Restaurant Law Blog

Friday, June 10, 2011

Top 15 Reasons Why Restaurants Fail

I just came across this list.  “The Top 15 Reasons why Restaurants Fail:

1. Lack of experience, 2. Lack of capital, 3. Poor locations, 4. Inventory, 5. Equipment, 6. Poor credit practices, 7. Personal expenses, 8. Premature expansion, 9. Bad attitude, 10. Too many expenses, 11. Poor collections, 12. Low sales, 13. Inventory mismanagement, 14. Competition, and 15. Crime

I’m not sure that I agree with the list entirely.  Let me start by saying that I am not a restaurant owner.  I am a restaurant attorney.  So, I may be wrong ( and often am)  but many of my clients who have sold their business express different reasons as to why their business failed.  This is what I’ve gathered to be their top reasons why restaurants fail: 

(1) Lack of Concept.  A successful restaurant needs a clear concept.  Owners that can’t describe their concept beyond the food that they prepare seem to drift from idea to idea.  When an idea fails, they change again.  They try to appeal to the greatest audience but in doing so, become too general and possess no identity that lets them stand out from their competitors. 

(2) Family.  The support of one’s family cannot be underestimated.   My clients whose families are supportive of their endeavor tend to succeed.  However, this seems to be a double edge sword.  Supportive families usually mean a good family structure.  I find that many of my clients have difficulty in balancing work/life.   They see all that their family is doing to support them, and they in turn, want to be with their family.  Running a restaurant is hard and very time consuming and does not leave much time for one’s family.  Some owners find this very difficult and when they try to carve out too much time for their family, their business can sometimes suffer.  My clients that most often succeed seem to be single or divorced.  Now I’m not suggesting that families are bad for business (quite the opposite) but balancing family and work seems more difficult for restaurant owners given the time requirements they want (and need) to dedicate to both.

(3) Lack of Capital.  I would further divide this into three categories:

  • not having enough money at the start,
  • having just enough money to run a restaurant, but mismanagement causes your cash funds to deplete quicker than expected.  Things  such as (i) spending too much money on equipment, atmosphere, food/beverage, advertising, (ii) not watching the number of employee hours worked, (iii) not employing a restaurant bookkeeper to keep taxes in check, (iv) getting into a lease agreement that is too costly, (v) expanding too fast, etc.
  • having just enough money to run a restaurant, but poor legal decisions cause your cash funds to deplete quicker than expected.  Things such as (i) liquor license and health code violations/fines, (ii) employee mismanagement and lawsuits for discrimination and harassment, (iii) failure to obtain proper insurance for things such as employee lawsuits, dram shop lawsuits, etc., (iv) partnership and shareholder disputes over salaries and profits, etc. 

What are your thoughts?

James D. DiPasquale, Esq

DIPASQUALE LAW GROUP

Restaurant Law New York

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