15+ Reasons Why do Restaurants Fail (And How To Solve Them)

To be honest, the restaurant industry is cursed with extremely high failure rates. According to industry experts, 1 in 4 restaurants fails within their first year and two-thirds shutter within the next five years. Suppose you’re considering starting a restaurant before opening your doors for business. In that case, it is critical to know why do restaurants fail so that you can prevent these restaurant failures and make sure your new restaurant will succeed. We’ll look at the list of common reasons (and solutions) why do restaurants fail and then dive deeper into each reason to learn more about how you can improve your restaurant’s chances of success.

1. Don't Ignore Food Costs
2. Start Meeting Your Suppliers
3. Don't Place Orders Blindly
4. Don't Ignore Your Prices
5. Your Budget Matters
6. You Are Not Using Right Technology
7. Don't go for Expansion with a Solid Base
8. Disorganized Invoices are the Restaurant's Failure Reasons
9. Hire an Accountant
10. Don't Ignore your Inventory
11. Hold Consistent Training
12. You are Not Listening to Staff Feedback
13. Don't Put Loose Rules in Place
14. You are Not Dedicated To Your Profitability
15. You are Not Hosting Any Special Events
16. You are Not Utilizing Delivery Or Takeout Properly

Reasons Why Do Restaurants Fail

Here is the list of reasons why your restaurant could be the best example of failure:

1. Don't Ignore Food Costs

In the restaurant industry, more than 60% of all restaurants fail in their first year. Why? The most common reason why do restaurants fail is that the operating costs are far greater than expected.

Food costs can make or break a restaurant’s success. Whether you’re opening a new establishment or trying to gain ground on division leaders, food costs take time and attention. But, if you don’t have the resources available to devote to creating and managing food costs, your business can suffer.

Solution

Be proactive in managing food costs. Knowing what foods sell and which ones don’t is the first step. Making inventory adjustments based on what sells are next. Then is accomplishing order minimums with the foods you do sell. To some degree, managing food costs is a lot like handling an investment portfolio — it requires time and effort, and experience helps.

2. Start Meeting Your Suppliers 

Suppliers can be nightmares, especially when they have too much flexibility and there is no communication. If your suppliers aren’t ensuring that you are getting your product on time, you need to sit down and talk with them. Find out what they are doing to ensure that there isn’t a problem.

3. Don't Place Orders Blindly

We’ve all been there. Active service with a full restaurant and tables coming in fast, plus the need to get food out of the kitchen as quickly as possible. It’s not always easy to pay attention to what goes in and out of your kitchen. But it’s vital if you want to control inventory levels, stay organized, and minimize waste.

4. Don't Ignore Your Prices

Tracking your prices and changes in the market will help you make the best purchasing decisions. As a small business owner, you don’t have all the money in the world to compete with the big guys. That doesn’t mean you can’t fight for a spot on that price shelf!

Solution

Work out a strategy to bring your prices down by negotiating with suppliers, creating an in-house flavor lab, or investing in new equipment that lowers your labor costs. There are so many potential impacts on your price from marketing to distribution, and these small tweaks will add up over time.

5. Your Budget Matters

Okay, so maybe that’s not the title you should use. But I’m sure you’ve seen (or have) the statistic that 9 out of 10 restaurants fail in the first year. Maybe it’s because they’re expensive — average checks of $30 to $50 (when people spend $15 to $20 on average).

Solution

You can combat this by creating a weekly budget that allows your customers to order more affordable items like appetizers, salads, and sides but still gives them the decadence they crave.

6. You Are Not Using Right Technology

If you have opened a new restaurant, technology can help make life easier for you and your team. There are certain types of software that can be beneficial in improving the efficiency of your up-and-coming restaurant business.

How Bookmyorder can help you?

Bookmyorder is a free online ordering system for restaurants. Bookmyorder helps restaurant owners to take and manage online orders in a hassle-free manner. Bookmyorder offers multi-location and multi-lingual support free of cost for restaurants.

