We did the sums; here’s how much you’ll need to start your own restaurant in Singapore.
Whether you dream of Michelin stars, or are just being kay-poh, one subject always fascinates Singaporeans: how much does a starting up a restaurant cost? As a food and finance hub, this engages both our cultural passions. Here’s a quick run down on how much you can expect to spend.
1. Rental (The Highest Cost)
Let’s start with some generalisations:
A restaurant in the Core Central Region (CCR) tends to have rental prices of between S$12 to S$18 per square foot. A restaurant in the Rest of Central Region (RCR) costs around S$10 to S$12 per square foot, and the Outside of Central Region (OCR) has venues that can go as low as S$6 per square foot.
However, there are plenty of exceptions. Rental rates vary significantly, based on factors like foot traffic. A restaurant located in District 15 (East Coast area, in the OCR) might cost S$6 per square foot – or it might cost S$10 per square foot, in a desirable and busy area like Parkway Parade mall.
In general, the smaller your restaurant, the more you need to make per table (it limits the number of customers you can take).
Also, restaurants need to weigh up the pros and cons of operating in places like malls. For example, shopping mall may mean higher rental cost – but there’s an attached carpark, so you won’t lose customers due to lack of parking. You may also benefit from customers drawn by businesses in the same mall – the supermarket’s customers may become your customers too.
New restaurateurs can use an old trick of relying on someone else’s research. The oldest way to do this is to look for locations that have a McDonald’s nearby; the fast food chain would have researched traffic and accessibility before opening there.
At any rate, expect to pay for at least 1,200 square feet – anything smaller is seldom viable for a restaurant. You should also know that the security deposit is one to two months’ of rent, and that the standard term is six months.
On top of this, you may need to set aside between S$4,000 to S$6,000, to restore the property to its original state if you should close down the restaurant (read the terms of the lease carefully).
This means for a S$10 per square foot restaurant, you should set aside a minimum of S$24,000 (for two months’ deposit), and an additional S$4,000 for restoration work later. Try to set aside the full S$72,000 for the first six months of rent, as there’s a high chance you won’t earn enough at the beginning to pay for rental.
2. Renovation Costs
The rule of thumb for restaurants is to spend no more than S$100 per square foot, when it comes to renovations for front of house (the customer area, not the kitchen). So for your 1,200 square foot restaurant, the total cost of renovations should be no more than S$120,000.
Most interior designers tend to bust their budget by about 10 to 15 per cent by the way – so in the above situation, you’re looking for a designer who quotes an estimated cost of between S$100,000 and S$110,000.
At this point, you’ll also want to look for utensils. Most restaurants spend less than S$1,000 on utensils. But if you want to have fancy silverware, high-end wine glasses, etc., then it could easily be 10 times that price.
For the kitchen, the cost can vary wildly – between S$35,000 to well over S$60,000. The cost is hard to predict, because it comes down to what you’re serving. If you need a saute station, baking utilities, and a meat smoker, for example, it will cost much more than a regular oven and stove.
A common alternative is to buy second-hand commercial kitchen equipment. Jackie’s is probably the most famous supplier in Singapore for this. This can shave a good 20 per cent off the prices of certain items.
In total, expect to spend around S$150,000 at least.
3. Manpower Costs
Part-time workers typically earn around S$5 to S$7 per hour. It’s not uncommon for some to be called in on a necessity basis (e.g. on predicted slow days, you may elect not to bring in part-timers to support your main staff).
For full-time staff, the typical pay range can be anywhere between S$1,800 to S$2,200 per month. In the kitchen, the head chef typically earns between S$5,000 to S$6,000 per month, while others (such as line cooks) earn between S$2,000 to S$2,500 per month.
(That said, it’s not uncommon for some restaurants to pay experienced line cooks as high as S$3,000 to S$4,000 per month, especially if the head chef makes it clear she can’t / won’t work without them).
