Avoid These 5 Major Pitfalls that Can Destroy Your New Restaurant

The number of failed restaurants can be a little scary when you first look at them. Several years ago, Cornell University paired with Michigan State University to conduct a study of restaurants in three local markets over a 10 year period. Of the establishments studied 27% of restaurant startups failed in the first year. After 3 years 50% of those restaurants were no longer in business; after 5 years 60% had closed their doors. At the end of the 10 year study 70% of restaurants had failed for one reason or another. While these numbers are better than the commonly exaggerated 90% failure rate told by TV personalities, they are still daunting. Restaurants fail at an alarmingly high rate but it is by no means inevitable.  So here are a few tips so you can prevent your dream from becoming a nightmare.

1. Location

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Everyone knows the phrase “Location, Location, Location!” but it doesn’t just apply to home ownership. It is also true in the restaurant industry. Dwellings that offer visibility, sufficient parking, and an abundance of foot traffic are naturally going to attract more customers than places that are missing any or all of these factors. It is easy to become excited and take the first available space within your budget, but this is your dream come true so be sure to be diligent in your search for your dream space. It would be a shame to have a wonderful concept only to have to shut down due to poor location.

2. Inexperience

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Around 61% of American’s wish to own their own business. It is not unreasonable to assume a decent number of them would like to open their own restaurant. While many workers start their careers in the restaurant industry one way or another it doesn’t mean they understand all parts of owning their own establishment. A sure way to fail is not doing your research before opening a restaurant. You can have the best of intentions but without the knowledge to back it up your great idea can quickly take a turn for the worse. Combat this issue by knowing every job in your restaurant. Not only will you become well educated but your staff will respect you more if you are able to jump in and help during busy times. It is important to remember not to be too proud to ask for help. Vincent Petryk the owner of a Boston based ice-cream store J.P. Licks, which has 13 locations, started his career by spending a few years working his way up at a fast food restaurant.

3. Poor Customer Service

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In today’s modern era of Yelp and Urbanspoon restaurants don’t usually get a second chance if they don’t perform well the first time a customer visits. Disengaged staff, and unclean restaurant and poor food quality can all contribute to a poor customer service experience. Poor customer service leads to terrible reviews, which can snowball into fewer sales and before you know it you are closing your doors for the final time.

4. Lack of Accounting Knowledge

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With all the other aspects of running a business the back of house can often be forgotten. But it is important to know the proper accounting procedures to institute in your restaurant. Designing and maintaining a system of checks and balances will help to keep your business prosperous for many years to come.

5. Overspending

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Spending too much before even opening is another common problem that new business owners face. It is easy to get excited over the prospect of finally seeing your ideas come to fruition.  Being conscious of cash flow can help ensure your business makes it past the first year. Failing to watch cash flow can cause a restaurant to go under before it truly gets started. Payroll can also grow quickly, and until funds start coming in more regularly it is important to watch how many people you are hiring. Having a good understanding food costs is also very important for cash flow and keeping your business in the black.

 

By avoiding these major pitfalls you can help to ensure the longevity of your establishment. It is best to start your business with a game plan. Be aware of the ins and outs of restaurant ownership. Whether that is knowing the best locations in your area, understanding the ins and outs of the accounting world, or all the jobs it takes to keep the service running smoothly, knowledge is your best friend. With a few precautions and the right tools you can build a solid foundation for your dream business.

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