Why New Restaurants Fail (And How to Avoid the Same Fate)
5 Reasons New Restaurants Fail (And How to Avoid the Same Fate)
December 13, 2018

5 Reasons New Restaurants Fail (And How to Avoid the Same Fate)

In 2017, more than 10,000 restaurants closed, leaving these small business owners with disappointment and uncertainty about the future . While it’s uncertain how many restaurants fail in the first year (outlets have reports varying from 17 to 90 percent), the reality is that business do fail and small business owners must work hard to keep their doors open.

In this post, we’ll discuss five reasons why new restaurants fail and what you can do as a restaurant owner to ensure that your business stays open for years to come.

Here’s Why Restaurants Fail:

1. Poor Customer Service

Research by American Express found that seven out of 10 consumers will spend more money with businesses that deliver excellent customer service. On the contrary, 33 percent of Americans say they’ll consider switching companies after just one poor service experience. Therefore, even if your food is fantastic, it’ll be hard to grow your customer base if you don’t provide great customer service.

How to Combat This: Ensure your entire staff understands how to delight your customers and deliver a memorable experience. Every person your customers encounter should be friendly and attentive, and all problems should be addressed immediately. By making this commitment to service, you can avoid getting a bad reputation for not valuing your patrons.

2. Lack of Marketing

There are more than 660,000 restaurants in the U.S. and the competition is fiercer than ever. Consumers have many options and must be persuaded to dine at your establishment. By not marketing your restaurant, you may lose out to restaurants that are constantly running eye-catching advertisements. Not to mention, no one will know your new restaurants exists unless you promote it.

How to Combat This: Develop a thorough marketing plan that includes a robust social media presence. People eat with their eyes first, and Instagram is the perfect medium to showcase your food. You should also have a website that includes your menu, also in addition to advertising locally. For example, offer local food bloggers a free meal in exchange for a review on their site, or post a coupon in a local dining guide.

3. The Food Isn’t Good

Although this may sound shocking, many restaurant owners don’t realize that their food tastes terrible. On the Food Network show Restaurant Impossible, chef Robert Irvine transforms failing restaurants and often finds that the food is far from delicious. If you want to keep customers coming back, your food must be consistently excellent.

How to Combat This: Before finalizing your menu, ask a group of locals (and perhaps some fellow food industry professionals) to test the food and give you their honest opinions. Even if you love your tomato burger, if sixty percent of your testers hate it, it might be best to leave it off the menu. Also, taste your food regularly to ensure your chefs are cooking the food properly and hand out surveys to get your customer’s honest opinions about your food.

4. You Don’t Pay Attention to Online Reviews

According to Modern Restaurant Management, for every online star a restaurant gets, they can increase revenue by 5 to 9 percent. Positive online reviews help gain consumer trust, while negative reviews can massively hurt your business. In fact, 22 percent of consumers won’t give you their business after reading just one negative review.

How to Combat This: First, ensure you provide excellent customer service and great-tasting food to gain positive reviews. Next, understand that you can’t please everybody, but when negative reviews happen, do some research about the review, correct the issue (if there was one), and respond to the negative review in a timely manner.

5. Insufficient Accounting Systems and Cash Flow

Many restaurant owners fail to understand the importance of basic accounting principles, including cash flow. In fact, 82 percent of businesses fail because of poor cash flow management. You must keep an eye on your cash flow, so you have enough money to pay your staff, order ingredients, and pay for utilities. In addition, you must properly price your food so that your business makes a profit and hire the right number of employees.

How to Combat This: If accounting and business forecasting isn’t your strong suit, hire an accountant or outside business consultant to manage your cash flow, profit and loss, and staffing needs.

In Conclusion: Proper Management is the Key to Success

Even restaurants with tasty dishes won’t survive if they’re managed poorly. Restaurants have many moving parts, and managers must possess the ability to oversee multiple employee skill sets, order the right amount of food, and maintain a positive reputation both online and offline. Hiring the right restaurant manager is one of the most important decisions you’ll make for your business. The right person can help you grow your business and ensure that the five mistakes we covered in this post aren’t made. From marketing to budgeting cash flow to finalizing the menu, you (or the manager that you hire to oversee day-to-day operations) should make sure that your restaurant a success!

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].
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