You have worked hard all your life, saved up some money, and its time. Time to start building your dream business. After all, you are the social type A personality, with an entrepreneurial mind who finally wants to be their own boss. You got your momma’s and probably even grannies recipes and opening a restaurant sounds like a great idea. You know you can cook, you are extremely hardworking, and you’re damn sure you can run a restaurant. Sounds easy enough, right?
Unfortunately it’s easier said than done. Managing a successful restaurant is one of the hardest businesses in the world. Being a Restaurateur myself, and owning a technology company which caters specifically to restaurant owners, the other side of the coin isn’t easy either.
It’s always been a common concept that restaurants have a high failure rate. Not just here in the U.S, but anywhere. The restaurant business is certainly not known for its simplicity or easiness. I’m not trying to scare you, but only give you the facts. According to CNBC, about 60% of new restaurants will fail during their first three years, and 80% will close before their fifth year in business. Why such a high percentage? Why do so many restaurants fail?
Most restaurants don’t fail because of one single factor, but rather a combination. Just like any well-oiled machine, a restaurant has an abundance of varying and moving parts.
I can’t stress this enough – When it comes to operations, it’s important for a restaurateur to have everything set in place before opening its doors. I’ve put together a list of nine reasons why restaurants tend to fail in the first three years to aide you in your new journey. Please keep in mind, this list is not set in stone, and many factors can come into play.
Reason 1: Poor Choice in Location
You may be surprised, but having your restaurant in a poor location is often the biggest restaurant failure. Word-of-mouth only goes so far when you’re in a bad part of town or not close to many modern conveniences. This failure can be attributed to a variety of factors. Such factors include not doing the research, or taking the road of a cheaper building price. Choosing a good restaurant location is very similar to purchasing your first home. For a home, you may look at schools, neighbors, cost, home size, and location to other points of interests. For restaurants, it means looking at surrounding business neighbors, building size, cost, and surrounding clientele. It’s true what they say, “it’s all about location, location, location.”
Reason 2: Little or No Marketing
Whether you are a small or large business, you are defiantly missing out if you’re not maximizing your marketing efforts. Large popular restaurant chains are constantly advertising, at every moment, of every day. They are swallowing out restaurants that aren’t advertising, and dominating every marketing platform by force. In our digital age, there are many affordable options to advertise your restaurant; whether it be online or something more traditional. The fact is, in our highly technological world, you are a quick buzz away from your first online review. If no one has heard of you, then they can’t find your place of business, it’s that simple.
Reason 3: Poor Customer Experience
Is your restaurant spotless? Is your staff attentive? Is the cooking time sufficient? Does your restaurant have a good and inviting atmosphere? These are only some of the questions you should be asking yourself for a positive customer experience. It’s also a great idea to get customer feedback. Leave comment cards or even go up to customer’s and ask them how their meal is going. You don’t have to be everything to everyone, but complaints are great to know and to understand key components of your restaurant.
Reason 4: Staffing Problems
Being overstaffed or understaffed can result in a huge problem with any restaurant, and should be avoided at all costs. Understaffing leads to chaos, mess, unhappy customers, and stressful conditions for staff. Overstaffing is an equal problem, and can lead to unhappy customers, staff sitting around sends a bad vibe, and adds unnecessary restaurant costs. Overstaffing and understaffing only get worse after a prolonged amount of time. Today there is a wide array of solutions that can assist your staffing efforts.
Reason 5: Poor Management
Having extensive restaurant management experience doesn’t always make you a good manager. Poor management can lead to chaos in a restaurant. Depending on the severity, it may require you to replace current management or retrain any aspects of current management that are going downhill. It’s important to find a resolution to poor management as quickly as possible, or else it can trickle down to staff and customers.
Reason 6: Spending Too Much Money before Your Restaurant Opens
Opening a new restaurant can be extremely fun and exciting. However, it is important to show some restraint when it comes to spending before opening day. If you get a loan, remember to think frugal. Well he said, consider using used equipment, and try and hire people as close to opening day as possible. Remember your loan ends on opening day so it’s important to make things last from a direct source of fast money. You can still open a restaurant with a good customer experience using only the necessities.
Reason 7: Lack of Resources
Lack of resources means you could be spending too much time on one aspect of your restaurant operations and neglecting others. There are many affordable options for small and large restaurants to incorporate automated systems into their business plan. Stop spending so much time on payroll and get out on the restaurant floor to interact with your customers.
Reason 8: Having Low Dedication & Not Committing
Owning a successful restaurant means staying dedicated and spending enough time on your restaurant to ensure its constantly growing. Work hard, stay positive, and set an example. Any encouraging attributes will inspire others around you.
Reason 9: High Food Costs
Having high food costs is a large factor in causing a restaurant to overspend. Miss-managed inventory is an inevitable result for high food costs. The 30% rule is a good general rule to live by, but there are also many point of sale systems that can assist in keeping your food costs more organized. Today, some POS systems can even adjust menu costs down to the ingredient level when changes are made. The 30% rule means that your menu item cost should be 30% of how much you paid for it. So if the restaurant paid $4.00 for chicken, then the consumer would pay $5.20. The average consumer understand the average price for most meat dishes, but proportional side and pasta dishes can be a game changer for understanding high food costs.
Best regards and success on your restaurant endeavors,
Onur Haytac
CEO