Reasons why restaurants fail in their first year


We all know someone who is a great chef, has the grandma recipes under their belt, and is also looking to either have set up a restaurant or had one. The norm seems to be that the restaurant business is easy but according to common observation and a recently cited study by the Ohio state university, it couldn’t be farther away from the truth. 60% of restaurants close in their first year and 80% don’t make it past the five-year mark.

While there are no barriers to entry in the industry other factors like business acumen, poor management, lack of accounting knowledge, etc play a role in bringing a restaurant down. It’s safe to say that a restaurant needs more than just your grandma’s secret recipes to survive. Here are some things to consider if you are looking to open up a restaurant:

  • Inexperience

While there are no barriers to entry in the restaurant industry, it doesn’t mean that it’s an easy to run business, Good hearted restaurant owners with great potential often find themselves bankrupt or closing because of several reasons. Lack of proper business knowledge, financial planning and industry experience are rated as the primary reasons among many when it comes to restaurant failure.

  • Spotty customer service

Being greeted at the door to paying for the check, the way you treat your customers creates repeat customership and most people according to a survey dont give a restaurant another chance if they are not properly treated the first time. As digital era becomes more and more influential, the best and only way left to keep your customers coming is to maintain a flawless customer experience 

  • Lack of accounting know how

If you know how to properly read your accounts and keep them up to date even with the help of a CPA, this will keep things running smoothly. You will know when to save and when to spend. Other important things when it comes to money is pricing your menu the right way. Most owners have no idea how pricing a menu not only includes the raw food cost but also the labor cost and all the bills of the restaurant. Getting this right sloves 50% of the problem owners face.

  • Bad people management

Compassionate managers who have worked their way up the ladder know how to deal with their staff as well as a diverse group of customers. Restaurants are one of the businesses where having good people skills are very crucial to your customer service as well as staff training. Remember, if you treat your staff right that behavior transcends to the customer and helps level up your restaurants

  • Lack of proper marketing

Advertising and marketing are key to establishing a newly opened restaurant’s reputation. Most people think that you have to drop a huge amount of money to get your marketing done right but with growing influencer marketing and social media marketing you can reach a substantial amount of audience in little to no time with as little money as possible.

Apart from the above mentioned, some other things can include lack of capital reserves before opening, bad location, complex menus, lack of a business plan and no involvement of the owner are some of the restaurant red flags that dooms it for closure or bad cash flows. Getting the basics right since the first place helps your restaurant not only gain a good reputation but also keep you and your staff in happy conditions.

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