Many a people who are talented cooks or those who are capable to pool in a significant amount of capital, think of getting into a restaurant business. The whole idea can be exciting as food business is often said to have more than 500% returns. Quite a figure that is!
Yet almost 90% of restaurants fail in less than 2 years from their inauguration. The upside is that we can predict the major cause behind the failure of these restaurants and thus avoid chances of failure in the first place. Here are the most common mistakes made while starting a restaurant business.
Failing to Plan is Planning to Fail
Failing to Plan is Planning to Fail
It is advisable to decide beforehand about how much capital you can invest in your business initially. This requires your time and patience as people usually give up their existing career to concentrate on a new venture.
Moreover, your plan should be customer - centric. You may think about what kind of cuisine you would like to specialize in or what kind of customers you are expecting to visit your restaurant. So, plan something unique and original but let it be as per the taste and preferences of customers that you are targeting rather than your personal choice.
Imagine opening a family restaurant located in a business district of a city or a fast food joint meant to attract youngsters in not a very 'happening' place! Yes, an entrepreneur looks out for location of the restaurant first and then starts planning the other things. However, it is wrong to choose a crowded location just because it has a lot of footfall.
Instead, grab a location which has enough customers that prefer the delicacies offered at your restaurant. Similarly, restaurants with expensive menu will only work in areas that can attract the elite. Also, it is wrong to choose a location with ample competitors. Instead, choose a location which will give you a monopoly in the kind of food you serve.
Often, such businesses are started in a haste and partners fail to put in signed partnership agreements in place, leading to a tussle over the capital invested and sharing of profits in the future. It is incorrect to assume that profits can be shared equally when only one partner is actually working and the other one is just busy collecting cash at the end.
Such agreements clearly specify the partner's profit sharing ratio, amount of drawings permitted, amount of capital that can be withdrawn, nature of partnership e.g. active or sleeping partners, and nature of distribution of assets in case of dissolution of partnership.
Interior designing is one major expenditure for a restaurant business in its earlier stages. If you are planning to open a restaurant where you expect majority of customers to opt for a take away, then it just doesn't make any sense to spend on expensive décor and seating furniture.
Another major mistake made by new restaurateurs is that of making a long list of menu so that they can satisfy all the customers. Instead, it is advisable that one should create a shorter menu with best of the best delicacies that you can serve.
There is no business that ever runs on principles of charity. The biggest mistake that restaurateurs make is failing to analyze the cost of purchasing raw materials, the amount of investment involved in appointment of staff and ambiance, expenses related to cooking and the normal profit margin.
People often fix menu prices based on assumptions about the customer's purchasing power or the prices fixed by competitors. Instead, entrepreneurs need to think about all these mentioned costs before arriving at a price. If you wish to fix prices that are cheaper than your competitor, try to reduce the cost of investment without bargaining with quality.
If your restaurant happens to a family business, then there is likely to be a good support system with family members helping you in the restaurant kitchen. However, most of the time, restaurant businesses need to hire trained chefs for their kitchens.
You may ask the chef to do a few days of trial cooking for you before your restaurant is inaugurated. If you are happy with your chef's cooking and quality management, then make a legal contract with the chef to bind him/ her to the job for a specific period.
If your business is small scale then you may personally offer services to your clientèle. This concept is very common in some family owned restaurants.
Remember, customer is the king. It is because of them that you are in restaurant business in the first place. If they are not satisfied, then all your efforts and expenses are likely to go down the drain. Be helpful and ready for a quick smile. Do not be disheartened over negative responses as there will be positive responses too.
One top reason for failure of a restaurant business is failing to analyze the business returns. Entrepreneurs who fail to take profits and returns seriously, tend to have a policy of just adding whatever income gets generated and deducting whatever expenses are incurred.
When targeting young clientèle, advertise aggressively in areas like youth magazines, popular websites or shopping malls. You may have to offer discounts and offers at initial stages, but once the business starts rolling, these expenses will catchup with your returns.
With increased reputation, your best advertisers will be your satisfied customers and their medium is naturally 'word of mouth' publicity!
All in all, opening and running a successful business is not a jackpot. Anyone with a sound knowledge of marketing and a good common sense can do this. Best wishes for your new venture!