Opening a restaurant can seem like a failsafe venture. After all, everyone has to eat. The reality, however, is that eateries are notoriously risky enterprises, with most studies suggesting that somewhere around 60% of them will fold within the first year. At Gurian CPA Firm, we are experienced accountants with expertise working for local restaurant owners. We want you to understand the main reasons why new restaurants so often close their doors so you can take proactive steps to beat the odds and be successful.
1. Wrong Location
Poor location is one of the biggest reasons why new restaurants don’t make it. Some entrepreneurs don’t do enough market research to know whether the demand for their planned cuisine is high enough in the area the restaurant will open. They take a stab in the dark, hoping that the mere presence of the menu will make people buy. Sometimes location is a problem not because demand is lacking, but rather because the restaurant simply isn’t physically visible enough, obscured by other buildings, too far from main roads, or in an area that doesn’t get enough foot traffic.
2. Unprepared or ineffective management/leadership
Restaurants have a very diverse staff, including janitorial workers, various levels of chefs, wait personnel, security, and finance officers. Many entrepreneurs don’t know how to bring all these employees together as an effective team, while others fail to continue to adapt and change the restaurant over time with real vision. It’s also very common for restaurant leaders to be unprepared for the time commitment involved and for them to struggle to balance work and family life. They give up on the restaurant in favor of nurturing their personal relationships.
3. Questionable customer service
Sometimes restaurants fail because their employees fail to bring the amount of energy, courtesy, and consistency that clients expect. They do not respond well to customer complaints or lack the focus it takes to deliver the food in safe way and in a reasonable amount of time. Many eateries also have serious disconnects between different levels of the staff, making it impossible for everyone to spot and resolve service and quality problems in a joint way. Being critical of new hires and making sure they are a good fit for your restaurant’s vision makes a big difference, but even the most motivated and skilled of teams can fall short if you don’t give them enough resources or don’t bother to recognize and reward their efforts.
4. Financial mishaps.
Restaurant owners sometimes drastically underestimate operating expenses for restaurants, including basic food costs. Many times, this means that they don’t take out enough business financing for the restaurant from their lenders. Failing to analyze and plan ahead for cash flow problems is another issue. Other money issues include not keeping a close eye on spending, addressing taxes and licensing fees improperly, keeping too many staff, paying workers too-high salaries, and purchasing equipment or furniture that’s not vital or worthwhile to the restaurant’s atmosphere or operation. A good CPA is critical to keeping these errors in check and will take a proactive accounting approach rather than a reactionary one.
Starting a restaurant is tricky. Poor location, bad management/leadership, poor customer service and monetary issues all can put the business at risk. Taking the time to really investigate the market and get the right staff on board are solid means to address these common weak points. Our Dallas CPA Firm is here to help you make sound financial decisions to ensure your new venture’s success.
