1: New Equipment Costs

Outfitting the kitchen and buying equipment may very well be one of the biggest ways startup restaurants typically overspend.

Startups should be careful not to overspend when purchasing equipment. Look at second-hand options, shop online and buy only what you need now. Another restaurant’s failure may be fortunate for you. Look for these as you might find equipment at greatly reduced prices.

It is incredibly important to have the right equipment on hand, especially in the kitchen, and restaurant equipment financing may be another answer to getting the professional equipment a startup needs without overspending.

An experienced, reputable financing company works with restaurant startups to make a plan. The best companies can provide everything a startup needs from kitchen to dining room. The bonus for you is you’ll know your monthly costs, and you can work with the company to set a doable payment that won’t break the budget.

#2: Technology

Technology is everywhere, and we can’t live without it. But, does your startup really need it all? Too much high-tech can be bad for your restaurant’s financial health.

Prioritize the most important items on your list. You need a bookkeeping system to keep costs in check, and you need a point of sale system. Those are essential technology items.

Do the members of your wait staff all need iPads for order taking? Probably not, especially if you are trying not to overspend.

While technology in restaurants is on the rise, it’s ultimately up to you to decide how much you’ll spend, and overspend, on it.

If your business model dictates iPads table-side for ordering and payment options, research prices. Perhaps your restaurant doesn’t need the newest model; you might be able to make the last generation work. Be sure and negotiate for the best prices. Check out your entire Wi-Fi price options; don’t just settle on the first salesman who comes knocking.

Again, we emphasize the need for a budget and sticking to it so as not to overspend on your technology budget.

#3: Sales and Marketing

It’s incredibly easy for startups to overspend in the area of sales and marketing, especially if marketing isn’t something they know a lot about. (tweet this)

Either the restaurant owner gets talked into an agency contract because they don’t know enough about marketing, or instead of using other low-cost marketing methods, startups tend to rush out and hire expensive advertising agencies or sales teams. Startups expect these ad agency teams to launch big, splashy ad campaigns, often before any market research is done.

Lots of startups get excited if they score some venture capital cash. They think it’s time to spend-spend-spend, and advertising seems a viable place. Not so good if a short while down the road the startup has a major repair bill.

The restaurant startup does need to market their new restaurant. So, how does a startup handle marketing without overspending?

  • Leverage the Internet.
  • Sign up for social media sites.
  • Place low-cost Facebook and Twitter ads; consider advertising on other social media sites.
  • Start a conversation using your website’s blog and social media.
  • Hand out flyers at local businesses. Network, network, network to encourage referrals.

While TV advertising is still a viable source, it isn’t necessarily one you need to start with, especially if you want to avoid overspending. An eMarketer study shows that 70% of respondents feel TV is influential for a brand, while social media follows quickly behind with 60% finding it influential. The next three most valuable sources according to the survey are online display, online video and mobile.

restaurant

Make a contingency plan to help budget for unexpected expenses.

#4: Remodeling / Decorating

Decorating the dining room is a costly expense whether a startup is just decorating or remodeling an area. These expenses add up quickly, cutting into the already tight startup budget.

Decide what’s most important. Is it that $2,000 chandelier or the art deco paintings? Try and stay away from major expenses like moving walls.

In the rush to have everything perfect, startups often forget that choosing a few high-impact elements can deliver a big bang for the buck. Startups can create a terrific atmosphere with paint colors, finishes, nice lighting, some inexpensive landscaping and unique upholstery options.

Startups would do well to remember their average meal price and spend accordingly on decorating. The trick is to make dramatic statements without overspending. Search sites like Pinterest for decorating ideas on a budget.

Don’t forget to budget for the unexpected when decorating and remodeling. When your contractor discovers a leak in the ladies room, you won’t overspend if you’ve already got a built-in contingency. Don’t let unexpected costs take you by surprise.

#5: Food Expenses

For many startups, reeling in costs is vital to success. (tweet this) Yet, many startups overspend on food expenses and poor menu choices. It can be hard not to overbuy, but there is a way to manage food budgets for startups.