Kitchen porters and dishwashers typically get S$1,200 to S$1,500 per month.
Many (but not all) restaurants provide additional staff incentives. For example, year-end bonuses if certain targets are reached, or a share in the business for the head chef.
In addition, don’t forget you must contribute an additional 16 per cent of your employee’s pay to their CPF.
For a seven person team typical to a small, new restaurant (one head chef, two line cooks, one kitchen porter, and three wait staff), you’re looking at a low estimate of S$18,100 per month, inclusive of CPF contributions.
4. License Costs
You’ll need a Food Shop License from the National Environment Agency (NEA), which costs S$195 a year.
Each employee who handles food (and that’s probably all of them), will need to go through the Food Handler’s Course. This is available from several training centres, at S$21.40 per head for Singaporeans, or S$107 for foreigners. A refresher course has to be taken five years after the first certification, and every 10 years after that.
If you sell alcohol in restaurants, you’ll probably want a Second Class Liquor License, which costs S$1,320 for two years. This lets you serve alcohol between 6 am and 10 pm. If you want to serve alcohol from 6am to midnight, you’ll need a First Class license instead (S$1,760 every two years).
You’ll also need to register for the Good and Services Tax (GST) eventually, once your annual turnover exceeds S$1 million.
5. Raw Ingredients and Inventory
There’s no way to give you a clear cost estimate here, as it depends on what food you’re serving, and what amounts you’re buying in. Procurement of food is a specialised discipline, which top restaurants may hire experts to handle.
Nonetheless, a small restaurant should count on food costs taking up 20 per cent of its revenue. So if your revenue is S$45,000 per month, then about S$9,000 will go into the supplies needed to make your food.
But this is highly variable. A simple zhi-char outlet might have food costs as low as 10 per cent of revenue; a high-end Japanese restaurant, with flown-in seafood, might have food costs of 50 per cent.
6. Utility Bills
Few restaurants manage to keep water and power bills below S$1,200 a month; and amounts of up to S$2,500 a month are possible. Remember you have huge fridges to power, and your air-conditioners are working 15+ hours a day, every day. On top of that, you have to consider the immense water and energy consumption of a commercial kitchen.
7. Miscellaneous Costs
Set aside an extra S$3,000 a month, for miscellaneous costs. These include business insurance, the point-of-sales systems, the security alarm, basic upkeep and maintenance, and replacement of damaged items.
You’ll also need a website, and you’ll incur costs from advertising and promotions(e.g. discounts for holders of certain credit cards, loyalty cards, print advertising, and so forth).
Total Estimated Set-up Cost:
Taking into account all the costs, and rent paid-up for six months, you’re looking at S$210,445 just to open the doors. After that, you’ll be paying around S$44,000+ per month as operating costs.
Remember, most restaurants are running at a loss for the first three months (at least) – so make sure you’re sufficiently capitalised.
A Loan May Help
If you are unable to raise sufficient capital on your own, you may consider turning to the banks. However, the reality is most bank business loans will be closed to you in the first year.
This is because typically, a bank will require a two to three year track record (your business must be profitable) before they extend a loan.
While it would be ideal to never take out a personal loan on behalf of your business, we can realistically say it does happen, from time to time.
But if you’re not certain the business can survive, close it down rather than take out a loan in your own name. It’s easier to save up and try again later, if you don’t mire yourself in debt.
However, if you decide to take out a loan to top up your finances, you’ll want to minimise your cost of borrowing. One way to do so is to check SingSaver.com for personal loans with the lowest possible rates.
Available exclusively through SingSaver.com.sg, Citi Personal Loan offers you preferential interest rates of 4.27% p.a. (EIR 8 p.a.) for a S$20,000 loan with a 36-month tenure. What’s more, with Instant Decision, you’ll know the outcome of your application the moment you submit your application form.
As an added bonus, you’ll also receive up to S$150 NTUC FairPrice vouchers, which you can further use to offset the cost of running your restaurant.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.