Long hours, high overhead, wasted ingredients and difficulty making profits are some of the barriers to success for restaurant owners. Yet, for those who love the business or who dream of having a place where everyone knows your name, there’s no other opportunity that comes close. For the best chance of success, do your research, partner with a mentor and hire experienced employees — and read up on the most common expenses that restaurant owners pay.
Cost of Goods Sold
“Cost of goods sold” refers to the products you buy that make up your product. And in the restaurant business, it’s no secret that, in order to make food, you’ll have to buy ingredients. If you’re opening a franchise business, such as Pizza Hut or TGI Friday’s, you’ll source your food directly from suppliers as instructed by the home office. But if you’re striking out on your own, you’ll be responsible for buying ingredients, possibly every day. And the higher-end your restaurant will be, the more frequently you’ll be buying expensive goods. According to Chron.com, restaurants typically try to keep the cost of food to about 33 percent of their total sales.
Beverages are another expense, but the good news is that liquor is a great way to boost your profit margin. Chances are you’ve noticed this already if you’ve ordered a bottle of wine. The same bottle that costs $15 in your local liquor store could cost $30 or $45 when you’re out.
Labor expenses are the second huge cost that restaurant owners pay. How much you pay depends on your restaurant. Will your wait staff work for tips, or will you add gratuities to every bill? Will you furnish uniforms, or provide an allowance? Waiters and waitresses that work for tips typically earn smaller hourly wages than those who don’t, but you’ll also need to pay for kitchen staff, hosts, valets, cleaners and other essential personnel.
Regardless of your choices, you’ll still need to pay unemployment taxes. And if you hire full-time wait staff, you may also need to furnish benefits. Many restaurants rely on part-time or seasonal employees to avoid this expense. Once you can anticipate your busy times, you can schedule your staff members accordingly.
Occupancy and Equipment
Unless you’re lucky enough to own space and your own equipment outright, you’ll need to pay for your infrastructure. That could be rent, or a mortgage and property taxes. Utilities, cooking and cooling equipment, insurance and signage are common expenses, but you’ll also need to consider maintenance costs. Remember, servicing your commercial ovens and refrigerators will probably cost more than what you pay for your Frigidaire at home.
Marketing and Administration
Lastly, you’ll want to get the word out that you’re open for business. That may include newspaper ads and billboards, in addition to social media. Social media, at least, is free — and you’ll have direct access to the customer marketplace you want to serve. Offer promotions and coupons to get customers in the door.
You’ll want to pay yourself, of course, plus any contractors you need to help with necessities, such as bookkeeping. You’ll be plenty busy managing day-to-day operations, so consider outsourcing payroll, payables and other functions to a firm that can let you focus on making your business a success.