To begin, don’t be talked into an expensive, fancy food vendor. Reach out to local farmers and co-ops. Establish relationships with several suppliers, and work with them to lock-in prices.

Evaluate your menu. Consider reducing the amount of offerings to streamline purchasing and preparation.

Identify areas of waste. Pay attention to how much food comes back to the kitchen and re-examine your portion sizes. Reducing the portion size yet leaving the cost the same raises your profit margins.

Lastly, weigh everything and don’t overbuy. That fresh lettuce you bought at the farmer’s market won’t last all week. Throwing it away adds to your overspending and increases the likelihood you’ll break your budget.

In Conclusion

It’s important to remember that while startup restaurants have a multitude of expenses, it is crucial to keep some capital in reserve to put towards unexpected expenses. Poor budgeting and a lack of planning have resulted in the failure of many restaurants. As long as you create a budget and stick to it, and you keep some money in reserve, you’ll be able to handle the unanticipated items that crop up with ease.

Tell us how you handled your restaurant’s startup budget. Did you have troubles with overspending? How did you handle them? Or, did you manage to stick to your budget and keep spending in check? We’d love to hear your comments and tips for future restaurant startup owners. Post below!

Images: Kristoffer Trolle and Wally Gobetz

31 responses to “5 Things Startup Restaurants Typically Overspend On”

  1. Kikon says:

    Hi… I’m 19, a college student and wanted to start up my own restaurant in my hometown. I’m a complete newbie and have no background in this field.Also I’m am destitute guy. So PLEASE help out in suggesting some good books about this business and also it will be my pleasure if you hand me out some needy tips.

  2. Raavan says:

    Hey..I am Raavan 17 yr old..I want to start a restaurant in my home town…but…I have no more money..and then I convinced to my father..and I give my opinion and my idea to make a restaurant..and suddenly..I fail to convinced my father…so please give me your suggestions…and my dream to become a millionaire in a certain age…

  3. Laine says:

    Although I knew these things, it was great to read! Also a good guideline. I’m planning on opening a casual fine dining in Atlanta with 3.5.5M, and budgeting and cost is everything. Also, menu is very nice, but short and concise, so I wont have extra waste on food cost. Thanks for this article.

  4. Adam says:

    Thanks for the content, this was a great read! I was looking to opening a restaurant soon and the content here really provided value into what i should not overspend on. It also led me to search for cheap menu designers as well and i came across https://menudesigns.badroneds.com
    just incase anyone’s looking. I hope this comment helped someone in the future save money on at least one aspect of opening a restaurant 🙂

  5. Henry says:

    To open a restaurant, first, you need a financial plan. Here you may find a FREE template to download as well as a Premium version of the restaurant template in Excel. https://finmodelslab.com/restaurant-business-plan/

  6. MICHAEL says:

    VERY WELL THOUGH OUT PRACTICAL AS HAVE SEEN BUISNESS FAIL ON THE AREAS YOU ADVISED VERY HELPFULL A REMINDER IS GOOD

  7. audrie says:

    i have dreamed of being a chef and opening my own really classy resturant in california how do i get started?

  8. Zabiullah Bayat says:

    Hello my name is Zabiullah Bayat am looking into opening my own restaurant in Toronto. and I like to say that I really do like your tip on running a restaurant business Excellent Guidelines.
    Best regards

  9. Karabo Majane says:

    I finished high school only last year and I’ve always dreamt of opening my own restaurant. Having to read all the tips of how to start a restaurant without overspending… I must say it’s really relevant and is going to help me in the long run…

  10. K.Raghuveer says:

    I want to start south indian restaurant, in Surat, I have no back ground of business, want to start with small, wife good in good taste and expert of South Indian dishes. Please give your feedback.

  11. torres says:

    wise words.
    thank you.

  12. SHIBA says:

    Hi I’m shiba,I’m looking forward for owning one restaurant,your advices are so helpful.I need help on how I can get funds.

