5 Reasons Restaurants Fail
5 Reasons Restaurants Fail
Recently, we posted about the common mistakes small business owners make that could lead them down the road to failure. The enthusiastic responses we got are what made us decide to branch off into a more specific topic in the same vein—that of restaurants in particular, and the reasons why they sometimes don’t succeed. A lot of folks will throw around the unsubstantiated statistic that 90% of restaurants fail in the first year. However, that number is more like 17%. Even though the failure rate is significantly lower than once believed, it’s important to understand the mistakes you can avoid so you can keep going strong well into the future. Let’s dig in to the 5 reasons restaurants fail.
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Bad Location
This is a big one, and sometimes can’t be avoided. However just as when you are looking for a house, you want to be cognizant of the surrounding area—and your neighbors, as well. Being located in a bad area is going to make it tremendously hard to draw customers. And if there is high crime in the neighborhood, it could also end up hitting your bottom line big time. From insurance costs to possible vandalism or robbery, a questionable location is one of the biggest reasons restaurants fail. So think of it this way: if you wouldn’t move your family into that neighborhood, don’t expect customers to stop by.
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Unpaid Taxes
Restaurant owners that are slowly falling into the red will often avoid paying Uncle Sam right off the bat. This unwise business move can lead to substantial fines or even jail time. The long and short of it: pay your taxes, on time, and in full. And if you’re having trouble, a small business loan can help.
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Bad Reputation
Your reputation as a restaurant is as good as gold—so it better be good. The moment you start to get poor reviews, or word spreads that your service or food is sub-par, your revenue will be hit hard and fast. Encourage online reviews and be responsive, even to the negative feedback. Protecting your reputation is imperative in this industry, and you can maintain a great one by hiring the right people and training them appropriately; working hard to make sure your customers always leave satisfied; and engaging with your community.
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Miscalculating Food Costs
Restaurants can easily dive off a financial cliff simply by not calculating their food costs properly. Understand how to create a menu that saves you money where it counts and enables you to turn a profit. There are many tricks to employ, and one key factor to keep in mind, according to The Balance Small Business blog: “Generally, food cost should be around 30-35%. This means that if you pay $1.00 for something, you need to charge a minimum of $3.34.”
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Lack of Marketing
Well-done marketing is critical to getting the word out about your restaurant, advertising offers, engaging regular customers and welcoming new ones. We cover this topic fairly consistently on The Pantry because a lack of marketing is one of the biggest drivers of restaurant closures. Marketing also goes hand-in-hand with establishing a good reputation. All it takes is one clever promotion to really make your business soar. Invest in a good marketing firm, or take the time to teach yourself some key techniques. Quality advertising, whether it’s through social media, email, direct mail (but ideally a combination of all of the above) is a great way to keep your restaurant off the chopping block.
Even if you follow all of the best practices and your restaurant is a well-oiled ship, financial pitfalls are sometimes inevitable. Remember your friends at ARF Financial, who are experts in the restaurant industry. When you build a loan with us, you’ll get a dedicated loan consultant who is local to your area and available to offer advice and help you navigate the world of small business loans. Come over to arffinancial.com today for an offer. We’ll let you know immediately how much you could qualify for, so you can be well on your way to financial stability—no tricks, no gimmicks. We look forward to serving you and your business!