Some people dream of becoming rich as restaurateurs. But the reality is, the restaurant business is not easy. When you open a restaurant you need to be prepared to cover numerous costs, ranging from food and labor to marketing and insurance. Understand these expenses and be prepared to deal with them before you dive into the restaurant business.
Without food, you can't have a restaurant. Food costs cover everything from fresh meat and produce items to canned goods and seasonings. It isn't surprising that food makes up a large portion of a restaurant's expenses. The exact percentage depends on the type of restaurant you operate. Peter Ryan of Restaurant Solutions in Myrtle Beach, S.C. told "Forbes" that food typically eat ups 25 percent to 40 percent of revenues.
Next to food, labor is the biggest expense in the restaurant business. According to "The Manager's Office," 27 percent of the revenue from a burger at a typical restaurant goes toward paying employees. This cost is divided between hourly workers such as line cooks, who receive 17 percent of the revenue, and salaried employees such as managers, who earn about 10 percent of the revenue. These figures are similar to those presented by "Forbes," which suggests that 20 percent to 25 percent of revenues go toward labor costs.
Rent is no small expense for restaurants. According to "Forbes," rent should be equal to about 8 percent of a restaurant's revenues. "The Manager's Office" suggests that rent can be even steeper in busy restaurant districts, reaching 10 percent of revenues.
After food, employee wages and rent have eaten up most of your revenues, you will still have other expenses to pay. These can include general supplies such as cleansers and paper goods, laundry services, marketing costs, insurance, licensing fees, maintenance and financing costs. When it's all said and done, a healthy restaurant will be left with just a 5 percent profit margin.
