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Why Restaurants Fail And What Can You Do About It

Why Restaurants Fail  And What Can You Do About It

If you know the most common reasons why restaurants fail you will be able to recognize bad signals and pay attention on time, make a right decisions and hopefully not to experience a failure.

If you run a restaurant business you have certainly encountered many problems on your skin, but you’re still there and your restaurant is still open, right? The fact that restaurants fail at an alarmingly high rate, as 90 to 95 percent in the first year, is flat wrong, according to researchers at Ohio State University.
Their research suggests that the actual numbers may be closer to 57 to 61 percent; the highest failure rate was during the first year – 26 percent; the second year about 19 percent and the third year about 14 percent.

Reason Number One – Lack of Money

It is always about the money isn’t it, but not just about money that s for sure. But lack of capital is main reason why restaurant do not succeed.
Reason – over-investment. If you don t have enough cash to cover your first year operating cost we may say that your restaurant is on a good road to fail. So be sure that you have enough cash on your account for the first 12 – 18 months of work.

If you survive this period it is a very possible that you will have successful business. You should save your money in this first year period.

How to survive first year of business?

Make a fixed costs for first nine months period and  plan as much as you can.

–   you should have fixed cost for renting for first year if is possible

–   you should make the best deal with your restaurant food and drink supplier

–   you should make fixed salaries for first period

–   you should not have over – investment

–   try to save some money on short term , for example buying used equipment is a smart way to save some of your capital

–   make a good financial plan to cover your variable costs based on turnover.

But what if, despite everything you have lack of capital?

In many cases this is real challenge. Yes there are hundreds of websites offering grants and other form of financing.They could be potential solution but isn’t it time to change your thinking and not to do what you have done previously. Why should restaurants fail?
Check where are the bottlenecks? Make a good plan to optimize operation processes in restaurant and to improve your sales.


Location is also one of the top reason why some restaurants  fail or succeed. You could have the most beautiful restaurant with perfect service and food but not located on the right place – and will fail for sure. So before you start your restaurant business make a research. Investigate your restaurant competition. Think about your possible customers, about their habits and needs.

Location should fits with restaurant brand. For example if the brand is urban and trendy, a downtown crush with lot s of traffic will be the best choice. But if your restaurant offer romantic dining maybe it would be better to pick some more quite location.You should think also about accessibility,number of parking places, visibility and traffic around your restaurant.

The bad partnership relations

If you share ownership of the restaurant with a partner then you are familiar with the problems they come across especially if you are with your business partner in closely friendship, kinship or ( OMG) romantic relationship.
You share financial risks which can be very stressful. Actually I have bad experience and had it twice. I have lost some of my best friends when they becomes my business partners. Partners should provide emotional and working support all the time. Unfortunately, many restaurants fail because of the inability of partners to resolve disputes.

Partners must collaborate to resolve such issues. They need to objectively review the facts and analyze the situation. You should determined „common ground“ and value of the relationship.

For good partnership you must clearly recognize each party’s contributions to the restaurant business.
Troubles are arising if contributions, roles, and responsibilities are not clearly defined and recognized.

Partners need to be confident that they can reach a successful resolution – just wanting to succeed is not enough. Functional roles should be clarify and distinct from equity ownership. It is increasingly important to separate these two concepts as the business grows.

The best solution is to formalize roles and duties.

Partners need to stand out between interests and negotiation positions. Questions “Why” and “what” can help identify interests
Make a evaluation of the problem and try to find alternative solution. Select the best alternative for your restaurant!

Poor understanding of your customers

This is also one of the most common reason why restaurant fail. Restaurant owners do their best to make nice restaurant with good service but missed to make a good research about their possible customers, Understanding your customers means to getting to know your customers so well that you can anticipate their needs and exceed their expectations.

This must be priority in your restaurant business. Identify your guests profiles and put yourself in your guest’s shoes. Find out how to communicate with them. Investigate your data with orders , it can tell you a lot. Look for patterns so you can see what kind of orders your customers commonly make. Improve your business by listening your customers.

Ask your customers what they think and show them what you have done as a result of their feedback. You may never discover where you are going wrong unless you proactively consult your guests.

Bad food or bad service

Try to think like your customer who want to spend their hard-earned money going out for a dinner. He expect at least to get a decent meal, a helpful server and a clean toilette.
Today is very easy to earn red flag and get the bad reputation, it s enough that your unsatisfied customer leave a bad comment on yelp or foursquare. Someone who has try a really bad meal, or sow dirty toilette in your restaurant, certainly will not come back to visit or to recommend your restaurant to someone else.

This could ruin your business. So be sure your failure doesn’t lie in one of these reasons.

But the good news is that this problem is controllable. Do what ever it needs to do to meet and exceed your guest s expectations. Make the best food as you can. Never sell the bad food, neither by extremely low prices. Never recommend something what you would not eat!

Improve your restaurant service

The larger number of servers work in a serving area, the higher the quality of service will be. But even you don t have so many waiters or bartenders your restaurant service will be at a high level if you make a quality staff management. Everyone should know their responsibilities. Take the time to organize your staff and be prepare to give the best guest experience possible.

Good server should be „invisible“ but always available for guests. It s not easy but it is possible. Everyone from your staff should be focused on exceeding customer expectations.

Importance of hygiene at every corner of your restaurant

The price you pay for not taking care of hygiene and cleanliness in your hospitality facility is very expensive. Your toilette says a lot about the quality of a restaurant. If management cares so little about the state of the bathrooms, God knows what kind of sanitary conditions are present in the kitchen.

Employees and persons who are working with food should look neat and clean.
Toilet must have been always clean, and water pipes need to work perfectly without a dripping and the clogging.
Food remains and dirt on the floor from previous guest is the last thing that your new guest wants to see when coming in a restaurant. After each guest floor must be clean up.
Let your restaurant be clean as it can be. Let the cleanness be the first impression which your guest gets when came to your restaurant.

If you proceed as it has been specified, there is still a chance that your restaurant will fail,  but with these actions you minimize that chance as much as possible.