How to Minimize CAPEX Costs for Greater Efficiency and Faster ROI

When opening a restaurant, one critical consideration is determining how long it will take to recover the capital invested. 

The faster you achieve ROI (Return on Investment), the more profitable your business becomes.

One effective strategy to accelerate ROI is minimizing CAPEX (Capital Expenditure). But how can you reduce CAPEX costs efficiently? Let’s explore this in detail!

What is CAPEX?

Simply put, CAPEX refers to the money spent on starting or expanding a business, including property purchases, renovations, and equipment.

These expenditures must be carefully calculated because higher CAPEX means a longer time to recover your investment. 

Managing CAPEX efficiently is crucial to enjoy profits sooner and more significantly. Smart CAPEX management provides benefits such as:

• Lower revenue targets: Smaller investments make it easier to hit revenue goals quickly
• Attracting investors: An efficient business is more appealing to potential investors
• Larger cash reserves: Controlled expenses leave more cash for operations.

How to Minimize CAPEX Costs

Here are 10 practical strategies, inspired by foodizz.id, to reduce CAPEX and ensure your investment delivers the best results:

1. Create a Measurable CAPEX Budget

Before purchasing anything, establish a clear budget. Determine how much you’re willing to invest and align it with your ROI target.

For instance, if you aim to recover your investment in 24 months with a projected monthly profit of IDR 20 million, your maximum CAPEX should be IDR 480 million. Allocate the budget across components such as building, equipment, and interior design.

2. Choose a Building That Meets Your Needs

Building rental costs are among the largest expenses in the restaurant business. Choose a space that suits your requirements, avoiding those requiring extensive renovations. Select a building in good condition and appropriately sized to keep renovation costs under control.

3. Ensure the Building Has a Business Permit

Make sure the chosen location has a valid Building Permit (IMB) for business purposes. Repurposing a residential building for commercial use can incur additional costs, so opting for a pre-approved business space is better.

4. Design an Effective and Efficient Interior

While interior design is important, avoid overdoing it. Set a budget for interior design, prioritize essential elements, and skip overly luxurious furnishings or decorations that could inflate CAPEX. Efficient design doesn’t have to compromise aesthetics!

5. Conduct a Tender for Contractors

Once you have a design in mind, invite multiple contractors to bid on the project. This allows you to secure the best price while ensuring quality and timely execution.

Read more: Understanding Cost Control and 5 Steps to Implement It

6. Purchase Only Essential Equipment

When buying kitchen equipment, focus only on what you truly need. Avoid splurging on items that are more “wants” than necessities. 

Create a prioritized equipment list, starting with essential items like stoves and ovens, and consider more affordable options for less critical tools.

7. Consider Second-Hand Equipment and Furniture

Not everything has to be brand new. Look for high-quality second-hand equipment and furniture like used coffee machines, stainless steel tables, or display racks. This can reduce CAPEX by 20-50%.

8. Understand Pricing and Vendors

Knowing market prices and the vendors you work with is key to negotiating the best deals. Don’t hesitate to compare vendor prices or request discounts. Information is power—always research to secure the best offers.

9. Avoid Over-Investing in Working Capital

Working capital is used for daily operations, but don’t allocate too much of your initial budget to it. Ensure your restaurant has stable sales performance, relying on cash flow to fund operations. Additionally, negotiate deferred payment terms (TOP) with suppliers to better manage cash flow.

10. Understand Government Regulations Early

Be aware of government regulations regarding taxes, permits, and administrative requirements. These costs are often part of CAPEX and can add up significantly if not well-managed.

For example, installing large banners for branding may incur additional taxes. Understanding these regulations upfront helps avoid unexpected costs that could increase CAPEX.

Read more:  Turns Out It's Easy! How to Create a Budget Plan for Your Culinary Business

Conclusion

Reducing CAPEX is a crucial step to ensure your restaurant operates efficiently and achieves faster ROI. With careful planning and the right strategies, you can cut expenses without sacrificing quality.

Start by setting a clear budget, choosing the right equipment and properties, and always conducting thorough research before making major decisions. By doing so, you can run a smoother, more cost-effective, and ultimately more profitable restaurant business.