Depending on who you speak with, some have said that as much as 90% of newly established restaurants fail within the first year. That can be an intimidating and a discouraging factor to consider when opening a restaurant for the fist time. However, according to the National Restaurant Association accurate real numbers predict a closer value of a 30% failure rate for the first year and another 30% within the next two years.
So what should you consider before opening your restaurant and unfortunately becoming another failed statistic?
First, know that restaurants fail because of a number factors. It will not be because of any one thing but a combination of things. For example, there will be a number of factors that will not be under the control of the restaurant owner, like the economy, natural disasters, etc. Those will be uncontrollable factors that you will need to consider when securing the appropriate insurance coverage.
Controllable factors; on the other hand, are very much in control of the owner provided if they have done comprehensive research, are disciplined in their practices and flexible in their reasoning.
Let’s consider the single biggest factor of a restaurants failure… Insufficient Capital. Inexperienced restaurant owners under estimate the unexpected. As mentioned there are uncontrollable factors that can place a financial lean on an operation. Food spoilage, pest infestation, equipment failure, vandalism, etc. Ensure there is enough capital to address these situations without disrupting the flow of your operation. Therefore, chose wisely when considering an insurance plan.
Another factor to consider is Location. Look at the demographics of the area your interested in. Ask yourself what are the housing values, the income level of wealth, can the neighborhood afford your prices, does a crime level exist that may threaten your business? Is there enough variety in the area to support your new restaurant without competitive crowding? Many of these questions can be answered through census reports, real estate reporting and municipal planning departments.
While many of us are good at something, operating a restaurant often requires you to be good at many things, sometimes simultaneously. Do not make the mistake that you can operate a restaurant because someone said you could cook or because popular opinion agrees with your business sense. You need a balance of both skills so that you can surround yourself with experienced managers and cooks that can help you get the job done right.
Make no mistake about it, owning and operating a restaurant is hard work. The hours are long, the work can be meticulous and sometimes it’s hard to see a profit. But you must be committed and devoted to your business. Many new owners lack Commitment and one should be careful with that image because it communicates a message to you staff and eventually it will reach your customers.
And finally, Control your Cost... unless you have unlimited capital, consider looking at turn-key operations. These will be pre-owned operations that may come with equipment, tables, chairs, etc. Try to negotiate a lease option while you occupy the space. Think conservatively in the beginning and wait until you have at least hit that third year hurdle, before you start considering expanding.
There are so many more things to consider like payroll, food cost and employee juggling, to say the lease… But more importantly, should you decide to be one of the 30,000 who open a new restaurant, know there is help available to assist you. Good Luck , God Bless and thank you for reading. If this has inspired or entertained you, please share.