Out of the many undertakings that entrepreneurs take, the restaurant business is one of the riskiest. It is an industry that can be extremely lucrative, but at the same time, particularly tough to break into.
According to a study by two economists from the Bureau of Labor Statistics who looked at data over twenty years, 17% of restaurants failed within their first year. This is arguably lower than the often repeated 90% figure.
However, the 17% statistic refers to an actual failure. The percentage of restaurants running on losses or barely breaking even is likely to be significantly higher.
Why is this so, and what can you do as a restaurant owner? Well, let’s explore this topic more below.
Table of Contents
1. Your Income and Expense Ratio Is Unsustainable
Look, a lot of restaurant owners go into the business with good intentions. They tell everyone about how they are going to use the best ingredients and provide the best service in the coziest aesthetic.
Such owners fail to realize that going for the “best’ costs a significant amount of money. The price of food and labor is the largest drain on resources. Yes, the ingredient costs should be made up if you are getting enough customers, but in the early stages, this can be tough.
What Are The Implications?
This means that you will most likely be bleeding money at a high rate until you know how much you need to buy. Stock too much, and you lose money. Stock too less, and you lower your reputation by apologizing for not having that item on the menu.
Similarly, restaurants have several money-hungry areas that owners aren’t prepared for. There will be months when you will even be in the red. Rent and overhead costs, marketing expenses, and staff salaries all eat up your profits.
This is why restaurants need to have a solid safety net of contingency funds to keep the business operative. The alternative is to hit the ground running and somehow find a way to make your business successful from day one. Of course, this is easier said than done.
How do you address this issue? Well, start analyzing your financial statements regularly. Start negotiating with your suppliers and find ways to reduce food wastage as much as possible.
You can offer customers a dynamic menu that changes depending on what you have in stock. This can help you save a lot of money in the early stages of your business. You can also invest in marketing and advertising to grow your customer base.
2. You Might Be Terrible at Management
With the number of logistical challenges that you will need to meet, the restaurant-owning experience can be exhausting and overwhelming. It is normal for inexperienced owners to find themselves floundering and trying to keep their heads up.
For instance, one of the most common challenges that restaurant owners face involves the difficult task of finding and retaining reliable staff. Remember, this is an industry known for its high turnover rate.
Pushing too hard to meet quality standards will lead to someone quitting after a few months. Thus, finding a balance can be a frustrating challenge at times.
Then comes all the drama that accompanies inventory and supply chain management. These aspects can be so convoluted to understand that many owners simply choose to use restaurant management platform tools of some sort.
CheddrSuite states that these tools can be ideal if you feel like the day-to-day operations are getting impossible to keep track of.
For what they cost, they more than sufficiently pay for themselves by freeing up your time. Other ways to improve your management skills include taking online courses or even hiring experienced accountants and managers who can make your job easier.
3. You Aren’t Addressing Issues and Responding to Feedback
On a more conventional note, the first year of business is a time that can make or break your business. Most customers will want you to succeed if they feel like you are doing your best.
However, if you aren’t open to feedback or care to implement suggestions, there is nothing stopping negative word of mouth from happening. This can easily kill a new restaurant.
Some of the most common issues and feedback that restaurants receive are related to
- Quality of food
- Waiting times
- Customer service
- Hygiene and cleanliness
- Menu offerings
- Pricing and value for money
Addressing these issues promptly and ensuring that they don’t happen again will go a long way in creating satisfied customers.
The more satisfied your customers are, the more likely word spreads of your restaurant, and the more successful your restaurant becomes.
Key Takeaways
The restaurant industry is one of the toughest to break into and survive in. Even entrepreneurs with experience can find it challenging because many of the factors aren’t directly under their control.
Moreover, needing sufficient funds to tide over business losses for periods that you go into the red can be difficult. It can be demoralizing and scary to see your business barely making ends meet even after the amount of money you have borrowed and invested.
While success will come with experience, using restaurant management tools, taking management courses, inventory management, and addressing customer complaints and suggestions are some easy-to-implement methods that can greatly increase your odds of success.
