The Harsh Reality of the Restaurant Business

The restaurant business is tough. Everyone in it knows it, everyone looking to get in it ignores it usually after it’s too late and there investment goes down the drain.

A restaurant can be a gold mine that turns into a barren desert almost overnight. The cold fact of the matter is that, that if you don’t play it smart from the get go, opening up a restaurant may be one of the worst investments you could make with your money. That’s a horrible, sobering statement coming from someone like me who’s in the business of helping restaurants succeed, but it’s the truth. Most restaurant fail because ownership never thinks of making the one investment that can take them to the vein of gold to be mined. That would be the Gold Miner ..The consultant to make mining that gold a success or failure.

Oh, the failure rate isn’t the “90%” you may have heard from friends and family, but according to Cornell University, and the National Restaurant Association, 60% of restaurants fail within the first three years of operation. After five years, the number might be as high as 75%.

So why the hell would anyone want to get into this business with a failure rate like that? Risk and reward my friend, risk and reward. In the same respect that restaurants have the highest mortality rate out there, they also have the highest profit margin as well. I call restaurants “Gold Mines” and what investing entrepreneurs need is the Miner who knows how to assist you in mining that gold.

An experienced consultant can look at demographics and give you a perspective on what will work in your area and if you’re lucky, you find a consultant who knows your area and has a positive reputation of success there. The consultant will sit down with you and not pull punches and tell you “the things you want to hear” because that does you no good. The smart entrepreneur will seek out a consultant who not only knows how to set up a BOH operation for success, but who also knows that area well and has done work with others in that demographic. In addition to setting up your BOH operation for success, they will offer ideas on unique selling point, marketing ideas and ideas on how to attack every possible revenue stream to maximize your Return on Investment (ROI). In other words, they can make the mining of that gold much easier in the long run.

As with other high risk investments, opening the right kind of restaurant in the right kind of market can pay off very well financially. Operations that are set up for success from the start can see average net profits approaching, and even exceeding 30% of sales. That’s a great return! Once again, while the risk of opening a restaurant is huge, the reward can also be huge. If you listen to what your consultant has to say, allow them to set yourself up for success, and manage it well, you could see your investment paid off in 3 years or less, and have lots of residual cash flow to boot.

Even after the consultant is gone, it takes a commitment from YOU as the restaurant owner to listen, absorb and implement what the consultant is advising you, never straying the course. Like I’ve said so many times before, many restaurateurs think they can mine that gold on their own only to find out that they should have invested in the one person who can jumpstart their business rather than blowing half their loan money on the dining room or silly equipment. This is a key factor in Folks who think Turnkey operations are a since. They wait too long to consider bringing in that specialist and inevitably wind up bringing in a consultant to save their investment and then spending 2 years digging themselves out of a hole rather than counting their profits. Just food for thought……..