Top-Ten Reasons Why Restaurants Fail

#1 Undercapitalization - The Startup Restaurateur's Biggest Issue

This one is Numero Uno and is such a serious problem that it earns the top spot on my list. People often argue about what the most daunting task of opening a new restaurant is. Some say it's finding the right location, developing the right menu, and hiring the best servers. And while all of these are very important to any restaurant's success, they still play second fiddle to being fully funded. Here's why –

Because everything else in your restaurant hinges on you having enough money on hand to cover your operating expenses until you can start turning a profit. 

And most likely, that won't be until after your first year of operation. May sound cruel, but that's the reality of it. Without the dough, you can't pay your distributors on time. This means you've already got hassles when you need to order food. Something you don't want or need as a new business owner. A bad relationship with a supplier can be a huge distraction and cause an undue amount of stress at a time when you really need to concentrate on building your customer base.  In addition to your food costs, you'll also need to be able to cover your lease, insurance, payroll, kitchen equipment, dining room furniture, decorating, municipal licensing, gas and electric, grease and waste disposal, and employee training. Oh yeah, and don't forget about marketing. The Butcher Block Rule says you should allocate the same number of dollars for advertising that you have in your kitchen equipment. Sounds like a lot, but that's a topic for a whole other discussion.

As you can see, all of the things I have mentioned cannot be accomplished without adequate capital. Unfortunately, the startup costs for a new independent restaurant are typically pretty high, and can often run into several hundred thousand dollars when all is said and done. I've seen it done for as little as $80K, but that was in a college town a long time ago. For a franchise, it can easily be a half -million dollar investment depending on what type of foodservice operation it is. Yet, there are still many well-intentioned startups that go into the venture woefully underfunded. Thus, the high failure rate.

Now for the good news: If you really want to own a profitable restaurant, it is still doable even in this economy.  But be sure to have at least six-months of operating expenses in reserve, preferably a year.  Depending on whether you are building from the ground up, doing a makeover on an existing business, or leasing, your monthly costs may vary considerably. 

ITEM	Monthly Cost
Lease	$2,000
Food	$2,400
Insurance	$1,000
Gas & Electric	$   800
Payroll	$2,000
Waste Disposal	$   600
Marketing	$1,000
Total	$9,800

Take a quick look at the chart to the left to see what I mean. For example, if your anticipated monthly costs are $9,800, you should have at least roughly $60,000 of operating cash on hand before you open your doors. This may sound like an awful lot of padding but trust me, your chances without it will be less than the traditional one-in-three estimate of restaurants that make it past the first year.  So, you're probably going to have to borrow enough to make the whole thing fly. But where do you get the money? And exactly how much are you going to need? Banks have not typically been a reliable  source for seed money when it comes to backing a restaurant, so you might have to get creative in your search for financing.  A recent online Business Week article citing H.G. Parsa, an associate professor in Ohio State University’s Hospitality Management Program notes – " Because of the belief that restaurants are high-risk investments, he says, many banks won’t lend to restaurants at all. Typically, the ones that do require would-be restaurateurs to pay sky-high interest rates or put up significant collateral (say, a house) to mitigate the perceived risk (see BusinessWeek.com, Winter, 2007,“Tapped Out”). Ironically, Parsa’s research identified lack of sufficient startup capital as one of the major elements that contribute to a restaurant’s failure—making the myth a self-fulfilling prophecy of sorts. "

One alternative to a bank is to find a small group of venture capitalists who have backed other restaurants before. If you have a strong concept and at least some track record in the business, you might just get lucky. Or, you can use keywords like "restaurant financing" to find many lenders who specialize in only restaurant financing. Some won't work with start ups, but others will. You'll have to do some digging, but before you approach any potential lender about your restaurant, make sure you know exactly what you are trying to accomplish, how much it will cost, and that you have a realistic timetable for how long you can take to pay it all back. Many start-up restaurateurs put their house up for collateral to secure a loan, but this is generally not a good idea. Why? Because if the business fails, you're left holding the bag and maybe without a roof over your head. It also causes a lot of worry at a time when you need to be completely focused on making your business a success. If at all possible, keep your personal finances and your business dealings separate.

