Why Restaurants Fail

After assisting in marketing thousands of restaurants, bar, and clubs, we have come in contact with many restaurant owners and have been able to assess why many restaurants fail. The following are the primary reasons:

  1. Poor Location – Good location is extremely important. We have seen some mediocre operations survive long term due to a good location versus seeing some good operations fail due to a secondary location.
  2. No Prior Restaurant Experience – Having past experience in the industry is essential to assure success. Learning from one’s past experiences gives a person a better understanding of the business and enhances one’s chance for success.
  3. Lack of Employee Training – Having all employees trained properly assures that the customer will have a good experience and his chances of returning will be greater.
  4. Too Much Spent on Capital Improvements – Often too much is spent in building the restaurant and the debt service is so high that it keeps the business from being profitable.
  5. Inconsistent Food, Service and Cleanliness – Consistent good food, service and cleanliness are high priorities for the customer and customer erosion is frequently a result of the customer having a poor experience with these items.
  6. Rent is too High – Rent should not exceed 6% to 8% of gross sales. Frequently operators pay too much rent which leads to their ultimate failure.
  7. Lack of Professional Management – Having well trained management is imperative to assure the success of the business. Management sets the pace for the operation in terms of employee attitudes and the ultimate experience the customer will have.
  8. Lack of Controls – Having the proper systems regarding cash handling, portion control, and accounting systems, etc. are necessary for an operations success.
  9. Poor Price Value – Not giving the customer value for the money spent. If the customer doe not get good price value there is a strong change he won’t return.
  10. Under Capitalization – I have seen several situations where the concept was viable, the business was on the verge of turning the corner and the owners had to pull the plug as they didn’t have enough working capital to keep the business going.
  11. Outdated Concept – Periodically the decor needs to be updated as well as new menu items introduced to stimulate repeat business.
  12. Partnership Disputes – A partnership is like a marriage and you should have a pre-existing relationship with your prospective partner prior to becoming partners so you understand each others respective strengths, weaknesses, values and priorities.


Written by Steven Zimmerman - Restaurant Realty Company

Disclaimer: The information in our articles has been provided by Restaurant Realty Company in collaboration with Restaurants For Sale Online. Restaurant Realty Company and Restaurants For Sale Online assumes no responsibility for decisions made by buyers, sellers or other parties to any transaction. Information has been provided based on experience and research. The results of various articles and studies reflect such information. Restaurant Realty Company and Restaurants For Sale Online assumes no responsibility for pricing or recommendation of pricing to any of our users. If you are interested in buying a business, Restaurants For Sale Online, LLC recommends you do your own due diligence to verify the source of any information provided to you by a seller and/or intermediary. If you are interested in selling your business, Restaurants For Sale Online recommends you contact an intermediary that specializes in transactions similar to the respective business.

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