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Why So Many Restaurants Fail

By in 2002 - Volume 4

After selling over 225 restaurants since 1996, we are able to assess why many restaurants fail. The following are the primary reasons:

Poor Location – Good location is extremely important. We have seen some mediocre operations survive long term due to a good location versus seeing some good operations fail due to a secondary location.


No Prior Restaurant Experience – Having past experience in the industry is essential to assure success. Learning from one’s past experiences gives a person a better understanding of the business and enhances one’s chance for success.


Lack of Employee Training – Having all employees trained properly assures that the customer will have a good experience and his chances of returning will be greater.


Too Much Spent on Capital Improvements – Often too much is spent in building the restaurant and the debt service is so high that it keeps the business from being profitable.


Inconsistent Food, Service and Cleanliness – Consistent good food, service and cleanliness are high priorities for the customer and customer erosion is frequently a result of the customer having a poor experience with these items.


Rent is too High – Rent should not exceed 6% to 8% of gross sales. Frequently operators pay too much rent which leads to their ultimate failure.


Lack of Professional Management – Having well trained management is imperative to assure the success of the business. Management sets the pace for the operation in terms of employee attitudes and the ultimate experience the customer will have.


Lack of Controls – Having the proper systems regarding cash handling, portion control, and accounting systems, etc. are necessary for an operations success.


Poor Price Value – Not giving the customer value for the money spent. If the customer doe not get good price value there is a strong change he won’t return.


Under Capitalization – I have seen several situations where the concept was viable, the business was on the verge of turning the corner and the owners had to pull the plug as they didn’t have enough working capital to keep the business going.


Outdated Concept – Periodically the decor needs to be updated as well as new menu items introduced to stimulate repeat business.


Partnership Disputes – A partnership is like a marriage and you should have a pre-existing relationship with your prospective partner prior to becoming partners so you understand each others respective strengths, weaknesses, values and priorities.

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About The Author
Steven Zimmerman, CBI, M&AMI, CBB, FIBBA

Steve is the Founder, Principal Broker and Chief Executive Officer of Restaurant Realty Company. Steve has personally sold/leased over 1,000 restaurant, bar and/or nightclub businesses and many related commercial buildings totaling 2+ million square feet of commercial space, collaborated with over 2,000 clients and completed over 3,000 valuations since 1996.His real estate experience also includes sales, acquisitions, management and ownership of numerous properties throughout California including restaurants, hotels, apartment buildings, single family houses, an office building and a multi-use retail building. Steve is also the author of Restaurant Dealmaker – An Insider’s Trade Secrets for Buying a Restaurant, Bar or Club available on Amazon. Prior to starting Restaurant Realty Company Steve had over 20 years of restaurant experience and was President and Chief Executive officer of Zim’s Restaurants, which was one of the largest privately owned restaurant chains in the San Francisco Bay Area. READ FULL BIO | HIRE EXPERT WITNESS - LEARN MORE