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opening a restaurant….the reality of budgets

can you afford your dream restaurant?

Waiting for my new client to show up for our first sit down meeting, here’s the text message I got: ‘Hey Leslie. I’m sorry about this. We’ve discussed hiring you, and it’s twice as expensive to hire you than what we can afford (sic)’. This was ten minutes into the meeting they were apparently not showing up for.

check your reality

I’ve talked about this before (here and here).  Restaurants are expensive to open. Begin with a reality check. When I ask about budget, don’t tell me ‘enough’. I’m asking for a reason….I want to help you! If you can’t do it one way, there may be another option. If you want to reach your dream, full disclosure will get you there more efficiently.

This is a relatively small world, so any architect or designer who has done restaurant work knows people who have built restaurants. We will involve whoever we need to verify what you are hoping to do. A GC can give us an idea of cost based on square footage and level of service, I can estimate fees (permitting, architecture and design, etc.) and furnishings, we can throw in some ballpark numbers for equipment, owner costs, the cost of your lease. This is a service that most architects and designers will provide without fee.

Restaurant design and construction is unlike any other retail/commercial work. Ventilation, food safety and life safety targets are higher and thus result in significantly higher costs. Be realistic, don’t pretend that you have endless wads of cash ready to spend if that’s not the case. And do understand that you’re not opening a gift boutique….a much less expensive proposition.

If you’d like to figure this out on your own, here are the items that should be on your spreadsheet. The hard numbers I’m showing are specific to the San Francisco Bay Area, a very expensive area to build. But then, salaries are also high here so there are more bodies who can afford those seats!

1. construction

Depending on your program, this may or may not be your biggest number. These are the checks you will write to your general contractor for all demolition work, construction, electrical, mechanical, plumbing, millwork, finishing. This number should include all of the sub-contractors costs plus the GC’s own labor and materials. When talking with a GC it’s important to be sure this number also includes overhead, profit and insurance.

Here are 3 scenarios that may help you determine where you fall:

  1. You’re leasing a space that is an existing restaurant with enough electrical, an existing grease trap, hoods in place and up to code. You will be modifying kitchen equipment (except hood locations), lighting, hvac, millwork and finishes. Let’s presume this is a mid-range restaurant with table service. Expect $100-150 per square foot.
  2. You’re leasing a space that has never been a restaurant but is a ‘warm shell’. That means that there is electrical and plumbing in the space. Your vision is a fast food or fast casual program. Expect $200-250 per square foot.
  3. You’re leasing a space that has never been a restaurant but is a ‘warm shell’. Your vision is high level dining with table service. Expect $300-350 per square foot.

Take these numbers as base numbers. They can easily go up. And if you plan to do the manual labor yourself, then double the length of your construction schedule (which could be anywhere from 6 weeks to 6 months depending on complexity). Remember, every day that you pay rent and are not open is also costing you. Do yourself a favor….hire a general contractor.

2. owner costs

These are wide ranging and will depend very much on your operation. As a start, here are the costs that you will need to research for your restaurant:

  • licenses (business, liquor, etc.)
  • table top: serveware, glassware, candles, condiments, etc.
  • kitchen small wares
  • artwork
  • POS system
  • branding: logo, menu, signage, environmental graphic execution/installation
  • attorney fees: don’t negotiate your lease or partnership agreement without help
  • music system
  • food and liquor
  • staff training
  • rent…for every month you are not open for business

3. kitchen and bar equipment

Grills, ranges, fryers, refrigeration equipment, ice makers, dishwashing, specialty equipment….this will be one of the highest numbers in your budget. You can verify some of these numbers online (if you have a very small kitchen and little equipment). If you choose to use your own online resources, double whatever number you come up with. You likely don’t have enough hand sinks, you forgot faucets, etc. Otherwise, talk with a dealer and get a ballpark number for your kitchen equipment.

4. furnishings and fixtures

This number will include your tables and chairs, light fixtures, host stand, some accessory items. Your designer can put together a budget number for furnishings based on your program and level of finish. Expect somewhere between $300 and $600 per seat.

5. fees

It was my fee that sunk that deal that began this article. And if they couldn’t afford my fee, my guess is they couldn’t afford their restaurant. Here are the fees you can expect to have to pay:

  • Architecture and Design: about 10%-12% of construction costs (that was number 1)
  • MEP Engineering: assume an additional 15% of design fee…this doesn’t track with design fees, but it is a decent ballpark number
  • Food Service Design (kitchen design): assume an additional 10% of design fee…like engineering this doesn’t track with design fees, but again it is a decent ballpark number
  • Structural Engineering: this will vary depending on conditions
  • Lighting Design: unless this is extensive, lighting design will come out of the design fee already mentioned
  • Graphic Design: this is the cost for design of logo, menus, signage, environmental graphics and will vary depending on need
  • Permitting: assume an additional 3.5%-4% of construction cost to cover building permit, planning permit, health department permit, signage permit, sanitation permit. Make a few phone calls as some jurisdictions tack on some pretty hefty fees that can be very unexpected. Especially sanitation.

and then

Once you put these numbers together, tack on at least a 5% contingency. 10% would be better. If all of these numbers together add up to less than your bank account, then you are good to go. If not, find some friends/neighbors/investors who also want to own a restaurant. Better yet, find people who want to be silent partners.

If this is your dream, follow it. There are plenty of us out here to help you…just ask.

Keep in touch,
Leslie

And a giant PS….shout out to my friend and colleague Lev Weisbach, architect extraordinaire, for providing feedback on this post.