10 Common Reasons Restaurants Fail

by Katie Sawyer, 5 minutes read
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When you opened your first restaurant, it was a dream come true. The menu was perfect, the floor was packed, and there was a buzz throughout the restaurant.

But keeping that same momentum is easier said than done. In fact, nearly 60% of new restaurants fail in their first year and around 80% of new restaurants are closed by their fifth year.

Don’t let that happen to you. Read on to find out 10 common reasons why restaurants fail — and what you can do to avoid them.

Common restaurant fail #1: Bad location

Choosing the right location is one of the biggest factors in succeeding when you open a restaurant. Limited parking and low foot traffic is a recipe for disaster. Because the harder it is to get to your restaurant, the less patrons will want to check you out — and keep coming back.

Pro tip: Your restaurant doesn’t need to be in the poshest neighborhood or even on the busiest street. But wherever you land, your restaurant needs to be easily accessible. If you are just starting out, consider doing a pop-up location with a partner to test out the neighborhood.

Common restaurant fail #2: No business plan

A business plan is a key strategic document that sets out important aspects of how you’ll run your restaurant to maximize profit. A poor business plan — or none at all — leaves restaurants without a North Star. And when you want to grow your business, you need a strategic plan for building your brand and your profit.

Pro tip: Before you get too deep in the weeds of logistics, create your business plan. A strong business plan should list both the operational and strategic information about your restaurant, including your:

  • Target market
  • Marketing and promotion strategy
  • Unique selling proposition

Common restaurant fail #3: Poor customer service

One of the advantages you have when opening a restaurant is that you’ve also been a consumer. And chances are you’ve sworn off a restaurant after receiving poor customer service. Maybe the hostess had a bad attitude or your waiter snubbed you when you asked for more water. In the age of review sites like Yelp, recovering from a bad reputation is harder than ever.

Pro tip: Create a mission statement and standards of conduct for your employees. Use team meetings and workplace messaging apps to remind your staff of those standards, and give regular feedback about their performance.

Common restaurant fail #4: Too few (or too many) onsite staff

Labor costs are among the biggest expenses of any business. Having too much staff on hand is a waste of labor costs. But not having enough is just as risky. When your restaurant is busy and you only have one waiter to cover 15 tables, your patrons are going to notice.

Pro tip: Don’t guess when it comes to scheduling your staff. Use tools to create optimized schedules based on high times of sales, appointments, and foot traffic.  

Common restaurant fail #5: Ignoring tax issues

When you’re managing a team and setting your staff’s schedule, keeping up with workforce labor compliance can seem daunting. But as new mandates continue to arise, restaurant owners who don’t comply can be faced with lawsuits — and even be forced to close their business.

Pro tip: Reach out to a local lawyer experienced in the restaurant industry to ensure you’re meeting all of your city’s regulations.

Common restaurant fail #6: Trying to be everything

Sure, it’s nice to have a varied menu. But when your patrons come to your restaurant and they’re presented with too many disparate options, they’ll be overwhelmed. Sometimes too many choices leads to dissatisfied customers.

Pro tip: Don’t try to do everything. Think about what you want your restaurant to specialize in, and do that well. If you’re struggling to figure out the best niche for your business, get some inspiration in this blog post.

Common restaurant fail #7: Not taking advantage of takeout or delivery

Of course your brick and mortar establishment is where the magic happens. But the global food delivery industry is growing. In fact, it’s worth nearly $100 billion. And if you’re not taking advantage of delighting patrons who want to enjoy your food at home, you’re missing out on revenue — and damaging your bottom line.

Pro tip: Check out local delivery options in your area. Talk to neighboring restaurants to better understand which could best benefit your business — and be sure to advertise which service you choose.

Common restaurant fail #8: Inadequate management team

Not everyone is suited for management. Your restaurant manager needs to handle many shifting priorities: scheduling, payroll, and customer service. An inexperienced — or just flat out bad — manager can lead to staff turnover and low sales.

Pro tip: Create a short manager training program to ensure all of your managers are up to speed on your policies and scheduling best practices.

Common restaurant fail #9: No checks and balances

Trying to keep a mental note of all the time off requests, staff requirements, and required skills will end in failure. Staff will be frustrated when you haven’t approved their time off — and you could end up in legal trouble if you overschedule and underpay an employee.

Pro tip: Don’t rely on your memory to keep track of all your checks and balances. Use staff management software that automates scheduling, time off approvals, and skill requirements.

Common restaurant fail #10: Poor accounting systems

You might not be an experienced accountant — and that’s okay. But if you don’t have systems in place to ensure accuracy, you’re going to be in hot water. Unruly staff, unhappy management, and dissatisfied investors. Get your accounting wrong, and your doors could soon be closing.

Pro tip: It’s always best to hire someone who is well-versed in accounting. And to make sure your day-to-day is in order, invest in workforce management and scheduling software that integrates with your payroll. That can show you how much you spend on labor, your most costly shifts, and where you can save money in terms of scheduling your employees.

Avoid common restaurant fails

While there are many reasons restaurants close, these are 10 common fails you can easily avoid. Don’t get bogged down by the mundane admin and day-to-day stress of managing a restaurant. Get back to doing what you love — and seeing your restaurant thrive — when you try out a free trial of Deputy.