The Top 10 Causes of Restaurant Failure in the First Year of Operation

Research claims that up to 80% of restaurants shut down within the first five years of existence, and 60% close within the first year. No matter how profitable the restaurant industry appears from a distance, running a restaurant is a difficult task. These statistics can cause you to question why restaurants occasionally fail. Restaurants ultimately fail because of a lack of proper knowledge about what the sector entails. Information is the main area you need to pay attention to in this situation. Most restaurant owners don’t realize they are making a mistake until it is too late.

Although we don’t wish to demoralize current or future restaurateurs, we do think that prevention is preferable to treatment. Therefore, the top ten reasons why restaurants fail are given here, along with solutions, in no particular order.

Top Causes of Restaurant Failure

After discussing the industry-wide flaws that restaurant owners may not even be aware of, the issue of “What are the main reasons why restaurants fail?” remains.

1. Thefts and pilferage

Theft and pilferage rank first on the list of the significant causes of restaurant failure. Restaurant owners aren’t even aware that internal thefts and pilferage rob them of their business. The most common cause of restaurant failure is on-counter thefts and inventory thefts, which can drain a company dry.

2. Exorbitant Rents & Bad Location

The location is one of the critical elements that can make or destroy your restaurant. While a horrible place might kill your restaurant by not bringing in enough business, keeping costs in check is essential. Frequently, good locations come with a hefty price, making it difficult for restaurants to make a profit.

3. Negative client experience

Poor customer service is frequently one of the main reasons restaurants fail and may almost surely guarantee that the consumer won’t return. They might also leave negative reviews of your restaurant on review websites and social media, which, if ignored, might be very harmful to the establishment.

4. Lack of expertise

The widespread assumption that there are no entry barriers in the restaurant business contributes to the idea that anyone can operate a restaurant. This is not the case at all. Although there are no specific industry hurdles, some of the leading causes of restaurants failing are first-time restaurateurs’ poor business judgment, lack of management, and lack of financial preparation.

5. Negligent Staff Management

Being understaffed is awful, but hiring the wrong people is far worse. Untrained workers can cause a lot of damage to your establishment and eventually rank among the leading causes of restaurant failure. Unhappy and unsatisfied staff members can drastically harm the restaurant’s reputation and turn away customers, which could result in the closure of the establishment.

6. Poor Resource Allocation

One of the worst mistakes a restaurateur can make that might result in the demise of their business is spending too much money on the “not-so-important” components of the restaurant. If you are low on supplies in the inventory department, it is illogical to overspend on the furnishings and ambiance. Similar to this, you can be paying a lot for raw materials that are being wasted because they aren’t being sold at all. The most common cause of restaurant failure does not know how much money to spend.

7. Difficult Menu

A menu with a wide variety of options is difficult to maintain and confusing to clients, and it is also frequently the cause of inventory item waste. Unnecessary food wastage raises food prices, which in turn causes losses. Additionally, the Chef finds it challenging and time-consuming to create various dishes, and any delays may result in dissatisfied customers.

8. The owner is not involved

The sad truth is that aspiring restaurateurs frequently overlook the importance of the owner’s involvement in the restaurant’s success. It can often be catastrophic to put all your money into the restaurant and rely solely on the manager.

9. No Analytics and Reporting

A careless approach to reporting and analytics can frequently spell disaster for your business. Without keeping track of everyday operations, you won’t know whether your restaurant is making a profit or losing money. Reports assist in determining the cause of the loss.

10. No Advertising

The debate over this topic rages on between traditional restaurant owners who have long operated successful family businesses with little marketing and modern restaurant owners who believe in effective marketing. Of all, there is no need to advertise well-known products. Even Nevertheless, restaurants need marketing due to the fierce competition they face, the short attention spans, and the little loyalty of their patrons. You might create new marketing plans based on your consumer data with your restaurant management software.