Costs Involved When Opening A Restaurant

costs_involved_when_opening_a_restaurant

Starting your own food outlet requires a lot of expenses that have to be incurred before making your restaurant fully functional. Along with the other steps this acquires the major part when starting a new business. These costs are majorly divided into 2 types i.e. Capital Expenditure/Fixed Capital and Operating Expenditure/Working Capital . The details of each of these have been described below:

Capital Expenditure

● Licenses:

Licenses play a vital role while opening a restaurant. There are various licenses you need to purchase according to the format you select and the cost of each has to be taken into consideration before budgeting.

 

  • Food Safety License:

    FSSAI (Food safety and standard authority of India) is one of the most important licenses when you want to open a restaurant. The cost depends on the license you are applying for. For example- Whether you are a new applicant or applying for renewal or want to modify the license or duplicate the license. The fee for registration – INR 100 and the fee for the central license start from INR 7500. The license has a shelf-life of 5 years.

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  • Liquor License:

    Starting with INR 5000 as the basic license fee and going up to INR 50,000 for each additional spirits (rum, whiskey, gin, brandy, and the like). Although it is a fact that the procedure for obtaining a liquor license is a monotonous task.

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  • Fire safety license:

    You must protect your customers and staff in case of any mishap or hazards such as a fire. Before planning your interiors, have the fire exits and safety protocols in place, then build the interiors around that. A NOC (No Objection Certificate) is required from the fire safety department to run your restaurant. There are no legal fees required for procuring the certificate but an INR 100 stamp paper for official records. For further details – indiafilings.com/

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  • The Certificate of Environment Clearance:

    This license is issued by the Ministry of Environment, forest, and Climate Change and is required in order to maintain environmental quality and not cause any pollution. It is an ethical responsibility as a citizen of the earth to keep the environment clean and healthy. For further details – moef.gov.in/

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  • Signage License:

    In order to market in any offline mode, this license is required. This license states to take permission from the Municipal corporation to put up signboards, graphics, posters on the walls and streets in the nearby area. For further details – udyogcompliance.com

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  • Other Licenses:

    Apart from the above-stated licenses, there are a few other licenses like Music License, Life clearance license, health, and trade license, Eating house license, Shop and Establishment license, are applicable while opening a restaurant.

● Restaurant Ownership:

This is an optional expenditure as this applies to those who own or are planning to own restaurant space. However, with the reduced rent costs and added profit margins, there are a lot of risks and legal issues that have to be taken care of in the case of ownership of a restaurant.

● Kitchen Equipment:

Right type of kitchen equipment can be heavy on the pockets at the beginning but can yield a high return in long term. Invest carefully because equipment can be helpful in cleanliness and orderliness in the busiest hours.

● Interior Designing:

Interiors of your outlet form the ambiance and it adds as a major point in the rating of your outlet by food bloggers or your customers. Investing in an interior that is different, clean, and hygienic attracts a niche crowd which enhances the brand value

● POS Hardware and Software:

POS has become a necessary expenditure as it is serves a greater purpose than just billing. For further details on this click here. (https://re-pos.in/point-of-sale)

Operating Expenditure

● Taxes:

Taxes levied in your country should be considered in the operating costs as it should comprise not more than 10% of your revenue. If your restaurant is registered in India, GST on food items varies from 5% – 18% (excluding liquor) depending on the location of the restaurant and food service providers. Alcohol has State excise duty for around 10-15% of tax revenue for the majority of states, according to the RBI report on ‘State Finances’ . For further details – services.gst.gov.in

● Rentals:

If you own a restaurant, then this is not applicable in operating costs for your business. If you have a restaurant premise on rent then make sure that your rents are not eating up your revenue due to the location you have chosen, or the other costs. In an ideal situation, the overall rent should not exceed 10% of your revenue.

● Food Costs:

These costs include your raw materials required for preparing food items in the menu. In an ideal situation, the overall food cost should not be more than 30% of your total revenue. Accordingly, vendors should be compared and finalized based on rates, credit systems, distance from your location, and trust factor. Fresh and healthy procurement of food items increases reliability and maintains the proper standards of hygiene in your premises.

● Manpower Costs:

Apart from maintaining the staff salaries, training them also involves time and money. You can also consider offline marketing along with online marketing to get maximum reach. Different kinds of work require especially skilled staff and essentially they can be categorized into kitchen staff, marketing staff, management staff, accounting staff, and service staff.

● Marketing Costs:

Ideally, Marketing costs should not be more than 10-15% of your revenue. You can spend on campaigns on social media or run google ads. Google Analytics is a great way to track your progress in case you want to increase your reach through Google. For SEO, you can make your own website and optimize it by adding appropriate content and photos that make your business stand out.

After covering all the costs, the net profit should be at least 20% of the revenue earned. Organized planning will help you focus on the important tasks to be taken care of. Making a budget according to the above-listed costs will help you decide on your investment plan resulting in the most effective use of funds yielding future profits.