If you are a restaurant owner or a bar owner, you already know restaurant industry is one of the most challenging industries to break into as a business owner. As diversified as it is, the over-saturation of the food service field leads to stiff competition.
This competition, compounded with the general obstacles of ownership, make opening a restaurant a nightmare if you don’t know what you’re doing. Restaurant startups require colossal time and capital investments that often prove to be unattainable or unmanageable.
For these reasons, it is no surprise that 75% of restaurants fail after the first few years. Furthermore, many of those that “survive” do not necessarily obtain desirable success to make it worthwhile after considering opportunity costs. Why then, would anyone dare enter this type of business?
Restaurants, when managed properly, can be highly profitable. Like many forms of investment, high risk yields high reward. However, the chances of a payout in this industry are not to be taken by the faint of heart or the unprepared. With so many factors beyond an owner’s control, there is no guarantee of success. However, by avoiding these seven common restaurant owner mistakes, you can minimize risk in order to reap profitability.
1. Skipping the Planning Stage
The primary cause of restaurant failure is a lack of planning and preparation in the business’ initial stages. When an owner does not properly plan, they relinquish their control over their restaurant’s success and leave it up to chance.
Proper preparation should account for two of the greatest restaurant pitfalls: undercapitalization and unsubstantial sales. Many owners have already begun operations and are way too far down the road when they realize they are short on funding. Under financing can easily be prevented with thorough cost analysis using the right software. Financial software can additionally determine precisely how much business the restaurant will need to cover costs, and provide a parameter that you can deem feasible.
2. Not Knowing the Costs to Operate the Business
Restaurant sustenance requires breaking even at the very least, which necessitates cost minimization. As an owner, it is imperative that you are aware of all costs, and have done whatever possible to reduce them. Many restaurant owners spend on food, inventory, energy, and many others without enough awareness. If costs are not minimized, then profit is not being maximized.
It seems obvious, however unfortunately not enough owners are actively seeking new methods and changes to cut costs. Doing so is often the differentiating factor between at the very least breaking even/staying open and shutting down. Keep in mind that this is a process that should be continued no matter how long the restaurant has been open, as new opportunities can still present themselves long after opening.
My top tip: Plan on having at least 3 months worth of expenses in the bank… My opinion is, you need at least $30k in cash as a cushion to cover costs. Paying rent, vendors and payroll will drain your bank account the first 2 weeks of every month.. you need capital to get you through… once you fall behind in paying your bills, its nearly impossible to catch up and you will be out of business very soon.
3. Poor Staff Communication and Training
As an owner you have certain goals for your restaurant. You want to please customers, generate profits, and have fun doing it. Your staff is the only thing between you and the realization of your vision. Your employees are the working force towards your success. They are one of a restaurant’s top assets. Far too many owners disregard cultivating the proper team.
It is imperative that you communicate your goals to all workers, and consequently create a culture between ownership, management, and staff. Culture will lead to cohesion throughout the restaurant and smoothen operation, especially in difficult or busy times. Attitude alignment, when communicated properly, is an essential tenet to employee training. There is vastly more to training an employee than basic functions like register operation and cleaning.
4. Not Listening to Customers
You know what they say, the customer is always right. Furthermore, the customer is the bloodline of your restaurant. Without their business, you can’t survive. You operate to serve them, so their satisfaction should be your top priority and concern. It can be difficult to change things that you like or are comfortable with, and many owners remain stagnant. However if you know what is best for your business, you will adapt.
Many establishments utilize the on-table survey method, which is too passive and only receptive of the extreme cases. Active steps, such as focus groups or even personal conversations with customers, can provide new points of view for owners. However you do so, seek the voice of your customers, and value their opinions.
5. No/Poor Online Presence
There is an old adage in business, “there’s no such thing as bad press.” Wrong. This saying most definitely does not apply to the restaurant industry. It arguably never has, but certainly doesn’t in this age of social media and instantaneous exposure. Any public evaluation or report can make a lasting impression of your business.
Be it Yelp, blogs, magazines, television or even a government health grade, you should make a wholehearted effort to ensure these social vehicles portray you positively. Social media has become so ingrained in daily life and is consequently a determinant in restaurant activity. Millions of people will check Yelp to either find a place to eat, or determine if a restaurant they’re considering is worthy of their business.
All it takes is a poor rating from a disgruntled former customer to deter future business. Conversely, a strong online reputation can attract more customers
Top Top: If you are not spending money on marketing and advertising you will never grow, or it will be very difficult at the least. You need to have a marketing budget!
6. Lacking/Mismanaged Social Media Strategy
A social media presence stands only to benefit you. In order to bolster and protect your restaurant, take advantage of these services. At this point, doing so is becoming an industry standard, and many owners mistakenly remain stagnant and fall behind. There are dozens of social media outlets out there, so many that the thought of starting this daunting initiative can seem dizzying.
So start with familiar forms of social media such as Instagram Twitter, and Facebook. These outlets extend your market reach and connect your restaurant to more potential customers. They can help you get out in front of complaints and show your entire market that you do everything possible to ensure customer satisfaction. Furthermore, they are a testament of your popularity, and people go where the crowd goes. Best of all, these benefits are all free.
7. Absentee Ownership
The owner is the foundation of a restaurant. As an overseer of every function and operation, you bare the highest degree of responsibility and liability. Earlier I discussed the importance of proper employee training in order to realize your vision. It is for the same reason that you need to be a strong presence in your establishment.
Keep in mind, active involvement in your restaurant does not mean serving the food or cleaning the floor. To be valuably engaged, you should be a supportive figure for the entire business. Monitoring, guiding, and directing, when you are on site you can ensure operations are how you want them to be.
Customers are having the experience you aimed for. Conversely, absentee owners lead to unsatisfied customers and discouraged staff. If there is a problem with the food, and the owner is not present to console the guests, raising dissatisfaction and unlikeliness of a return visit. I’ve spoken with countless managers and staff members who complain that their restaurant’s owner is never around.
If you would like to discuss Restaurant Coaching or Marketing, please feel free to reach out to me with a call or email.