Reasons That Restaurants Fail

There are several common reasons why restaurants fail. Like any business venture, there is a major risk involved in owning a restaurant. Your family, your banker and the general public is under the impression that the restaurant failure rate is very high. Unfortunately they are right!

There isn’t one specific reason why restaurants fail. Instead there are many, many little things that can lead to the “for lease” sign on the door.

Some Reasons Why Restaurants Fail

One of the reasons why restaurants fail is simply poor management. Often restaurant owners do not possess prior experience in the industry and struggle to handle the heavy workload associated with owning a restaurant. This combined with financial and staff management can add up to be quite a burden.

There are times when the staff may be part of the problem. If the staff is the problem, then the owner has done a bad job of hiring. Sometimes new owners become desperate to hire staff and will hire “anyone who can fog a mirror!” This is a huge mistake. In a booming economy staff turnover will be hire and most applicants will be inexperienced.

Bad management – bad hiring – bad staff – customer dissatisfaction.

Proper maintenance is absolutely essential for success. There is no room for compromise when it comes to cleanliness. We’ve all heard stories about restaurants being shut down because of one unsavory incident or another. It is a common occurrence and a valid reason why restaurants fail. Cleanliness is vital to your customer experience and health. A customer might return if there meal was “a little overdone”. They will never return if they found your place dirty!

Location plays a role in why restaurants fail as well. Sometimes the lowest lease price is the reason a restaurant owner picks a particular location. Depending on your target consumer demographic, this may end up working against you.

Money (or lack of it) is another reason why restaurants close. Once caught in the downward spiral of spending more than than you have going into the till, it can be very difficult to get out. Many new restaurant operators overestimate their initial revenues and overspend getting started and getting open. When the revenues don’t match expenses, you’ve got a problem.

Most new restaurant owners blow their budget to get their “dream restaurant” designed and opened. If it isn’t an instant success they might have run out of money, and can’t make some slight changes that could make them profitable.

Why Restaurants Fail?

Many times the first step a new rookie restaurant owner makes is the fatal one. I believe that some insider information and a 10,000 foot view of the industry could stop most restaurants from failing (and would stop many from opening, or at least change their restaurant business plan.) Unfortunately, it’s hard to get the up to do, insider information on how to plan, open and start your restaurant. And how to avoid all the other little things that can lead people to drive by another “for lease” sign and wonder why restaurants fail.