You will need  a legal and/or financial consultant anyway, so you might as well start searching for someone you can trust as soon as you begin putting your business plan together. There are many good CPA's and attorneys that can help structure your business to reduce your personal liability in the unfortunate event of a failure. Many restaurant owners pay themselves a fixed salary and are on the regular employee payroll. This is one way to protect yourself, there are many others. Again, find one that specializes in the restaurant business and has a solid understanding of the industry before you enter into any contract with a lender. 


Don't have a business plan? Don't worry. Even if you've never written one before, there are many online resources to help you create one of your own or find a professional business plan writer to help you. Just key in the words "business plan writers" and your browser will yield thousands of hits. The fees range from a few hundred dollars to a few thousand depending upon the length and complexity of the plan, so shop around like you would for any other professional service. 

A well researched and properly prepared business plan will significantly increase your chances of getting the money you need.

Try to find someone who specializes in writing restaurant business plans, as the restaurant biz is in many ways unlike any other animal.

By now you might be thinking of chucking the whole idea of owning a restaurant. For some, that may ultimately be the best decision they can make. But for those who are willing to take on the challenge of owning and running a restaurant, great success and personal fulfillment can still be achieved with  creative financing and a viable business plan. Remember, your restaurant is first and foremost a business and an eatery second, and it should be treated as such. Get the money first, and the rest will follow. 

Next week, we'll tackle the 2nd biggest culprit in restaurant failure, the menu. I can't wait. 

Web Management 101 for the Foodservice Industry

Why restaurants continue to fail – and how to fix it.

Even in a strong economy, the restaurant business is one of the most difficult to succeed at. No one will dispute that. Enter the Internet and it makes it even harder if you're not aware of what's out there. Who's saying what about your place, your food, and your service are all critical to keeping your dining room full and your customers happy. So it's important to monitor your presence on the web even if you don't have a website. There are many, many sites such as Yelp! and Metromix, (not to mention Facebook) that offer forums for people to post reviews about virtually any restaurant you could think of.

If you haven't already, don't be surprised when you Google your restaurant. Typically, there will be both good and bad reviews, but the worst thing you can do is to get defensive. After you've had a moment to digest what your customers are saying about your establishment, you might find that there are indeed some good points to be taken away from what may seem like excessively harsh criticism. If the reviews are all glowing, then of course you needn't worry – your online image is just fine. Though more often than not , your web presence could probably use some tweaking.

We've all been there before. Your friend recommends a place, so you check it out online before you go. The reviews are mostly positive and the menu looks good, so you decide to go ahead and make a reservation. It's a hip, upscale place, but not over the top. Unfortunately, your expectations go unfulfilled and you find the place just kind of average. The server with an attitude didn't help things either. Of course, being the good sport that you are  and not wanting to wreck the evening for the rest of your party, you simply nod and smile when the server asks how everything was. But then, when you get back to the coziness of your home and your laptop, you prepare to exact your revenge with a feisty review on Yelp!

What went wrong? Were your expectations too high? Did you catch them on an off night? Were the reviews all written by their friends? Could be any of the above, it's hard to say. But one thing's for sure, you're not going back again. So why should the restaurateur care? He's already lost you as a customer and knows you're probably not coming back anyway. And unfortunately, too many owners take this type of attitude because they either don't know how to fix the problem, or they just don't care. But they should care, unless they want the same outcome from the next four-top that gets seated.

The smart operator sees beyond the negatives and uses the information to address the issues that are truly hurting his business. In a way, it's almost like free market research if you think about it. People are actually telling you what's good and bad about your food or staff, and you, as the business owner don't have to spend a red cent for it. No expensive focus groups or telephone surveys by high-priced consulting firms, just the real-deal. Straight up feedback from the people who eat what you serve. Hey, nobody likes to get slammed, but that's the reality of it. If yours is a family run business and there are strong emotional ties to traditional recipes and a certain way of doing things, it may be even more difficult to accept constructive criticism found online. You can easily dismiss it as the ravings of one disgruntled customer who was unable to please no matter what you did, and sometimes, this is the case. But often, real improvements can be made, and without spending a lot of money.

