One question that people getting into restaurant business are often asking that how much does it cost to maintain a successful restaurant? It is also true that no two restaurants are the same, and also the cost per square foot to open a restaurant differs substantially based on different things which include service styling, decoration and furnishings, size, vicinity and more.
Here is why many restaurants fail in their first few years of operations:
Why Do Many Restaurants Fail?
There are so many reasons restaurants fail; however almost 80% of restaurants that fail go out of business “as they undervalue or underrate the capital, it takes to initiate their business operations,” says David Kincheloe, president of National Restaurant Consultants.
The most important factor in the failure of your restaurant business is lack of planning. Before you start with your restaurant business, you will spend a great deal of time figuring out each and every aspect of your restaurant. From kitchen menus and equipments to floor plans and staff selection, the planning part of your restaurant business will make or break your restaurant business.
How To Survive The First Year Of Business?
In case you manage or run a restaurant business a couple of years you’ve definitely bumped into many problems, however your restaurant is still running, right? The fact that restaurant businesses fail at a distressingly high rate of almost 90-95% in the first few years, is certainly untrue. In line with the recent research 59% of hospitality facilities fail within the first three years.
Within the first few years, the highest level of failure is marked 26%, second year 19% and third year 14%. The superstition that restaurant failure rates from 90% could not be verified. The rate of the failure of restaurants has always moved between 55% and 60%. If we compared this outcome to some other businesses, restaurant industry is somewhat successful business.
What Are The Common Reasons of Restaurants Failure?
According to the U.S. Bureau of Labor Statistics, restaurants are in fact no more risky as compared to any other new business. Don’t give up your dream of owning a restaurant business without taking a closer look at the restaurant industry. Most of the reasons restaurant fail are avoidable.
Frequently potential restaurateurs have a good restaurant idea and lots of motivation, but less knowledge or experience of the restaurant industry. There are many factors go into running an effective business and many business owners do not know the knowledge and skills required to start and keep their restaurants successful. The general reasons why failure rate increase in the starting of the business:
- No Industry Knowledge
Problem: Many restaurant businesses fail not just because of lack of expertise and knowledge of the foods and drinks, but a lack of understanding of restaurant business, for example, negative pricing, bad or inappropriate planning, bad financial management and so forth.
Solution: Increasing your industry knowledge can help you in the growth of your restaurant business. You need to update yourself on the latest trends and news in your restaurant industry. Spare some time for the industry education and research for your business and professional growth.
- Lack Of Restaurant Funding
Problem: Lack of funding is a major problem for any restaurant business. It can stop your whole business process from getting equipment to paying a supplier.
Solution: If that is the case, you can get the help of restaurant loans. By getting restaurant loans, you can get the important equipment, pay your suppliers, purchase inventory, expand or remodel your location, increase your cash flow and much more.
- Don’t Know How to Do Every Job
Problem: This is also related to lack of industry knowledge. Are you doing all jobs on your own without having proper knowledge? Don’t do this. This can lead your restaurant to failure.
Solution: If you don’t have the knowledge about how to do the job, get the help of professionals in your restaurant who can effectively run and manage your business. But it is recommended to get knowledge about restaurant industry, so you can understand what your staff does on daily basis.
- Wrong Hiring of People
Problem: No one wants to hire wrong person because it drains energy and time and can also cost a business in many ways. A bad hire is a burden on your business. According to Harvard Business Review almost 80% of turnover is due to bad hiring.
Solution: Therefore when you hire someone, you need to be very careful about what you really want from him. All successful businesses understand the importance of making the right hiring decisions. This is why businesses spend an average of $3,300 per hire just on recruiting the right person.
- Don’t Have A Budget
Problem: How important are the budget, forecast, or profit & loss for the growth of a restaurant business and how can you track your business performance and profits and loss without having budget, forecast, or profit and loss?
Solution: The budget, forecasts, and profit & loss statements and the massive action plan of your restaurant business. You have to know where your business is standing and where you are before. These are the tools that can keep your business on the targeted track.
- Business Culture Anomaly
Problem: It is mostly seen that the owner don’t follow the rules as he want the staff to strictly follow them. This can ruin the business or company culture, what to do to overcome that type of problem?
Solution: Having a strong company culture is the secret ingredient to modern success. Being a business owner, you are the person who sets the business culture. If your attitude is negative, then your staff will have a negative attitude. Don’t forget the Japanese word “Kaizen” which means constant improvement. Dr. Edward Deming said that if you take on step to improve a day, you will have 365 days in a year to improve your restaurant culture.
- Using Outdated Marketing Concepts
Problem: Old marketing doesn’t stand anywhere nearly as solid as newer marketing strategies. The old fashioned snail mailing has been omitted and the yellow pages advertisement is just a waste of time or money. What to do?
Solution: If you have an updated restaurant website and don’t have online presence, then start creating your online presence by logging on social portals such as Facebook, Twitter, Google+ and LinkedIn. The online presence can increase your customer base and also sales. You can place your menu there and get online orders.
- Your Staff Has Freedom
Problem: Giving your staff a free rein to your business sometimes can be of your benefit, but sometimes it can ruin your restaurant business then how you can positively manage them?
Solution: To give your staff free rein means to give them freedom to do or say whatever they want. Here you need to do two things; one is to build your restaurant business after learning every position. The second thing is to guide your team to effectively run your restaurant up to your expectations.
So, focus on the result-oriented procedures and leave the old-fashioned techniques. Now you have all the important ingredients you need to open and effectively run your restaurant business with confidence.