6 Most Common Causes of Restaurant Bankruptcies

With a recent study published about the success or failure of restaurants, more than two-thirds of all new restaurants close or change owners in the first year of operation. There is an even greater number of restaurant bankruptcies that close within 5 years.

Even larger celebrity chef chains of restaurants are not immune to the shifting tides of business and the fickle tastebuds of consumers. Jamie Oliver’s chain of restaurants has just gone under. The reason for this is due to an inability to be dynamic and change with modern restaurant trends. This is but one reason why restaurants fail, but there are many other reasons that eventually lead to bankruptcy.

Let’s take a look at some of the most common causes of restaurant bankruptcies:

1. Location

The location of your restaurant can have the largest impact on its success or failure. The restaurant needs to be visible, with parking, close to public transport, and have lots of foot traffic nearby. You should also consider the area that the restaurant is in.

If it is in a rough area that no one but locals will visit, then you will be missing out on a lot of business. While the location of your restaurant is important, it is not a magical solution for poor service or quality. Only the best restaurants may survive in this industry, no matter where you are located.

2. Part-time owners

As the owner of the restaurant, you may think that you can set your own hours and show up when you please. The truth is that as the owner you have more invested in the success of the place than anyone else in there.

You need to make sure that you are there as often as you can be, for as long as you can be. By being present you will ensure that the standards that you expect from all of your team are adhered to and that no corners are being cut.

3. Hiring the wrong people

Every member of the team is essential. You need to make sure that you have the right people for the job. Checking references is vital for every employee. Not only do they need to be professional at all times, but they also need to be reliable. If even one member of the team is not present, the workload that needs to be shared by the others can be too much.

Your chef needs to be excellent as well. You should make sure that you are on the same page when it comes to what you expect from them and what they are allowed to do. Keeping the lines of communication open at all times and fostering a healthy working relationship can make a huge difference.

4. Poor business management

Restaurant bankruptcies may be the result of poor business management. Unfortunately, taxes are not easy to do. Managing a business and ensuring that all of your ducks in a row can be a real challenge. This is not something that you should take on alone. By hiring an accountant you will be able to ensure that this is taken care of the right way and there are no surprises down the road.

You will also need a good lawyer to help you establish everything from your business as a legal entity and protect you from liability. The last thing that you want is for everything else to go smoothly then you have to close down because you were not looking after the needs of your business.

5. The customer service is lacking

This matters more to most customers than many restaurants give them credit for. People come to a restaurant to be waited upon and looked after. The experience matters a great deal. The reputation you build off the back of good customer service will bring in a great deal of business. Bad customer service can lead to a decline in the number of guests you have walking through the door.

Proper training and supervision are needed at all times to encourage the best from your people. Also, you need to remember that you haven’t hired robots. There is no harm in providing incentive programs to your team based on performance.

6. Too many, or not enough staff

This is a delicate balance to figure out. It might take a few weeks to figure out when you are at your busiest and when it is quiet. Once you have this figured out, you should be able to assign shifts to your team accordingly. A good rule of thumb is that if anyone is standing still, you have too many staff.

It is equally important to not overload a server with too many tables. This can lead to burnout and the last thing that you want is to have overworked servers. Not only does it not allow them to provide the best customer service, but you will also have to contend with high staff turnover. The time and effort it takes to train someone new can take you away from other areas of your business.

About QLCC

Quarter Life Crisis Cuisine (or more affectionately known as QLCC) is a food and lifestyle blogger. What initially started as a casual cooking blog of mine has steered off the original path and my writing has branched out into all aspects of life. Hope you enjoyed my blog posts!