There is probably no business on earth that is taken more for granted, or looks easier to run from the outside than the restaurant or cafe business. Yet the highest rate of bankruptcy occurs in the food service industry.
The general rule is that for every ten restaurants, cafes, coffee and fast food shops that open for business, four will have closed their doors by the end of one year. Of the remaining six, four will have changed hands at least once.
Properly approached, the food service industry can be very rewarding.
Over the years I have met accountants running pubs - hands on, telephone technicians operating delicatessens, qualified chefs running great restaurants, solicitors working as chefs and running restaurants, all successfully. I have also met people who, with their industry experience should have had no trouble running a successful food business only to fail.
The Main Pitfalls
Failure can be attributed to some of the following reasons.
Lack of management know how
The most frequent cause is the lack of management knowledge. You may have sufficient capital, but if you do not know how to manage your business, your capital will soon disappear.
Inadequate food knowledge
Some businesses are started by individuals with little or no food industry experience. They hire staff and allow themselves to be guided by them. They become disillusioned by the long hours that they have to remain at work with little result. When things start to go bad they sell out at fire sale prices, if they are lucky.
Food knowledge comes from experience and understanding.
Sometimes it is better to learn in someone else’s business. This has the advantage of helping you recognise if you are suitable for the industry before you outlay the large sums required to buy or start a new venture.
Insufficient working capital
Many food service businesses are bought or started by individuals who fail to plan in advance and budget their funds, or lack the necessary capital to start a new venture. They use up their available funds in furnishing and equipping their establishment, with no surplus funds available for meeting emergencies when they arise.
Even successful operators sometimes embark on an expansion program which uses their own surplus funds. If the expected additional business is not forthcoming, they may become financially embarrassed. Plans should be made for the expansion in advance and budgets made for the expected flow of cash.
This is where financing your equipment or entire kitchen fitout has tremendous merit. It allows you to breakdown fitting out your equipment into a weekly payment. If, after 12 months your venture has become a success, then you have options available to you on how best to proceed.
Other possible explanations for failures for the new operator are not knowing what is really involved in a food service operation
- 1. the location is poor
- 2. food is of poor quality
- 3. service is faulty or slow
- 4. conditions are unsanitary - lack of cleanliness is usually the result of negligence, poor training, or inadequate cleaning systems. Please put effort into avoiding this pitfall.
- 5. menu’s are monotonous - lack of imagination, poor planning or just plain indifference
- 6. prices are out of line with the competition - this may be due to careless purchasing, waste, or over staffing
- 7. long hours of operation causing stress
- 8. the shop or restaurant is unattractive
- 9. promotion is inadequate
- 10. rents are too high