All restaurant owners essentially want the same thing: lines of hungry patrons around the block, glowing reviews on social media, and a cash register that runneth over. But too often, that culinary dream doesn’t match the gritty reality of owning and managing a restaurant.
In fact, according to a recent study by Professor Dr. HG Parsa, 59% of restaurants and hospitality facilities fail within their first three years, and 26% do not survive the first 365 days intact.
A handful of other studies confirm the same (although the frequently cited statistic that 80% of restaurants fail in the first year is patently false.)
How can you give yourself the best chance of surviving and thriving past the first year – and well beyond?
Will success be on the menu for your restaurant?
Through decades of first-hand experience in the hospitality industry, hundreds of surveys and case studies, and copious research, I’ve identified the 15 most common mistakes that put restaurants out of business.
New restaurateurs may be filled with passion and even work tirelessly, but too often, they lack fundamental industry experience. I’ve found that the best owners and managers are those who worked their way up through the ranks, performing just about every job in the front and the back of a restaurant, helping them understand what makes an establishment run smoothly.
- Insufficient communication
Speaking of motivating staff, proper lines of communication throughout the organization are paramount. Clear, open dialogue from the owner to the manager and down to every server, bus boy, and host or hostess should be established and maintained.
- Lack of accounting skills
If you’ve never managed a restaurant’s financials, you’re facing a steep learning curve when it comes to staying on top of food cost, labor, taxes, vendor, P&Ls, and much more. But failing to keep an accurate and up-to-date accounting can quickly sink any operation.
- Spotty customer service
First impressions and exemplary customer service are always critical to a restaurant’s success. But these days, word of bad service travels faster thanks to super-charged social media and review sites like Yelp, Zagats, and Zomato, threatening to turn off your customer acquisition tap.
- Fading food quality
You may have a renowned chef in the kitchen, but food quality can still suffer due to improper quality control, a breakdown in the chain of command, or even burnout due to the monotony of a stagnant menu.
- Low start-up capital
Too many entrepreneurs vastly underestimate the resources needed to open the doors on a successful restaurant. I see them make this mistake more often than not, resulting in a run-up of debt that puts them in a precarious financial position before they even reach opening night.
- Failing to conduct market research
Far before you come up with a name, sign the lease, or pick up a paintbrush, you should be conducting meticulous market research – not only for your business, but also for all of your direct competitors. Just how valuable is market research? While more than half of all restaurants fail in the first year, only 10% of franchise eateries close their doors – a testament to the research they conduct, among other things.
- Bad location
Were you “lucky” enough to find a huge restaurant shell that was recently vacated, and offered great lease terms from an over-eager commercial Realtor? It may not be luck after all, as you just doubled down on a perfectly awful location that suffers from constant turnover since no business can stick.
- Shoddy marketing and promotion
Does your whole marketing plan revolve around an impersonal and bland social media campaign? That’s a perfect plan for going out of business, as every restaurant needs to focus on their #1 marketing source – guaranteeing that their customers have a great experience at their establishment. Social media is important these days, but what your customers are saying, on and off social media, is even more critical.
- A bad partner
Most restaurateurs have at least one business partner, and sometimes, several. While that may help with raising capital and managing the workload, there’s nothing that will doom a restaurant’s fate faster than a toxic and downward spiraling relationship between partners.
- Absentee owners
While it’s never good to have too many meddling partners, the opposite holds true – owners that are never around can leave a business rudderless. All owners and managers should be actively involved in the business in some capacity, working with clearly defined roles and responsibilities to achieve team synergy.
- Not knowing your customers
Who exactly is your target market? Where will your patrons be coming from? What kind of dining experience are they looking for? How much do they expect to spend and what do they value the most? Trust me when I tell you that knowing and understanding your customer base is the key to winning their hearts – and their stomachs!
- No unique proposition/culture
How do you stand out? What do you do differently or serve that’s better than any other restaurant in the world? What kind of culture permeates your business, from customer experience to employees and team members? While these ideas may seem subjective, it’s important to clarify and cultivate them.
- A swollen menu
Have you ever sat down at a chain restaurant and the server handed you an encyclopedia-sized menu? A prevalent mistake among restaurateurs is to try and offer something for everyone, which really equates to pleasing no one. Huge menus also take up more time (for customers, wait staff, and your kitchen), space, and equipment. It also kicks up food costs, waste, and consumes additional storage. Even worse, the quality is usually compromised if there aren’t a few signature dishes and specials that patrons can get to know and love.
- Not tracking food spend
Since we’re talking about menu engineering, you also need to watch your food costs like a hawk if you want your restaurant to celebrate its one-year, five-year, and even twenty-year anniversary. Carefully track supplier prices, and cross-reference with profits every week to truly understand what’s driving your business – or impeding it. Construct your menu and pricing strategy accordingly, and never be shy about reaching out to suppliers about price negotiations or alternative solutions that won’t compromise quality.