There are dozens of statistics from various sources about the failure rate of restaurants. The only thing they agree on is that the vast majority never survive. Some say the failure rate is as high as ninety percent and some as low as seventy percent. Either number is staggering for the entrepreneur who is trying to get their dreams off the ground floor.
There seems to be three key elements to increasing your chances of survival.
- Creating a business plan that provides a cash flow analysis and projects your needs.
- Creating a marketing plan as part of your business plan that addresses more than just advertising.
- Matching your location with food and demographic target.
A study of failed restaurants will find that all closed because one of these steps wasn't done or even considered as part of the planning process. Many had the idea that if they just produce good food, the masses will come. The facts show very few restaurant failures are due to bad food.
Your business plan is where everything starts. This should be a working document that changes as your ideas, relevant facts and conditions change as you go along. If you know someday you are going to take the plunge into the restaurant business, start your plan now. Pay particular attention to capital requirements. A great number of good restaurants fail because they just ran out of cash. Get an accountant or do diligent research to learn how to make projections of cash needs.
As part of your business plan, a marketing plan should be included. One common mistake is the thought that marketing is synonymous with advertising. Advertising is just a small part of marketing. If you think you can compete in the restaurant business with a few newspaper ads, you will lose that battle to the chains who have vast regional advertising budgets that probably exceeds your entire start up costs. Understanding the complete definition of marketing is essential to making inroads into the consumer's restaurant choices.
Your location is even more critical today than it was when the old trite phrase location, location, location was coined many years ago. Gas prices and time is at the forefront of the consumer's mind when making any choices for restaurants and many other services. You not only have to be convenient to your guests, but you have to match your food concept to the demographic. Putting a down home barbecue joint in a young trendy urban location where the emphasis is on health foods and exercise is probably a kiss of death. Increase your odds and find a better location.
Are there exceptions to these three critical steps? Certainly. There are also exceptions to the loss ratio for Las Vegas visitors who, on average, lose 97% of the time!
There are restaurants who stumble onto the scene and become successful without doing all of the steps above. However, of the almost 25,000 restaurants that start in the next five years, you could probably put all the exceptions into one small strip center. Don't gamble on your future; just plan your future properly.
Larry Edger is an author and multi-concept restaurant owner. Widely known for the best selling book, The Restaurant Ebook , A Guide to Keeping Your Dream Off the Chopping Block. Larry has written numerous articles, books and examples of actual restaurant management tools that have been used for years in many operations. Other helpful resources include On a Wait and Restaurant in the Weeds .