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Top 10 Reasons Why Restaurants Shutdown Within the First Year of Their Operations

Why restaurants shutdown

According to a recent survey, many restaurants shutdown within the first year of operation. There may be many causes for the closure, but it is unavoidable that business requires persistence and patience. A 2005 Ohio State University study found that 60% of restaurants shut down or change ownership in their first year of operation, and 80% do so within the first five years. There are many reasons why restaurants fail, from hygienic closures to persistently negative reviews. Here are a few of the factors that led to restaurant closures.

1. Lack of an online ordering system

Many of the restaurants are still running on the conservative restaurant service which is why they could not connect to a large crowd and failed to succeed. The owners do not have an online ordering system for restaurants that could connect to their clients and that can help customers approach their favourite food. Lacking an online system might hurt the restaurant’s management. Also, the owner would need to spend money on physical marketing that create extra burden on the finances. Although online marketing would be less costly and better for the Return on Investment.

2. Poor Choice of Restaurant Location

One of the main reasons leading to restaurants shutdown, if not the main one, is a poor choice of restaurant location. The absence of parking, little foot traffic, and poor visibility make it extremely difficult to earn a profit. However, choosing the right location shouldn’t be used as a crutch or an explanation for poor service or negligence. In some cases, it could make up for some of the other shortcomings on this list.

Restaurant may opt to go for a Digital menu QR code, especially if the restaurant heavily relies on home delivery.

3. Bad Customer Experience

One apparent cause of why restaurants shutdown is also poor service. A terrible service reputation can sometimes appear unrecoverable and spread like wildfire. Even the best restaurant with three Michelin stars would close down if the customers were not treated well.

4. Little or no marketing

Advertising and marketing are essential to building a new restaurant’s reputation as more and more chains open around the country. Most people believe that you must spend a lot of money to attract clients, yet word-of-mouth advertising and social media allow you to reach a specific audience without spending much. In addition to this, the restaurant may choose to list on restaurant listing sites. This will result in getting additional orders from an already reputed platform such as FerryPal.com. FerryPal offers 0% commission and no subscription charges for the first year of signing up. Checkout the pricing here https://ferrypal.com/pricing/

5. Influence of Restaurant Owners

A restaurant owner must staff the establishment. One of the numerous restaurant ownership misconceptions that prevails is the idea of hanging out every night and becoming renowned in the process. Since they have the most to lose but also the most to gain, good owners are the first and last out. The person whose money is on the line must be there every day, looking for new methods to increase profit margins and expand the firm, unless the property is solely an investment or the owner lives elsewhere.

6. Poor restaurant management

You employ a person that you believe will make a fantastic general manager, kitchen manager, or food ordering manager simply because they have relevant experience and strong references. A few months later, they not only fail to manage the business but also alienate the workforce, consume all of the profits, steal money, or do all three. Unfortunately, the demands and long hours of the industry can cause even the strongest links to break. Check in with management frequently to make sure they are performing to their fullest capacity.

7. Tax Complications or Evasion

When state and federal taxes are paid after the deadline, there are significant penalties, fees, and other consequences. But it can be challenging to make payments on time when a restaurant experiences financial difficulty. Some owners will completely avoid paying taxes in the hopes that they will get away with it. Tax evasion may succeed once, but it almost always results in hefty fines, the shutdown of businesses, or even jail time.

8. Lack of Accounting Practices

Due to their extremely narrow profit margins, restaurants must monitor their cash flow closely. Having enough money on hand to pay for high costs, such as food orders and wages, can frequently be the difference between closure and recovery. It’s a good idea to double-check your books, and having a CPA do the polishing will ensure everything is in the right spot. If your finances become unsustainable, start looking for ways to cut costs.

9. Errored Food Cost Percentages

The first step to turning a profit at your restaurant is understanding how to correctly price your menu. Do you know how to calculate menu prices per plate? The majority of owners do not. To increase the appeal of a cheap dish, caviar might be included as a supplement to the menu. Your risotto cost will be reduced by three-quarters if you use Grana Padano instead of Parmigiano. There are numerous methods to reduce food expenses while maintaining flavor. You may keep menu items within budget by following the golden rule of allocating 30 to 35% of the menu pricing to food and beverage charges. It implies that a menu item that you paid $1 for will cost a minimum of $3.35.

10. Lack of capital before opening

You may require a large sum of money or more to cover wages and vendors up front, depending on the type of restaurant you plan to start. Keep in mind that you must use the loan up until the opening day. Before you have even served a single customer, do not go crazy purchasing new furnishings and equipment for a restaurant. Purchase what you require and think about the advantages of used equipment. Put off hiring anyone until as close to opening day as you can. Be thrifty with your initial loan; don’t spend it extravagantly.

Why restaurants shutdown Infographic - FerryPal

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With FerryPal, you’ll get:

  • A customizable online ordering system that’s easy to use and manage
  • The ability to take orders 24/7, so your customers can order whenever they’re hungry
  • Integrated payment processing, so you can get paid quickly and easily
  • Detailed reports on your orders and customers, so you can track your success and make improvements

And more!

Why wait? Get started today with FerryPal’s online ordering system for restaurants in India and create your FREE menu.

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