Outgoing Costs to be Aware of When Opening a New Restaurant

Approximately 60% of UK restaurants fail in their first year. That stat isn’t included to put you off opening one, but to make you aware that beginning a new business is challenging.

With the rise in the cost of living, and a decline in many people’s disposable income, it can be difficult for restaurants to attract customers.

But if you can get a grasp of the outgoing costs you will face and plan around them, you will put your restaurant in a much better position for success.

So, read on as we explore some of the primary expenses you need to consider.

Water Rates

Generally, there are two primary water bills your restaurant will need to pay:

• Base charge: a monthly fee you pay for being connected to a water system.
• Usage charges: billed based on the amount of gallons you use.

The base charge will remain the same each month, unless prices are raised or a more affordable alternative is found.

However, by using high-efficiency dishwashers, meticulously measuring water, and repairing leaks in a timely manner, you can limit your usage expenses.

Understanding the intricate details of business water rates will help you to save money. Plus, reducing water usage helps the environment as well as your bank balance.

Rent

Picking a location for where you want to open your restaurant requires strategic thinking.

When researching rent prices for commercial spaces, you will find that city centres typically cost more than quieter suburban areas.

Here is a breakdown:

(Annual rates)

• Central London: commercial rents typically range between £50-150 per square foot.
• Suburban London: commercial rents generally cost between £20-60 per square foot.

However, this doesn’t mean you should immediately pick the cheaper option. Opening a restaurant in a busy area will be expensive, and you will be up against more competition. But you will also be in a much higher traffic location.

Weigh things up; a more remote restaurant is likely to attract more regular customers, but one that builds a solid reputation in a busy area can attract high numbers on a regular basis.

Licenses

If you’re planning to sell alcohol, and or play music within your restaurant, you will not be permitted to do so without gaining a license.

Alcohol license prices vary depending on your Non-Domestic Relatable Value (NDRV). Here is the cost difference between the lowest and highest NDRV bands.

• Band A (£0-4,300): Total cost of £170 (plus VAT) for the first year.
• Band E (over £125,000): Total cost of £985 (plus VAT) for the first year.

For a restaurant who plays background music for their guests, an annual £430 fee (plus VAT) is required to gain a license.

Staff Costs

You may never have run a business before, or been responsible for ensuring that staff are paid correctly.

Staff costs are something you need to consider before hiring a team. Here is a breakdown of the current UK minimum wage for different age groups:

• 21 over: £12.21 per hour.
• Under 21: £10 per hour.
• Under 18: £7.55 per hour.

In addition to wages, you will need to contribute at least 3% of qualifying earnings for pension contributions.

You will also pay 15% on salaries over £5,000 a year in national insurance contributions.

Full-time staff are entitled to 28 days of paid holidays annually.

Successful restaurants tend to spend between 20-30% of their total revenue on staff costs.

Final Thoughts

When planned and executed correctly, opening a restaurant can be very lucrative. Success enables you to build, earn more money, and open more establishments on a wider scale.

However, before you get to that point you need to work hard, accept that things may not start brilliantly, but persevere on.

Understanding various outgoing costs can help you map out your plan for the early stages.