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Unless you're engaging in ventures solely funded by your own resources like tutoring or artistic performances, it's hard to claim that a business doesn't require capital. In reality, what kind of business operates without any capital investment, be it substantial or modest?
We use the term 'without needing capital' with a grain of salt because, let's face it, regardless of what you do, you still need money to sustain yourself, to eat, to breathe. That's not just 'capital', it's a necessity.
The restaurant industry, in particular, demands capital. Many ask, 'How much capital is required to start a restaurant?' The answer? 'It depends!!!'
Indeed, it varies. Depending on the type of restaurant, location, scale, and other factors, only then can one estimate the expected costs of opening a restaurant.
>> Explore More: Understanding Different Types of Dining Establishments
In reality, in Vietnam, there isn't a clear distinction between the concepts of 'Restaurant' and 'Eatery'. However, within the F&B industry, we implicitly understand that 'Restaurant' refers to establishments with larger scale in terms of capacity, sophistication in space and interior design. 'Restaurant' also refers to upscale dining establishments, while 'Eatery' is commonly used for more casual, budget-friendly dining places.
In this article, PasGo will answer the question 'How much capital is needed to open a restaurant?', and we will use an example to calculate the startup costs for a small eatery for simplicity. For larger restaurant ventures, you can certainly calculate them using the method outlined below!
1. Calculating the Rent Expenses
The cost of renting a space is a fixed monthly expense and it constitutes a significant portion of your startup costs. Depending on the location, size, and terms of the lease, the rent expense can vary. Lease terms can range from 1 year to more, but typically landlords may require payment for 3 months, 6 months, or 1 year in advance, plus an additional deposit of 1 – 3 months. Negotiating a lease where you pay rent every 3 months, plus a one-month deposit is ideal. So, your initial expense for rent covers about 4 months.
However, in reality, to run a restaurant, you need to budget for additional reserves to cover at least 6 months of operation, whether profitable or not. Hence, the total initial rent expenses should account for at least 7 months of operation.
Let's say you're opening a small eatery with a capacity of around 40-50 customers. This would require about 12 tables (4-person tables). You'll need a space of approximately 50m2 – 60m2 on one floor (or 30 – 35m2 for a two-story building). Assuming the eatery is located on a moderately sized street, with an estimated rent of about 20 million VND/month.
So, the investment cost for renting a space for a small eatery is approximately: 7 x 20 = 140 million VND.
2. Expenses for Designing Logo, Signage, Menu
Assuming you're opening a small eatery that doesn't require a fancy, high-end logo. But you still need some form of identity for your establishment based on its name, signage, or menu.
Let's assume the cost for these items is around 20 million VND.
3. Renovation and Interior Decoration Expenses
After securing a business location, you'll need to renovate and decorate the space according to your business needs, as well as purchase necessary equipment and restaurant furniture.
The capital for these items includes:
- Construction and repainting costs: approximately 15 million VND
- Cost of purchasing tables and chairs: Assuming around 2 million VND per set, you'll need to spend: 12 x 2 = 24 million VND.
- Cost of purchasing food storage cabinets (including refrigerators and vegetable storage cabinets): approximately 20 million VND.
- Cost of purchasing kitchen utensils (stove, pots, pans, plates, bowls, etc.): around 35 million VND.
So, the total expenses for decoration items amount to nearly 100 million VND.
4. Cost of Purchasing Ingredients
Alongside rent expenses, the cost of ingredients is typically the largest expenditure that requires proactive capital investment. Food ingredients tend to spoil easily if not properly preserved or if kept for too long.
However, the beauty of the restaurant business is its ability to generate quick returns, meaning you can recoup your investment almost immediately. This implies that 'customer debts' are virtually nonexistent.
For a small eatery as assumed above, then:
- Cost of fresh ingredients for the day, let's assume it's 5 – 7 million VND.
- Amount spent on purchasing spices for the first month: 3 million VND.
The total capital required for ingredient expenses is approximately 10 million VND.
5. Personnel Expenses
To calculate the capital needed for hiring personnel, you first need to determine the staffing structure for your restaurant or eatery. How many staff members are needed, then refer to the salary levels for each position to calculate this expenditure.
Assuming for this small eatery with 50 seats, you'll need a main kitchen, an auxiliary kitchen, and at least 3 serving staff (rotating shifts, or hiring part-time collaborators).
- Main chef salary: approximately 10 million VND/month
- Auxiliary chef salary: 6 million VND/month
- Salary for the 3 serving staff on shift, totaling around 4 million VND/month: approximately 12 million VND/month
Additionally, there are expenses for other staff positions, including:
- Restaurant Manager: around 12 million VND/month
- Cashier: 6 million VND/month
- Security guard: 5 million VND/month
For a small restaurant, a receptionist may not be necessary, as the cashier and restaurant manager can handle this task as well.
So, you'll need to allocate funds for this personnel expense: approximately 50 million VND/month.
6. Marketing and Advertising Expenses
In the first one to two months of opening, you may still have a lot of customers from 'word of mouth', but later on, this will decrease, requiring you to kickstart your own advertising and marketing channels.
Advertising costs for a restaurant during the opening phase are typically quite high, possibly accounting for 35-40% of the restaurant's revenue. However, let's assume the restaurant is profitable, so advertising expenses are limited to around 15 million VND/month which is reasonable.
7. Utility Expenses
- Approximately 10 million VND/month
8. Miscellaneous Contingency Expenses
There are many other expenses to consider, which may include even 'heavenly' fees like 'grease money' expenses,... For this category, you should budget around 50 million VND.
Above is the calculation method to estimate the capital needed when opening a restaurant, eatery.
So, for opening a small eatery with 50 seats as mentioned above (such as opening a snack eatery or breakfast eatery), you should budget initial reserve costs of around 350 – 400 million VND, to sustain operations for at least the first 6 months. Then, depending on the actual business situation, you can rotate funds and invest further.
Similarly, you can calculate the expenses for opening a restaurant on a larger scale. Depending on the culinary type, business purpose, location of the establishment,... you can adjust the costs in each category accordingly.
Best wishes for success in your restaurant business,
Warm regards,
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SEE MORE
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