Running a successful restaurant means more than having great food and atmosphere.
Often, it's the accounting that makes or breaks the business; even a restaurant that's fully booked most nights of the week will struggle if the books aren't balanced.
While many first-time reterauntuers budget for the obvious costs like rent, equipment, and payroll, they get blindsided by hidden expenses.
Here are 6 restaurant expenses that tend to catch owners off guard.
1. Ventilation hoods and fire safety
In a professional kitchen, you need heavy-duty exhaust hoods to properly remove smoke and grease from the air.
These systems pull a lot of air out of the building, so you'll need to have a solid air circulation system.
These hoods also have a fire suppression unit installed inside the hood itself. This is specialist kitchen equipment that's essential.
Without appropriate ventilation hoods, you won't be compliant with fire regulations.
Many restaurant founders don't expect the expense because they assume general contractors bundle the cost into the standard build-out quote.
But, in reality, industry equipment like ventilation hoods and professional kitchen ranges is almost always a separate project that costs tens of thousands of dollars at least.
2. Utility upgrades
A professional kitchen needs reliable gas and electricity, but usually the utility lines in your building won't come with suitable infrastructure, meaning the gas lines and electrical service panel won't actually run the equipment without significant modifications.
Restaurant founders need to account for these upgrade costs because the lease and contractor bid will both likely assume the existing utilities are adequate.
3. Appropriate permits
Every restaurant needs municipal approval to legally operate, and this involves collecting various permits.
Typically, the following will be required:
- Building Permit
- Certificate of Occupancy
- Liquor License
Each individual fee doesn't add up to too much, but when you have to get all these permits and licenses at once, the costs add up.
In addition, there are hidden costs relating to approval timelines, particularly if you don't apply for these in time and end up having to postpone the opening day, adding rent and payroll costs without the revenue to offset them.
Smart restaurant founders research and account for these regulatory requirements.
4. Smallwares
This is a broad category that covers everything that the kitchen and dining room require to operate, which is not fixed or installed equipment.
Consider things like the following:
- Cookware
- Knives
- Tableware
- Glassware
These are critical items needed every shift, and they certainly won't appear on any equipment quotes.
You'll need to have enough smallwares to comfortably operate, meaning you'll need plenty of spares to account for breakage.
Unlike home kitchens, you can't afford to cut corners because people expect quality glassware and tableware when they go out to eat at an expensive restaurant.
5. Pre-opening staff training
Before the restaurant opens, you'll need your team to get started with the following responsibilities:
- Learning the menu
- Getting comfortable with the point-of-sale system
- Planning the restaurant layout
If you only account for payroll beginning on opening day, you're not accounting for this pre-opening training.
Cutting training short to save cash can be a fatal mistake, as it results in poor service during the first couple of weeks of service.
6. Delivery platform fees
What many restaurateurs don't realize is that delivery platform apps charge commission on every order placed through them.
The big names like DoorDash and Uber Eats typically charge 15-30% per order, which totally changes the profit margins on dishes sold through apps.
If you price the menu against dine-in margins, you're risking selling through the apps at a loss while still assuming the delivery channel is profitable.
You need to create a separate delivery menu with adjusted prices to help your restaurant comfortably absorb the commission costs.
Evaluating delivery app fees should be part of your regular financial checkup, like The Currency says, “committing to regular check-ups can help you stay aligned with financial goals as they evolve.”
A realistic budget helps your restaurant survive the first year
It is costly to operate a restaurant, and these concealed expenses can rapidly deplete your startup capital if you fail to prepare.
Creating a realistic budget that covers all of the main areas discussed in this guide will provide your restaurant with a much stronger financial base to withstand the crucial first year.
If you're interested in learning more about similar topics, see our other blog posts.
Straight answers on restaurant launch capital
What happens if my permit approvals push past my lease start date?
You'll be paying commercial rent out of your startup capital while making zero revenue, which is a fast track to draining your runway before you even open.
Protect yourself by negotiating a contingency clause in your lease that ties your rent commencement to receiving your Certificate of Occupancy.
Shouldn't I launch on delivery apps on day one to build cash flow?
No, that's a terrible idea.
Handing over a 30% commission while your brand-new kitchen team is still trying to find their rhythm will crush your profits and ruin your early reputation.
Master your in-house service for the first 60 days before turning on the digital delivery firehose.
How much buffer do I really need on a contractor's build-out quote?
The textbook advice says 20%, but in reality, you should pad commercial restaurant build-outs by at least 30%.
Expensive, unmentioned issues like outdated grease traps or inadequate electrical panels usually don't surface until the demolition phase actually begins.