Opening a new restaurant is a daunting task, and is compounded by people warning you about how difficult it is to run a new restaurant. The almost ubiquitous statement about 9 out of 10 restaurants not surviving beyond their first year of operation is not completely true.
Today we are going to delve into the reasons, why restaurants fail and how you can avoid such failure;
- Location – The 3 most important things before opening a restaurant are location, location and location. It is more important than the menu, concept and even the ambiance you decide on. The right location helps you reach out to your target market depending on various factors like paying capacity, gender, age group and time of visit. Key things to consider in this regard are footfalls in the area, parking space availability, competition and accessibility.
- Passive owners – Running a restaurant undoubtedly takes long hours, everyday. In a lot of restaurants, owners act merely as investors and are not keen on managing the day-to-day operations. Whereas having skin in the game and actually being involved in decisions ensures that they have a sense of ground reality. Hiring the best manager and an excellent head chef is an added advantage but is not going to ensure smooth working of the place. As an owner it is imperative you are present and available for problem solving in the restaurant at all times.
- Poor Hiring – The base of any company is the team managing and running the facility. Having a sound and professional hiring process ensures that your staff has a set level of competency and skills that helps bring professionalism in the business. It is essential that the screening and hiring processes are standardized, in addition to efficient background checks.
- Accounting practices – Accounting of all material, people and finances is one of the most important tasks for restaurants. Any lapses or goof ups in this may result in unforeseen fines or even shutting down of the establishment. It is of importance to have a good accounting team or a consultant on board and also be proactive in following up on errors or filings.
- Customer feedback – Research reports reveal that customers usually don’t give feedback about something they don`t like until asked for. As a restaurant, it is imperative to have feedback cards, forms or Customer Service Associates interacting with guests’ right before the end of the meal. Every feedback must be recorded, and that’s the only way you will ever come to know where you stand every working day.
- Cash flow issues – Running a business is most importantly dependent on cash flow. You need cash to pay suppliers, employees and other expenses. The game here is to match your cash supply with cash demand. A restaurant using cash everyday from the float amount available will not do as well as the restaurant restricting cash transactions on a daily basis and working on a credit line.
- Publicity – Getting more customers is the key to survival. You can try different modes of advertising for your restaurant, from sampling some of your signature items, engaging with the local community in various ways, to even getting listed in the local directory. The main idea is to ensure that you stand out from the rest of the players in order to get visibility.
- Over spending – As a new restaurant, your sales are limited and the number of covers everyday are usually lower. In this phase, it makes sense to optimize your spending and ensure a high return on investment on every penny spent. It is important to plan your expenditure and understand your priorities.
- Pricing – Pricing of food is one of the most important drivers of costs, and therefore your profits. You need to have an inherent sense of prices of your input costs and then go about pricing your dishes after taking into consideration your fixed costs, seasonal costs, the ambiance of your place, and so on. Having a good product mix ensures that you have freedom in pricing your dishes.
- Fixed Business Plan – A restaurant is just like any other business that goes through good times and bad, and has to cope with disruptions and innovations in the industry. Having the ability to deal with changing dynamics of the industry is very important for a business to do well. Online ordering and delivery is a huge segment today. As a restaurant, you must have an option for customers to order online. This ensures that you do not fall behind the competition.
While starting and running a restaurant is no mean feat, implementing the above points will decrease the chances of making mistakes, hence increase the chances of success.