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Ten Reasons Restaurants Fail

Why Some Restaurants Fail in the First Three Years


Ten Reasons Restaurants Fail

There are many reasons that restaurants go out of business.

Even before the recession started, restaurants have come and gone, all over the country. According to H.G. Parsa, an associate professor in Ohio State University's Hospitality Management program, found that about one in four restaurants close or change ownership within their first year of business.* The big question is why? Why do so many restaurants fail so quickly? Few other businesses tout such disheartening statistics. Most restaurants don’t fail because of just one problem. It usually a combination of problems that finally reach a head and the business can’t be saved. Here are ten common reasons that many restaurants fail within their first three years.

    1.Location. I’ve said it over and over again. And I will continue to say until I am blue in the face. Location. Location. Location. A bad location is one of the biggest (if not THE biggest) reason a restaurant fails. Poor visibility, no parking, no foot traffic, or maybe being cursed are just a few of the problems associated with a bad restaurant location.

    2.Restaurant Owners Who Don’t Work. Being a restaurant owner means, in most cases, working at the restaurant. Many people open a restaurant thinking they will pay a manager (see number 3, for this potential mistake) to run the front of the house and pay a chef to run the back of the house, while they sit at the bar with their friends and collect a paycheck. Wrong. One of many restaurant myths that I like to debunk. If you want to own a restaurant, but not work in it, then don’t expect to get paid. Restaurants can’t support dead weight very long.

    3.Hiring Poor Management. You hire someone who you think will be a great general manager, or kitchen manager, or bar manager, since they have experience and excellent references. Then a few months down the road not only don’t they manage the restaurant, they alienate staff, drink away the profits and/or steal money. Hiring a manager is fine- in some cases it is a necessity- but don’t ever trust anyone completely with your money or your business reputation. Remember that no one is going to care about your business the way you do.

    4.Not Paying Taxes. Both state and federal taxes come with hefty penalties, fees and other assorted fines when paid late. It can also cause the state or other local government to shut down a restaurant completely if taxes aren’t paid.

    5.Bad Customer Service. This is an obvious reason for any restaurant closing. But I still think it is worth repeating. Customer service, along with good food, is integral to staying open. Therefore, don’t shy away from getting customer feedback, whether in the form of comment cards or just asking patrons how their meal is. I’ve often heard that for every customer complaint you get, three more are left unsaid. If that is true, then there are a lot of unhappy dining patrons out there who don’t bother to say anything. And they don’t bother return to restaurant they think have bad service, either.

* Source: Businessweek April 6, 2007 http://www.businessweek.com/smallbiz/content/apr2007/sb20070416_296932.ht

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