As mentioned before in this guide, many restaurants run out of money before reaching a turning point with their business.

The strains brought on by unforeseen financial setbacks can cripple even the most well thought out new restaurant concepts that would have otherwise been poised for success.  

Capital requirements or startup costs related to building improvements, equipment aquisitions, and all other expenditures associated with getting the doors open to welcome your first customers, are often fatally underestimated. 

This post will highlight key points to help better understand and estimate the finances required to get the doors open. 

 

• Operational budget vs. capital requirements budget

• List of capital requirements budget items

• Why adding 20-30% to budget needs has become an industry best practice.

Operational vs. Capital Requirements Budget

Because they need to be prepared for separately, it is important to clearly define what a capital requirements budget is and how it differs from an operational budget.   Though an operational budget should account for some initial funds needed in the begginning, they are more closely related to the day to day operations and finances to support.  Finances that have been dedicated to getting a building space outfitted to legally serve the public and accept customers a restaurant and likewise all other construction improvements, permitting, legal and insurance initial fees, fall into the bucket of a capital requirements budget.   They are required expenditures that should only be necessary in the beginning and will not be considered neither a fixed or variable cost. 

The importance in expressing this difference lies in the fact that openings don't normally go as planned while capital requirement budgets are not realistic and lack adequacy.  Consequently restaurants end up spending from a budget meant to support their day to day expenses not to cover construction costs.