4 Major Hurdles that Restaurants Will Face in their 1st Year
The restaurant industry is not kind to newcomers. There are dozens of televisions shows that highlight the struggles that restaurant owners face each and every day but, unlike the television shows, most real life restaurants don’t end up with a full house every night. In fact, a study by Ohio State University reports that sixty percent of restaurants fail to make it past the first year. The difficult path doesn’t end after year one, the report also found that eighty percent of restaurants will go under by the fifth year of operation.
What is it that makes the restaurant industry since a difficult setting for a new business to thrive in? There are many components of this type of business, both customer facing, and in-house, that if overlooked can bring a restaurant to its knees. Here are some of the most important areas for restaurant owners to address in their first year of business.
Do Your Homework!
Proper market research is a vital step to identifying the potential for a restaurant to have success in a specific area. While certain things may seem obvious, each and every caveat of your business will affect how many customers come through the door. The location of your restaurant needs to be in a highly-visible area with ample parking and the opportunity for foot traffic to come into the restaurant. Be sure to understand what types of competitors are in the area as well. Something like a mall with multiple restaurants nearby could severely affect customer traffic. Finally, decide on a menu based off what you know will sell in the area. A good way to find out what is popular is to see what restaurants who have been in the area for a long time are offering. If your menu seems to offer items that nowhere else in the area does, there might be a reason they don’t, which needs to be determined as early as possible.
Finding the Right Help
When you’re in the restaurant business, you’re in the people business. Not only do your employees represent your restaurant, they also operate it. Ineffective hiring, being understaffed, and lack of training are the three biggest issues that restaurants face in terms of staffing. Be sure to set expectations for each and every position before you even begin interviews. Getting creative in your recruiting efforts can attract better talent than a Craigslist ad may bring in. Exude the vision and purpose of your restaurant in interviews, and hire people who you feel can best execute that vision.
Build the Back End First
In any business, a proper structure is vital to the success and well-being of the company. Areas such as accounting, HR, and insurance need to be squared away before the restaurant takes in its very first dollar or hires its first employees. Consider outsourcing HR related tasks that can easily be managed by a third-party. Protect all of your assets by securing an insurance policy specifically drawn up for restaurants that covers risks specific to the industry, as well as general business liabilities.
Stick to a Budget
Map out your expected revenues and profits for different periods of time throughout the first year, and figure out exactly what you can afford and cannot afford when you hit different plateaus. Many new restaurant owners sink too much money into the restaurant before opening with renovations and updates, that it places a strain on the first year’s figures trying to recoup that additional investment. Food costs should be established and in contract with a distributor so that there are no surprises that after a busy month, costs increase and management is not prepared. Create a formula that determines how many employees you will need on staff for both busy nights and slow nights. Create a payroll cap for the restaurant and find ways to make employee hires work within the cap. Once the business grows to a sustainable level, then consider hiring beyond that cap amount.
With the proper planning and the right team of individuals as support, opening a new restaurant can be one of the most rewarding and lucrative business ventures that one can partake in. Creating a new niche in this industry is difficult, but if your restaurant can make it through year one, you’ve already accomplished more than sixty percent have. From there, the sky is the limit!