For example, let's say a particular bartender keeps getting mentioned online for his inattentiveness and lack of demeanor. Many people won't bother to approach the manager and complain because they don't want a confrontation to spoil their night out, especially if they'll be ordering more drinks later. Most likely, they'll just drown their sorrows and move on to the dining room. Since the manager may be unaware of this problem, he would do well to take a few minutes each week to search Yelp! and the other sites to see how his place is being perceived. In the case of the aforementioned surly bartender, it should be a red flag and indicate to management that some type of action needs to be taken. At the very least, he should check with his servers to find out if there's been any grumbling by the customers about said bartender. If the reviews are substantiated by his staff, then he can give him a warning or fire him. Otherwise, the result will be less time spent at the bar prior to dinner, and ultimately, a smaller profit margin when the night's receipts are tallied.

Another easily illustrated example goes something like this. Let's say your restaurant has a signature dish that has been wowing them for years but just isn't moving that well lately. With the six new appetizers you added, you probably didn't even notice. But one afternoon you decide to check yourself out and find out why. No rocket science here. The reviews are in, and it's not pretty.

" Used to come here for their signature Prime Rib, but the last couple times it was dry and fatty, and I won't be coming back again. It's a shame, because theirs really was the best."

 

So, whether it's an inferior cut of beef or a substandard server that's hurting your cause, searching online can provide you with some valuable feedback on how to keep the customers you already have, without needlessly losing them to problems you may not be aware of. 

Final note – keep in mind that I am not suggesting that you run out and make sweeping changes to your staff and menu just because of one or two lousy reviews. On the other hand, you should remain open to accepting honest and well intentioned input, even if it means putting your ego on the back burner once in a while.     

Gone fishin'

Now that we've covered cheap bar burgers and where to get em', it's time to do a 180 degree turn and go for some upscale seafood. And nowhere will you find better fish than at McCormick and Schmick's. There were 8 of us in our party, ranging in age from 7 to 87 and everyone went home happy. It was a tough mission for our server, Brook, who provided us with outstanding service from the moment we sat down until the time we left. We were fortunate to have reserved a private room, as we had two birthdays and Mother's Day to celebrate all at the same time.

The round of appetizers included a perfectly prepared bowl of Calamari, with two dipping sauces; a traditional seafood marinara sauce as well as another, a kind of garlic mayo that was a nice change from the ordinary. We also ordered the duck pot stickers and the shrimp tempura. Plate presentation was superb, and the pot stickers were served atop a bed of Asian slaw which provided a nice contrast. The shrimp tempura was skewered and arranged nicely as well, adding a visual element to the dish. For cocktails,I had a Mariner's Mojito which was excellent, and some Cosmos and white wine for the rest of the table. Everything paired nicely with what we ordered and came at the appropriate time, not too early and not too late. Before our entrees arrived, a round of ahi tuna sashimi was served on the house, a nice touch that really hit the spot. Then came dinner, and I must say it was at the top of the food chain. Rarely have I ever had a fresher or better tasting piece of fish than I did that night, and I've eaten in restaurants from coast-to coast.

The selections ranged from a puff pastry encrusted salmon to a Thai inspired Mahi-Mahi, and all were to die for. My personal favorite was the Wild Swordfish Casino, a perfectly grilled filet served atop a bed of spinach and vegetables and topped with a mixture of bacon and crab meat. Yum!
Of course, we couldn't pass up dessert and that was a hit as well. From the Key Lime pie to the deep dish apple pie served hot and a la mode with cinnamon ice cream, it was simply delightful. When all was said and done, I don't think we could have had a more satisfying meal or a more memorable evening. And although fresh seafood is notoriously on the pricey side, I felt that we received an excellent value coupled with best service we've had in a long time. Kudos to McCormick and Schmick's, and especially to Brook!

Belly up for Burgers

  Welcome to the premier edition of The Mouthful, a forum dedicated to the wonderful world of food and beverage. As editor-in-chief of this new blog, I want to make sure I am discussing issues that are of interest to both restaurant owners and their customers.  My hope is that with  better information and better communication, we can help elevate the quality of the foodservice experience for everyone. Satisfied customers mean return business and good word of mouth. Unhappy customers buy more negative publicity than you would expect. With venues like Yelp!, a bad review can be posted easily and have severe consequences. Now for the good news.