  13. oliviier jouet says:

    when you start, follow the labor cost (Expensive in California)

  14. Hi There,
    Nice Blog, Thanks for posting. If anyone having ideas to start a restaurant business, then Here I have provided the solution for how to start a sucessful restaurant business, Kindly Read Here: http://bit.ly/301pkt1

  15. Scott says:

    I would like to buy this bar near the TN/KY border. It is closed down now for someone else who bought it, but wants to sell it to make a profit.
    I don’t just want a bar that is open from 3pm- 2am. So I was thinking about opening a breakfast restaurant on one side and a bar on the other side. One great benefit it that it is on a major road and there are no other breakfasts around and the bar was pretty busy since they were the only ones who had live music.
    Does anyone think that it is too much to have both since I would have to pay a lot more for more employees or does anyone think the more you can do, the better to hopefully increase profits??? Mind you that my wife has been working in a restaurant for over 17 years and always wanted to have her own restaurant, so i would run the bar side and she would run the restaurant side.

    Thanks,
    Scott

  16. Marckale says:

    This was very helpful. Thank you.

  17. Emmanuel says:

    This information provides a guide to my start-up. I am planning to open up a community restaurant. This piece will go a long way to guide my budget presentation. Thanks

  18. Leon says:

    Thanks for the advice. Buying second hand equipment is a brilliant way to reduce cost.

  19. Jeffery Gantt says:

    Is there a best way to get funded for my new project?

  20. Rod says:

    I am thinking of opening a restaurant but have no experience. Do you think this is a good idea? How would you suggest getting started

  21. Joe says:

    Equipment, Equipment, Equipment! Major place where we overspend, don’t spend enough, don’t get the right equipment and sometimes feel lost using! I would recommend going to a smaller restaurant equipment store (preferably family owned) who know how much effort it takes to open a business. Im from Toronto and shopped all across the internet (especially on Kijiji) looking for used equipment, until I stumbled on Vendexx Inc. They have been opened for I believe 16 years and are family owned (son and father). They spent 3 hours with me in STORE!! Couldn’t believe the advice they gave me. I came out of there under budget and prepared to tackle my opening. I tried buying from the USA, but just too expensive and other companies for new equipment, mark up a lot more compared to this company.
    Try them out! In Montreal, but ship wherever you need them to!

  22. Maribel Zannini says:

    Thank you for your information.
    This were some great advise I think i would be very successful on my business ad I have some of your great ideas.
    Will keep you posted

  23. Jordan says:

    P.s how much approximately should I spend on startup?

  24. Jordan says:

    I am trying to finalize a business plan before proposing it to banks and investors on my idea of a restaurant concept. Unfortunately I am having trouble coming up with accurate numbers for the plan. Any idea where I can find statistics in regards to restaurant jobs consumer base etc etc along with demographic? Thanks.

  25. LNWeaver says:

    I like your advice to pick what’s important. Your budget won’t be limitless. You’ll want the most impactful pieces for the lowest price.

  26. Josiah Nuah says:

    Hello my name is Josiah Nuah I am looking into opening my own restaurant business and I like to say that I really do like your tip on running a restaurant business Excellent Guidelines

  27. rohtash pasricha says:

    i wanted to ask ! it’s been a year that i am running a restaurant in india. Our fine dine restaurant exists from last 12 years and is doing great, then last year we have introduced our caffe model. it started off well, and we started making profit within 5 months. But now things are not working that much great. Since, it’s the time of the season here for restaurant business but still things are not turning good for us.. What do you suggest ? Thanks Rohtash

  28. These are so true! Remodeling budgets in particular can get really blown out of the water. I’ve worked with new restauranteurs who have opened with $100,000 in startup costs, and others that have spent over $1 million. The range is so huge it’s almost overwhelming to decide what to spend money on. This article provides a good general guideline. Thanks!

  29. Hijas says:

    This is very informative. Thank You

  30. This blog looks great so you definitely know what you’re talking about!

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