Finance & Operationsby
Restaurants pop up in New York like a game of whack-a-mole and they disappear just as quickly. Essential to the success of a new NYC restaurant is starting off on the right foot. In this section, we’ll go over some of the start up costs that every aspiring restaurateur should consider when they’re drawing up their business plan and budget.
NYC rent is notoriously high for even the smallest shoebox. Restaurateurs can expect to pay $120 per-square-foot in Manhattan and trendy Brooklyn. Utility costs such as water, electricity, and gas can quickly climb. The New York Times asserts that “a healthy restaurant aims to spend about 10 percent of its sales revenue on rent, utilities, and other occupancy costs.” The article also found that, “The costs of real estate, labor, and food should add up to about 75 percent of projected sales.” A good thing to keep in mind when budgeting for first, last, and initial costs pre-income.
According to an age old (was 2011 so long ago?) Forbes article, ovens, ranges refrigerators, fryers, freezers, and dishwashers can cost from $100,000 to $300,000 and upwards. Take into consideration six years of inflation and you’re looking at one pricey kitchen! Additionally, there’s the thousands of little items you won’t initially think of that also need to be worked into the budget: spatulas, pots, pans, storage containers, dishes, cutlery, glassware, thermometers and more.
Your POS might be the most important technology decision you make. Traditional (and old school) legacy restaurant POS systems that involve hardware installations, scheduled maintenance and licensing fees can cost in the tens of thousands of dollars. The emergence of iPad POS systems, like TouchBistro, have drastically cut these costs from tens of thousands to mere hundreds with an affordable upfront device purchase and then a monthly, scalable subscription model.
Construction costs are almost never as quoted. If you have to do renovations to your new space, keep in mind that costs can escalate and unexpected costs can materialize out of nowhere. As Anahi Angelone owner of New York’s Corner Social reminds us, “When you’re building, you never know what you’ll find behind a wall. That little change can cost you $10,000.” Similarly, leaks, electric complications and other surprises might arise that you have to contend with. As far as decorating, RestaurantEngine urges us not to forget about the cost of decor: chairs, tables, light fixtures, linens, and art. At the cheapest, basic wood tables and chairs for a 50 seat restaurant could cost upwards of $5000. And that’s before booths, bar stools, patio furniture, upholstery or any other necessary upgrades.
The New York Times reported that a healthy restaurant budget should spend 30 percent of its sales revenue on food and beverages. Food cost is more expensive in New York than most other states, something restaurateurs should keep in mind when creating their budget. The same article reported that a week’s produce order of 30 items cost $543 from East coast food supplier Baldor.
There’s no one size fits all number for insurance costs. The number is affected by everything from location to square footage, to numbers of employees. Often, restaurants will have to put down deposits for each insurance, and these add up quickly due to the sheer number of different insurance required. New York City law firm the Lincoln Brokerage, which specializes in restaurants, has composed a list of insurance you’ll need. They include: common restaurant insurance, general liability insurance, commercial property insurance, commercial crime insurance, business interruption, liquor liability, liquor bond, and workers compensation.
Restaurateurs looking to operate in New York city are subject to a number of permits and licenses, most of which come with their own fees. For example, New York’s Food Service Establishment Permit can cost upwards of $280, and a Food Protection Certificate is approximately $25.
A more extensive list of certificates, licences and permits are as follows: Food Protection Certificate, Food Service Establishment Permit, Gas Authorization – Restaurant Equipment, Portable Fire Extinguisher Requirements, Grease Interceptor Information, Range Hoods, Recycling and Waste Removal, Required Posters and Signs (hand washing, no smoking, recycling, etc), Resuscitation Equipment for Restaurants.
“Build it and they will come” works in many circumstances, but not in NYC. With so much competition, you’re going to have to spread the word before you open the doors. Arron Allen of Arron Allan and Associates Global Restaurant Consulting says, “A typical restaurant should allocate 3% – 6% of sales to marketing. It’s also a good idea to allocate this money proportionally to your sales volume. Meaning, if July is your busiest month, you should spend a proportionate amount on your restaurant’s marketing budget in that month.” Your essential costs will be menu development and your website. Non-essential, but costs extraordinarily helpful towards sales generation will be side-walk signage (there’s a huge ROI in a chalk board!) as well as coupons, advertorials, and social media advertising.
Without a proper music license, restaurants can be fined between $750 – $30,000 for every song played. To avoid these harsh penalties, you’ve got to pay for a music licence. There are two options: Pay performance rights organizations (PROs) directly, or pay for a pre-licensed solution.
With the first option, it’s necessary to pay more than one organization as, while each has a database of their artists, neither of them cover every song or every artist. To cover everything, you have to pay into all three. CustomChannels.com estimates that the cost would be somewhere around $1,068 for licensing per annum.
Alternatively, you can pay for a licensed music solution, which does the dirty work of vetting approved artists for you and playing only that music. This option is cheaper, with options like SiriusXM for Business at $24.95 per month, but the number of artists and songs available is limited, and the option to customize your playlist or play music from your Spotify account is off the table.
Of course, you have to have the funds to pay your staff! The minimum wage for tipped employees in New York is $7.50 an hour, and $10 and up (depending on the number of employees) for non-tipped employees. The average salary for an executive chef in New York City is $72,644 according to glassdoor.com and the average salary for a restaurant manager is $54,104. The federal Bureau of Labor Statistics also reported that “annual mean restaurant wages in New York City in 2015 were about $49,000 for a head chef, $28,580 for a cook and $29,290 for a server.”
Always a hand in your pocket, the fees continue. Accounting, interest on borrowed funds, administrative costs, lawyers, and more. A large slush fund will be needed to handle extraneous costs.