  In an effort that reflects the economic realities of the times, many restaurants have started offering cheap burger nights to draw people in. Many offer $1 burgers, usually on a Monday or Tuesday night when  things are slow. Some have always had cheap burger night, others are testing the waters to see if it's worth it. A lot of places charge $2 or even $3, depending on where you are and how upscale it is. Cheese and toppings go for 50 cents a pop, and you can come away with a fully loaded burger for less than four bucks. Add fries and you're right around $5.00 for a kick-ass pub burger. Less than a combo with tax at any of the fast food joints, and a whole lot better quality. Not to mention a vastly improved atmosphere. Sure, you need to figure in a tip for the bartender or server, but I think it's well worth the extra few bucks when you tally it all up.

  The thing about cheap burger night that you have to watch out for is the beer. You can quickly run up a nice tab if you're not careful. Still, a cold beer washes down the salty fries nicely, and $1 taps are often run together on the same night to sweeten the deal. Most of the establishments that promote buck burger nights are pubs and grills, not so much the family restaurants. Kids are always welcome though, and often you will see the whole family out on a Monday to take advantage of the deal. So here's how it shakes out: On average, most decent bar burgers are regularly about seven or eight bucks, so you can save at least $5 a head by making it out on a Monday night. Not bad, especially if you've got three kids. And if you don't have kids, it's a great cheap date destination or just a place to hang out and watch some sports.

Now that we've covered the what, let's get to the where. Here are some of my favorites, along with the details of their cheap burger night.

Dick's Roadhouse,702N. River Rd.,Mt. Prospect,IL 60056 847-298-7200

Set across the street from the banks of the mighty Des Plaines, Dick's River Roadhouse is the kind of place that makes you feel like you're in Wisconsin, or somewhere up north. There's stuffed game on the walls, Big Ten banners, lots of old signs, and all sorts of other shtick. Monday nights they feature $3 half-pounders, make it a deluxe with cheese and fries for a buck more.  Large and loud, this place really packs em' in so don't be surprised to see a full parking lot when you show up.lhttp://www.dicksriverroadhouse.com/ 

Bar Louie, 200 E. Rand Rd., Mt. Prospect, IL  60056   847-394-3456

Bar Louie, already well-known throughout the city for good burgers and a hip atmosphere makes another foray into the suburbs with its recent opening of their Mt. Prospect location near Randhurst Mall. I couldn't be happier. I've been a long time fan of Bar Louie ever since they opened their first Chicago location near the Chicago/Franklin L stop. Since then, they've become a national success with a great menu and great service, but somehow have managed to maintain the personal touch. Tuesday's are the night you want to be there, $1 burgers from 5 to close.   
http://www.barlouieamerica.com/home/

Moretti's, 1799 S. Busse Rd., Mt. Prospect, IL 60056   847-593-2200

Known for good pizza and good atmosphere, Moretti's has been around awhile and they are one of the more consistent local chains that always seem to turn out a quality product. Formerly Famous Freddie's, the newly remodeled Moretti's at the corner of Algonquin and Busse roads is spacious and accommodating, with an extensive menu including a Thursday night burger special for three dollars. Add cheese and fries for an extra buck. 

http://www.morettischicago.com/mountprospect.php

As you've probably noticed, all the places I mentioned are of the suburban variety. Heading into the city? Then one place you need to check out for sure is Moody's Pub in Edgewater, just a few blocks south of the Loyola Campus on Broadway.

Moody's Pub,5910 N. Broadway, Chicago, IL 60660  773- 275-2696

Dark, woody, and with lots of character, Moody's has been a Chicago tradition since 1959. With an atmosphere that says "pub" from the minute you walk in, the smell of grilled burgers and french fries taunts you immediately. And even with a full pub style menu, the burgers are what people come here for. A half-pound of awesome char grilled beef with a load of those fresh cut fries that I love. Served up simply in a basket with lettuce, raw onion, and a pickle. It's eight bucks with cheese; no cheap burger night. You can, however, print up a coupon for half off your second burger on their website. http://moodyspub.com/   

So now that I've had my two cents worth, it's time for you to belly up to the blog and tell us all about your favorite burger bars. And don't be shy! It's just a blog. A place where we can all get together and talk about  things that really matter, like where to eat.

Yours truly,

Big Mouth

MS. Bu

 

$1.75 Miller Lite & Coors Light Drafts

---