Why Restaurants Fail & How You Can Avoid Their Mistakes

Running a restaurant is a highly challenging business, and as the saying goes, most restaurants don’t make it past their first year of business. However, understanding the business model well and avoiding all the common pitfalls can help you sustain and grow your restaurant business. In the following section, we discuss some of the critical reasons why restaurants fail and how you can avoid them:

Inexperienced owners

Many new restaurant owners are new entrepreneurs looking to fulfill their own restaurant’s dream. With a lack of prior experience in the restaurant industry, which is notorious for having a complex model, such owners can easily make rookie mistakes and fail to understand the market dynamics. The key to avoiding this error is partnering up with industry experts, having business mentors who understand the model, and spending time researching the industry before taking the plunge and setting up your restaurant.

Poor choice of location

The location of your restaurant can be a defining factor for success. To choose the right location, you should consider surrounding foot traffic, visibility to potential customers, and access to transport/parking. Analyzing property rates and taxes for various locations can also help you minimize ongoing costs and build a successful physical presence.

Bad accounting

While accounting can be the dull side of running a restaurant, it is essential to track your costs, understand the critical drivers of your business, and generate profits. By accounting for food costs, overhead expenses, salaries, and tips, as well as food wastages, you can have a proactive approach towards cost management and successfully manage value leakages from your business.

High upfront costs

Most new restaurant owners take debt and external funding to manage the high upfront costs of setting up a business. These can include upfront rent payments, significant investment in equipment and furniture, and finding and hiring staff in an increasingly scarce hiring market. As a result, costs can skyrocket quickly, leaving new owners in a tough spot and constantly playing catch up to recuperate the upfront investments. Avoiding this can be simple and takes some discipline with upfront spending and ensuring that you have some backup funds for unforeseen costs.