If you’re looking to get into the restaurant business, there are many things you need to plan for so you don’t go from the frying pan to the fire. Restaurants are one of the most difficult businesses to own and operate, and hundreds of restaurants fail each year due to poor planning and unexpected expenses.
When considering restaurants for sale, it is important to carefully assess the potential expenses that may arise in the restaurant business, such as rent, utility bills, inventory costs, employee wages, and marketing expenses. Properly analyzing these anticipated expenses can help determine the viability and profitability of the restaurants for sale.
Before you get started creating your menu, there are several expenses you need to consider before you switch on your open sign. Here are five expenses to anticipate that are common in the restaurant business.
Labor Expenses
Unless you’re going to run your entire restaurant with only you and your kids, you need to make sure there’s going to be enough money to pay your staff. While you may be able to start with one or two staff members, you’ll need to hire additional staff as your business grows. Staff is typically one of the most expensive costs of running a restaurant. It is also the most important asset to your business. Many restaurants are finding it difficult to keep up with the turnover as more and more restaurants are reporting employee deficits. To counteract this problem, it is recommended to not only be competitive with pay, but also be flexible with scheduling and build in employee appreciation programs, bonuses, and other benefits to help hold onto your employees. All of these things are an expensive labor cost but they are worth it.
Equipment Expenses
Equipment expenses can get very expensive. Items like POS systems, ovens, grills, hood vents, freezers, and walk-in coolers can stop your new restaurant in its tracks before it gets off the ground. Plan for big-ticket equipment items, and you should budget money for repairs if you’re using older equipment.
Freezers and refrigerators can cost you a lot of money if they break down and your food spoils. To ensure your freezers and refrigerators are always in good repair, keep a repair company like Sub Zero Freezer Repair on hand to handle any emergency repairs and maintenance.
Additionally, POS systems often have monthly fees associated with the software. You may want to shop around for a cheaper system but typically, when it comes to POS systems, you get what you pay for and a system with extra features such as a food inventory tracking system and warning emails tends to save you money in the long run. That way you don’t run out of food before getting your next shipment and typically you’ll have less waste as well. This saves you money in the long run.
Marketing Expenses
New restaurants can’t rely on word-of-mouth advertising for promotion in the first few months of operation. It’s crucial to set a budget for a marketing strategy to promote your new restaurant and bring in new customers. For new restaurants, a larger marketing budget is typically needed. Once you get return customers and reviews online, you may be able to cut back slightly, but marketing will always be needed to get foot traffic through your restaurant.
Food Costs
Food costs are a major expense in every restaurant. In order to be successful, it is vital to keep your food costs under control and not waste money with overproduction, poorly prepared menu items, and ordering too many food products. Maintaining a food cost between 20 to 25 percent is ideal. This food cost also includes waste because it is difficult to use all of your food on slow days. Additionally, you want to make sure you have enough because every time you tell a customer that you are out of an item, you’re not only losing money on the missed sale, you’re also decreasing your customer satisfaction and may lose the customer altogether.
Building and Remodeling Expenses
If you’re starting from scratch, you need to budget for any remodeling and decorating that your new space will need. Remodeling expenses should include the cost of remodeling the kitchen to ensure it’s up to fire codes and health codes. Depending on your offering, you may need to rearrange your kitchen for efficiency. By saving a couple of seconds for every order, you end up saving dollars every day, which adds up to hundreds of dollars each year. Depending on the efficiency change, you may even save thousands of dollars each year, not to mention the added customer satisfaction and return customers due to better efficiency.
There are other expenses associated with the restaurant business. If you’re going to start a shoestring, it’s essential to keep customer service and food quality a priority. No expense is too high to attract to keep loyal customers.
Anica is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. You can connect with Anica on Twitter @AnicaOaks.
