For Restaurants New in Business, What Are the Most Common Causes of Failure?

The idea of owning a restaurant is an exciting thing to think about, especially if you’ve been dreaming up the idea for a long time. From the kind of cuisine you want to serve to the ambiance you want to set, there are so many things to get excited over. But sometimes it’s just that: a great idea.

The reality is that it’s tough to stay in business as a new restaurant on the block. According to a study from Ohio State University, 60 percent of new restaurants don’t make it past their first year in business, and 80 percent go under in just five years.

For restaurants new in business, it’s important to plan ahead, get a good view of the landscape you’re about to step into, and understand the common causes of restaurant failure.

Location, Location, Location

A bad location is a major mistake that restaurants new in business make. From poor visibility to limited parking to heavier competition in the same area, there are many reasons why restaurants new in business get shoved to the side and overlooked. Picking the right location is key and can make up for some of the other issues that cause a restaurant to fail.

Poor Management

From kitchen managers to shift managers to the general manager, everyone at the top needs to be the right choice for the job and handle what is under their purview. You can only tell so much by interviewing for those roles, but after a few months, if it feels like a bad decision was made hiring a certain person or people, it will show up in a restaurant’s performance as a whole.

Not Getting Insured

This may not seem like an immediate threat, but not having the right insurance coverage can sink a new restaurant. One claim of overserving or food poisoning and a small restaurant looking to get off the ground can see major drainage of funds. Having something like professional liability or liquor liability can help to keep a restaurant safe among the various claims that can make a major dent in finances.

Poor Customer Service

A reputation goes a long way and with social media being the way it is, basically acting as a digital community board, having a bad reputation or constant complaints can aid in hurting a restaurant that’s new. Customer service is key to retaining new customers and getting the word out that a restaurant has a great menu, or knowledgeable staff, or friendly service. Getting customer feedback in the early stages can ensure that a new restaurant can work out the kinks before it gets too late and out of hand.

Food Cost Percentages

Knowing how to correctly price a restaurant menu is a solid first step toward making a profit in the near future. Most owners don’t have an understanding of cost-per-plate, so it’s important to know what is being put on a menu and how it will affect the budget. Things like bacon, caviar, avocados, and other seasonal items may have to be held off in the beginning.

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