A study by Ohio State University claimed that 60% of newly opened restaurants don’t even make it past the first year. Out of the ones that make it past the first year, 80% of them end up going bankrupt within the first five years.
Restaurant’s fail when too many problems come together, creating a recipe for disaster. To stay in business, it’s important to recognize the tell-tale signs that your restaurant is struggling. Take heed of these indicators before it’s too late and then use the following tips to grow.
Indicators of a Struggling Restaurant
Regular Customers are Visiting Less Frequently
Restaurant owners do their best to make a nice restaurant with good food and service but miss to do proper research about their customers. You should know your customers so well that you can understand their needs and exceed their expectations. You should also notice when they stop coming in on their normal days or at their normal frequency. This must be a priority in your restaurant business.
Trouble Paying Employees and Taxes
When your cash flow starts to shrink, landlords and suppliers are often the first to get hit. As a restaurant business owner, you can float money between vendors and control food costs to a certain extent. However, if you can’t pay your employees and taxes, that’s a serious problem that needs addressing.
Closing Time Happens Earlier
When everyday restaurants start “strategically” shutting down one or two days a week, there’s often nothing strategic about it. Taking days off or choosing to close earlier or open later sends a bad message. Your customers will start to care less about a restaurant that can’t keep its doors open. What’s worse? They might spread the word online or with friends.
Constant Deals and Discounts
An occasional deal or Groupon offer for a meal is one thing, but a continuous wave of freebies is often a debilitating crutch for cash-strapped operators. When restaurants turn to aggressive discounting, sales might go up for that period but once the offer expires, sales go right back down.
The one thing you have absolutely no excuse for is your food. After all, a restaurant exists because of the food it makes. Bad food isn’t always in the form of taste. Sometimes it’s something as simple as poor aesthetics. Management has a role to play in this as much as the kitchen staff. Poor management means that, over time, mistakes start happening. This leads to kitchen staff forgetting key ingredients or cooking sub-par quality items.
Lack of Inventory Control
Inventory control and profitability analysis is part of the job description for every manager or owner of a restaurant. This task must be carried out regularly in order to reduce and prevent unnecessary costs. Pay special attention when creating lists for inventory requirements. It is important to specify the exact quantity of items required to make dishes beforehand to have proper stock control.
Negative Reviews and Ratings
Disastrous reviews on Yelp, Uber Eats, OpenTable, or critical comments on social media can kill a thriving restaurant. The first impression you make on your customers decides if they will dine with your restaurant. Once a restaurant develops a reputation for having horrible customer service or poor quality food, it will be difficult to bounce back. While most of the issues discussed so far can be solved within a relatively short time span, a bad reputation is one that will take a lot longer to repair.
3 Ways to Start Saving your Restaurant
Face the Truth
Realizing and accepting that you are running a business that is struggling is hard. The longer you keep denying it, the more money and time is invested and ultimately, wasted. Instead of believing that your restaurant “is fine” or “business will pick up”, accept that there is a problem and begin fixing it. As a restaurant operator, it is your responsibility to ensure the health of your business.
Evaluate the Problem
After accepting the fact that your restaurant isn’t doing well, figure out what the deeper problem might be. This could involve making a lot of changes to your restaurant. There might be a lot that has to be done to take your struggling restaurant from where it is now, to the restaurant you’ve always dreamed of owning.
Leave your ego at the door and schedule an idea meeting to evaluate the problems with your team. This allows you to get insight you wouldn’t otherwise receive. Schedule an implementation meeting a day or two after the idea meeting to optimize the use of each side of the brain.
Make the Required Changes
Taking the first steps to improve your restaurant may feel challenging, but in the end it is worth it. Here are some often needed changes in a struggling restaurant:
- Try solving the problem from within along side your staff members
- Advertise on social media about your restaurant in unique and creative ways
- Invest in a CRM system
- Work on your pricing structure
- Verify your account on Google
- Hire a consultant
You may need a lot of money to cover payroll and vendors until you turn a profit. In this case, alternate restaurant financing is a great short-term option for capital. Keep yourself updated on what’s trending, go to seminars, learn how other successful restaurants run their business.