It is a simple, easy-to-use platform for setting up websites for restaurants to take orders online. Restaurants can add their menus, dishes, photos, business hours and be live on multi-location & multi-lingual support within minutes.

Restaurant owners can add as many menus as possible, import them from existing websites or Facebook pages. Let's integrate your restaurant with the right technology. 

Check this guide to set up your restaurant online: A Step-By-Step Guide To Using Bookmyorder For Your Restaurants 

7. Don't go for Expansion with a Solid Base

Earn your way to Restaurant #2 with a solid foundation in the first restaurant. The key is to identify, from day one, signs that Restaurant #1 needs attention first. By keeping an eye on quality control, inventory, and all those other necessary details for smooth operation, you'll find the time and dollars needed for expansion. And after you've got a new foundation for both restaurants, then it's time to think about #2.

8. Disorganized Invoices are the Restaurant's Failure Reasons 

You’re sorting through multiple stacked, handwritten invoices, trying to figure out what you should do with each one. It’s one of the reasons why do restaurants fail. Hassle-free automation is the key to staying on top of everything.

Solution

We know how you feel. There are never enough hours in a day, especially when you have to track your invoices on top of running your business. That’s why we created Bookmyorder. It allows you to easily store and access all of your invoices right from your smartphone or tablet. And the best part is it’s completely free.

9. Hire an Accountant

It’s easy to think you can manage the costs of your meals yourself, and sure, it can technically work out. But you also have a million other things to deal with in your business. Don’t spend your time worrying about finances. Hire an accountant who can help your business shine.

10. Don't Ignore your Inventory

Your inventory is the backbone of your restaurant, and even if you’re an excellent cook, the chances are that you need a little help in managing it – significantly if your place is growing. Taking a weekly, systematic inventory can help you keep costs low. It will also help you identify when you’re running low on a specific ingredient and avoid rushed, expensive re-purchases at the last minute – or worse – closure due to lack of ingredients.

11. Hold Consistent Training

Empower your team to continuously improve with this year-round training program that will maintain the consistency of your brand and keep customer service at the forefront. Each quarterly session will cover a critical area, such as "How to Handle a Problem Customer," "Keeping Pace During Busy Times," or "Hiring the Ideal Employee." These classes will build the skills of even an experienced staff.

12. You’re Not Listening to Staff Feedback.

Thousands of restaurants fail every year because owners are unwilling to listen to what their employees are saying. If you’re ignoring employee feedback, you’re missing opportunities to grow your cafe business. Offer to have daily discussions about your business and keep track of the suggestions that come from these meetings.

13. Don't Put Loose Rules in Place

Put Your Staff on Notice. We don’t believe that you should lock up your good products or make your team work off the clock. To let THEM know that you have looser-than-loose rules in place, just put one of these posters up in your kitchen!

14. You’re Not Dedicated To Your Profitability

What could you do with your profitability? You could pay yourself more. Or maybe reward an employee who goes above and beyond. You might have extra cash for some new equipment. It's all up to you. The key is that if you get in the habit of tracking waste, food costs will remain in check, and everyone wins."

15. You’re Not Hosting Any Special Events

Hosting a trivia night, cooking contests, summer family BBQs or neighborhood pool parties? You might be surprised by the amount of traffic you can attract with special events. You can take an idea from our blog post Takeaway Promotion Ideas.

16. You’re Not Utilizing Delivery Or Takeout Properly

The food delivery business is booming – it’s been growing in steady increments over the past few years. According to IBISworld, food delivery is a $100 billion industry and will grow by 6% annually. To capitalize on this growth, take time to do your research and find an efficient way to get your food from the kitchen to the table.

Conclusion

The restaurant industry is a tough place to make a living. According to the National Restaurant Association, restaurants fail at a much higher rate than other small businesses. It seems like every day; there is another news story talking about yet another local restaurant that is closing its doors. Whether it’s food trucks, sit-down restaurants, or fast-casual eateries, many are just not making it in the industry. Fortunately, you can learn from the mistakes of restaurateurs who have come before you.

Are you thinking of opening a restaurant and want help? Start your free online restaurant journey with Bookmyorder.