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Why Do Restaurants Flop and How to Rescue a Failing Restaurant

According to a study conducted by Ohio State University, 60% of restaurants fail within their first 3 years of operation. Within their first 5 years, 80% faltered and closed their doors. 

There is no doubt that opening up and sustaining a new restaurant is not without a struggle.  With the latest adversary being COVID-19, many restaurants throughout the US were forced to shut down operations and close their doors, for some, permanently. Yelp reported that 15,770 restaurants closed in July of 2020. 

Why Do Restaurants Falter?

Restaurants typically subsist on meager profit margins. Based on an IBIS World Study, the average profit margin that a restaurant exists on is a mere 6.2%. Therefore, staying in the game and turning out a profit is anything but easy. So why do restaurants fail? Let’s take a look at the most common reasons.

1.  Lack of experience 

Many new restaurateurs jump into the restaurant industry head-first and with a lot of passion to fulfill a long-held dream. Unfortunately, they don’t have the experience to match. 

Not only do restaurant owners need to deliver a great menu to wow the palette, but they must also bring in some basic business knowledge, choose a seasoned partner, or outsource any duties that are outside your zone of genius. 

2.  Poor location

Poor location is one of the top reasons why restaurants fail. Your location must be the right fit for both your concept and your market. 

If you want to get foot traffic into your restaurant, but it’s actually very difficult for pedestrians to walk to your restaurant, you will have a struggle. 

Also, if you choose a big space for your restaurant, but struggle to fill your seats, you will be paying through the roof in utilities, without having the sales to meet these operational expenses. 

3.  Not having enough money to carry you through the first few years

Restaurants can take a year, or even longer to actually turn out a profit. Therefore, restaurant owners must have access to money in order to fulfill their financial obligations such as inventory, taxes, and payroll.

Having an emergency fund will carry you through when your equipment fails and you need to make repairs or make a new purchase. This is where small business loans, grants, and supplier financing will come in handy.

How Can A Restaurant Be Saved?

If you are struggling with all the aforementioned problems in your current establishment, what can be done? Consider these strategies:

1.  Hire a Restaurant Consultant

Seek out the expertise of a restaurant consultant to show you the ropes. Have that consultant help you draft a business plan. 

Make sure that every stage of your restaurant journey is planned thoroughly for the next six months. Take time to research and analyze to ensure you are not missing any vital steps. 

2.  Choose your restaurant location wisely

When considering the ideal location for your restaurant, look into property values, the average daily foot traffic, the neighborhood’s density, and the rental rates. You can also conduct an informal poll of your potential clients to identify “location-related factors” that are of most value to them. 

3.  Make a long-term financial plan

Create a detailed budget that shows a realistic panorama of your current financial state. It should include the capital you currently have access to and the amount of debt you can sensibly take on.

Aim to keep your fixed costs down to the bare minimum to weather the likely financial storms you will experience. 

It Can Be Done

Although opening up your own restaurant is not for the faint of heart, it can be done, and successfully. It really comes down to being prepared for the unknowns. There are hundreds of restaurants that are successful and are expanding their operations