What is the Restaurant Failure Rate?
Restaurant Failure Rate
Restaurant failure rate is 70% for restaurants younger than 10 years. It is necessary to understand why many restaurant startups fail and what you can do, to avoid failure.
Common restaurant failure rate myth is that 90% of restaurant startups fail, but this number has been exaggerated by media. In fact, 70% of restaurants fail within 10 years of opening.
There are over 616,000 restaurants in the US and the population of US is 318.9 million. So on average there are 19 restaurants per every 10,000 people. Detailed report of distribution of restaurants per people in each state can be found here. Over 4000 new restaurants open each year and over 27% of these restaurants go out of business within the 1st year. 50% of new restaurants startups fail within 3 years. Restaurant failure rate is very high and here are the most common reasons for restaurant failure:
RUN OUT OF MONEY
You ran out of money and no longer can pay your operational costs. Every restaurant owner needs to make sure to have enough capital in the bank for restaurant expenses. Keep track of your income and expenses with management system and calculate your break-even point to know how much money you will need for the future.
LACK OF EXPERIENCE
Opening a restaurant with no previous experience in the hospitality industry is a big mistake. Restaurant owners need to fully understand the requirements of running a successful restaurant business. Calculate your expenses for: workspace, equipment, supplies, permits, licenses and staff.
You are not using a POS system and not keeping track of your costs. Hiring the wrong people. Make sure to hire slow and fire fast, because your employees will either make or break your business.
Restaurant is in an inconvenient location, where not many people go to. Before choosing your restaurant’s location, it is necessary to conduct a thorough location research. Know roughly how many people pass the location is, nearby competitors and nearby offices/residential areas for lunch offers.