How much does it cost to open a restaurant?
Tips / 31.03.2023
Starting a restaurant may be one of your major business aspirations, but you need to be well-prepared financially to get off to a good start. With this in mind comes the question of how much does it cost to open a restaurant in the UK.
Although there is no single fixed amount that you will need to pay, there are some frequently encountered costs – both one-time and recurring – that you need to consider as you embark on your restaurant journey.
In this article, we explore the average and expected costs you can expect to pay to get your restaurant off the ground and up and running so that you can make more informed decisions going forward. Let’s take a closer look.
Initial, one-time costs
The cost of starting a restaurant will vary from location to location, type of restaurant experience, the nature of the food served and prepared, the number of staff members you have in your team and a lot more. However, restaurant startup costs are generally divided into initial, one-time costs and recurring costs that you will need to incur on an ongoing basis.
We start off by exploring the initial, one-time costs to actually prepare your restaurant for launch and follow this by explaining the ongoing costs you’ll need to keep in mind. Here is a breakdown of what you need to know.
Lease security deposit/loan downpayment
One of the largest costs of opening a restaurant in the UK is the cost of the premises. We assume that you will neither be building the restaurant from scratch and that you will not be buying the premises. Instead, we are basing our assumption on the fact that you will be leasing your premises. The typical cost of this lease will also include a security deposit that will be directly connected to the rental amount.
Average range of lease costs: £14,000 – £20,000
Business licenses & permits
In the UK, part of the initial cost for starting a restaurant includes the legalities and paperwork. In particular, you need to prepare all your business licenses and get the permits in order. These include: food business registration, food premise approval, premises license, personal license, restaurant insurance (for more on this, take a look below), events license and a music license.
Average cost of business licenses and permits: £250 – £500
Any contract that you sign as part of your restaurant business will need to be checked over by a lawyer. This means that whether you need to enter into an agreement with a food supplier or a landlord, legal fees for consultations must be paid. Whether you’re in London or elsewhere in the UK, these costs will vary and they are typically charged on a per hour basis.
Average cost of legal consultations per hour: £111 – £300
Tables, furniture and decorations
Tables, furniture and your restaurant’s decor are a major point for ensuring that your restaurant looks its best. Luckily, these are one-time costs but still, they can add up when it comes to the total amount. In the UK, you’re looking at between £15,000 and £35,000 for your furniture and decor, excluding your kitchen equipment.
Average cost of furniture and decor: £15,000 – £35,000
Kitchen appliances and equipment
The kitchen is the heart of your restaurant. Although you may be tempted to install the latest technology, consider opting for second-hand equipment where possible to reduce your costs.
Average cost of customised commercial kitchens: up to £190,000
Order & payment technologies
Every modern restaurant needs to ensure that they are able to cater to their customers’ payment needs and have an ordering system in place for greater levels of efficiency. These days, the trend is towards cashless payments, which are accepted through point-of-sale (POS) terminals. A myPOS Go 2 POS terminal goes for as little as £39 with instant settlement of funds, although costs can vary greatly from provider to provider.
The average cost of a POS terminal: £39 up to £800
The question – how much does it cost to open a restaurant? – cannot be answered without looking at the monthly, recurring costs that your restaurant business will incur as part of its daily operations. Below is a list of some of the most important recurring restaurant costs you can expect to pay, of course, depending on the size, location and type of restaurant concept that you plan on presenting to the public.
Your employees are the lifeblood of your business and the costs associated with hiring staff should also be factored into your calculations. For example, in the UK, average chef wages can cost between £22,000 and £30,000 per year, depending on your location. But chefs are just one part of the equation. You may also require a general restaurant manager, a restaurant assistant manager, a head chef, a sous chef and waiters. These costs can add up and will also depend on the number of people in your team.
Average employee costs per annum: £129,000 – £150,000
Lease or mortgage
Another major recurring cost to start a restaurant is your lease or mortgage. Earlier on, we made the assumption that you will be leasing your restaurant premises instead of buying them. As such, you can expect to pay different prices depending on the city your restaurant is located in and the size of the premises you are leasing.
Average lease costs per month: between £12 and £20 per square foot
Food & beverage costs
Food and beverage costs are quite difficult to estimate because every restaurant offers something different to its patrons. Every dish and item on the menu is different from the others not to mention that these can rarely be compared across different restaurants. However, there is a general rule of thumb you can follow and that is to calculate your food and beverage costs as a percentage of your sales.
Average percentage of food and drink costs: 25% to 35% of food and drink sales
Water, electricity and gas and even providing free Wi-Fi access are critical components to running your restaurant business successfully. These are another example of recurring costs that you can expect to pay.
