Top 5 ‘New Business’ Mistakes To Avoid When Opening A New Restaurant
“Businesses with fewer than 20 employees have only a 37%chance of surviving four years (of business) and only a 9% chance of surviving 10 years. Restaurants only have a 20% chance of surviving 2 years. Of these failed business, only 10% of them close involuntarily due to bankruptcy and the remaining 90% close because the business was not successful, did not provide the level of income desired, or was too much work for their efforts.”
–excerpt taken from an article written by Rob Holland, ‘Planning Against a Business Failure’
As a new restaurant owner (or soon to be), that quote must have sent chills up your spine. Everyday, people are pouring their entire life savings, betting their children’s education funds, and risking their marriage to fulfill a life long dream of opening their own restaurant. No doubt, there are risks involved – lots of risks. It’s important to not tumble into the traps that have already robbed the dreams of so many restaurateurs.
Making mistakes is a part of learning - as the old saying goes ‘learn from your mistakes’. However, time and time again entrepreneurs continue to make mistakes and not learn from them. Just like people, organizations tend to make mistakes repeatedly; are adverse in setting up a guard against making mistakes; and tends to focus on the bad while overlooking the good. Business owners often forget to look on the bright side to see what they are doing right.
Mistake #1 (and the biggest one): Failure to Plan
I cannot place enough emphasis on the importance of planning. This critical success factor is often overlooked by current jobs, life styles, personal schedules, and other important details that go into opening a new restaurant. Business and market planning should be the first and foremost step to take when deciding to pursue a new venture. By doing your due diligence and taking the time to research the full potential of your products, service and customer base will give you a clear picture of whether or not your dream is destined for success or failure.
Business and market planning will also give you an insight into the barriers and obstacles you may encounter along the way. You get to know the players that exist in the industry and how to compete in the game. You will know what types of funding you need (because you will need funding!) – what government funds and bank loans will you require at start up? You need to formulate financial plans on how to effectively use your funds. You will have an idea of when you plan to break-even and how fast you plan to expand. A detailed business plan will also assist in obtaining investments. You need to confidently show that you conducted research and have planned strategies on how to reach repayment.
This is essentially the road map on how you will achieve success. Think about it: you see the big picture – your own restaurant running efficiently, making you profitable, and giving you the kind of life you’ve always imagined. Now, how are you going to achieve that big picture? What steps do you need to take to reach that end goal? Your plan should tell you (1) where you are now, (2) where you want to be, and (3) how you plan to get there. By completing your business plan, you will have reports on your business field, the industry, trends, risk analysis, marketing needs, target markets, competitors, and financial overview. Your plan will tell you how to make your restaurant successful– this is the roadmap of your future.
Mistake #2: Not taking preventative measures
It happens all the time - business owners get too caught up with the venture itself that taking preventative measures to avoid failure are often overlooked. Restaurateurs must ensure they are keeping up with changes that may affect the business. Costs must be periodically reviewed to ensure they are within budget. This goes for overhead as well. Owners/managers should prepare reports on sales projections, cash flow forecasts, labour reports, and benchmarking actual performance to the actual plan. Where was it off and how can business be improved? Regular progress meetings should be held in order to detect future risks and identifying the preventative measures to take to minimize potential losses.
Mistake #3: Refusing to accept changes
Embrace change! Easier said than done, right? But in the world of owning your own restaurant, this is no longer a choice – it is mandatory! The world of business is moving at a lightning speed and those who do not keep up will be left behind. Just when you’ve adapted to a new trend or adjusted to a new way of doing something, it is time to change again. There is no ‘break time’ in this playing field. Constant change is inevitable; whether or not you embrace it is a different story.
The mistake of not embracing change does not just affect new business owners – people who have been in business for 25+ years must continue to embrace change. There is always something new to learn – who your best customers are; changes in tastes and preferences; what marketing ads are most effective; are you staffing efficiently; and the list goes on. Businesses change and so do people. Your market can be changing on a daily basis. Failure to keep up with these changes will unquestionably lead to losses. Consider running a business as a constant learning process – never stop learning!
Mistake #4: Lack of knowledge, tools, and resources
Another cause of business failure is the lack of knowledge, tools, and resources that help restaurateurs succeed. Knowledge is powerful – it can give you priceless information that can assist in making informed decisions. Knowledge can come from your education in college/university, generating reports, monitoring trends, networking with others in your industry, and acting on the information that comes your way. Subscribing to informative magazines and visiting websites that are directly related to your area of business are also quite valuable. Attending tradeshows, seminars, and workshops will help you identify upcoming trends and obstacles in the restaurant industry.
An area where businesses fail on a daily basis is the failure to keep up with learning about new/potential customers. Even after all the business planning, developing marketing campaigns and promotions, and monitoring and increasing growth – failure to keep an updated record of your customers’ key demographics and trends can result in you missing out on amazing opportunities. Trends change and the information you worked so hard to gather may be outdated before you know it.
You will need a ‘business toolkit’ to survive in this fast paced playing field. Tools refer to the accessibility to critical information that helps you run your business. It can range from advice counsel, specific documents (application forms, legal documents, and financial spreadsheet templates), employee management and training. In this day and age, technology is a must. Computers, data systems, and Point of Sale systems give you greater insight into your business allowing you to make better business decisions now and in the future. How can a restaurant succeed without all the necessary tools to make that organization work? A plumber would not be able to fix a clog without his handy toolkit… and you will not be able to run a restaurant (at least not successfully) without your business toolkit.
Your resources are the backbone of your business. Resources are any person or any organization that contribute to the success of your restaurant. This includes lawyers, accountants, staffing agencies, your networks, the Internet, tradeshows, and most importantly, your staff. These VIP (very important people) can make or break your restaurant. There is also an abundance of resources available to restaurateurs – some are free while others you have to pay for. For example, you can attend tradeshows that relate to the restaurant industry – this will give you knowledge. There, you will be able to learn about new technology advancements that can help you run your restaurant more efficiently – this can contribute to your business toolkit.
Mistake #5: Not realizing the time consumption involved
Although this mistake is rarely mentioned, it is one of the main culprits that cause restaurants to fail. Opening a new business is incredibly time-consuming, and not just at the beginning. It is an on-going responsibility for as long as you want to stay in business. It entails serious time commitment and requires you to make sacrifices on a weekly if not daily basis. Pressure from family and spouses are often the reasons that restaurants do not make it pass their first year of business. A successful restaurateur must be able to balance their family life and work life. That is why more often, those who do decide to pursue this type of venture or either single, divorced, or have a heck of a supportive family that will be there for them.
Failed owners were most likely unable to sacrifice missing another one of their kid’s schools play, another birthday or anniversary, and pressure to spend more time with family. So before you hop onto the ‘let’s open a new restaurant’ bandwagon, be 110% sure that you will be able to balance and devote time to both running your business and maintaining a healthy relationship with your family.
Daniel Mitchell works with Halo Web Based Point of Sale to provide high-quality, cost-effective POS Restaurant
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Filed under: Restaurant Tips
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