Average monthly utility costs: £1,000 – £1,500
Marketing & advertising
Whether it’s for opening night or to continue generating traffic to your restaurant, you will need to ensure that you market and advertise it properly. This necessarily means having a website which displays your menu and enables delivery or ordering options. You also have to consider advertising on social media or trying to market your restaurant organically.
There are also physical marketing materials such as flyers and brochures that you might make use of to promote your restaurant. Although every agency will charge differently (in the event that you opt to work with an agency), you should consider calculating these costs as a percentage of your sales revenue and not as a fixed sum.
Average marketing and advertising spend: 3% to 6% of sales revenue
Insurance & permits
We already covered insurance and permits earlier as a one-time cost that you need to cover at the launch of your restaurant. However, there are recurring insurance and permit costs that you will need to cover on an ongoing basis to ensure each of your licenses is up to date and valid, enabling you to run your business smoothly with no interruptions. Examples of the type of insurance that you will need for your restaurant include: public liability, contents, buildings, stock and employee liability insurance.
Average annual cost of insurance: £800 – £1,500
Many restaurant business owners will have already planned their costs of fixed and recurring items. However, a mistake that’s often made is not factoring in unexpected costs that could arise in the course of running your business. A typical example of this includes necessary repairs to your kitchen equipment such as stoves, ovens, or refrigerators.
There could also be plumbing and electricity issues that may require an expert hand. You could also encounter costs related to the need to train and recruit staff. And of course, there are costs related to changes in your menu, building reconstruction costs or minor or major upgrades and more.
There is no average price for these costs because they are unexpected. But the important takeaway for restaurant owners based on this is to be prepared and to have some cash set aside in the event of emergencies.
How to avoid unnecessary expenses
It may be tempting to want to go all out with your new restaurant concept. You want to give your patrons the very best in terms of a superb dining experience. Unless you are flush with cash, however, there are certain limitations that you may need to bear in mind to ensure you keep your costs as low as possible. Here are a few factors to take into consideration.
1. Choose your equipment wisely and don’t overspend
When it comes to equipment, we know that you want to use the highest-tech, coolest gadgets on the market. However, bear in mind that every piece of equipment will depreciate with time and the same goes for brand-new appliances that you may be tempted to buy.
As such, and as mentioned earlier, it is crucial to consider buying second-hand or used equipment that is still in good functional order to avoid overspending and going beyond your budget.
2. Keep food expenses organised and look for affordable deals
The food you serve at your restaurant will be one of the defining features of your offering. It needs to be of high quality, fresh and tasty to keep drawing customers in. But that doesn’t mean that you should spend absurdly on your food costs. With this in mind, it is recommended that you try to keep your food expenses organised while looking for more affordable deals from trustworthy suppliers.
This will necessarily mean shopping around for great deals. But remember, if you choose a supplier and become their regular customer, there is a higher chance that you can enjoy greater discounts on bulk purchases later on thereby enabling you to have another strategy for attempting to keep your costs as low as possible.
3. Think through what you spend on marketing
For starting a restaurant, the costs can quickly add up. Especially when it comes to your marketing and advertising budget. We already mentioned that your marketing and advertising budget should be a percentage of your sales revenue and this means that you will need to adjust your marketing spend every month depending on what you earned.
You can certainly go all out and spend thousands of pounds on the best website and pay-per-click ads. But there are other ways. For example, you can partner with a digital marketing agency that offers you a good deal for a long-term business relationship. Alternatively, you can add to your staff costs and hire an internal marketing manager or specialist who will be directly involved with marketing your restaurant business. If this is the case, then you will need to factor in an additional salary cost.
However, it’s important to determine whether it will be cheaper to hire an agency which can, in most cases, offer a broader offering of marketing services, or whether it will be cheaper and more effective to hire staff to singlehandedly handle your restaurant’s marketing needs.
And that’s a wrap
As you’ve already become aware, there are numerous startup costs for a restaurant. Because every restaurant offering is different, is located in different neighbourhoods, prices differently for their meals, and employs a different number of staff – estimating a solid number for how much it costs to start a restaurant business in the UK is a difficult task.
However, based on the average figures we have provided above, you are looking at average one-off costs of £211,600 and upwards and average ongoing costs of £153,200 and upwards, while not factoring in emergency or unexpected costs. With this in mind, you’ll be better positioned to ensure that you are in a stronger position when it comes to opening your restaurant business as you embark on the exciting journey of offering delicious meals that excite your patrons’ tastebuds.