With food as a lifeblood for people, businesses that offer it as a service or product are expected to thrive. The numbers don’t lie: the restaurant industry is still second in rank as employers in the United States. Projected increases in profitability also abound yearly. To achieve such heights, running the restaurant business effectively is made possible not only with the right meals and appealing menus but also with reliable manpower and strong management, lest the restaurant business becomes a recipe for disaster, leaving owners scrambling for restaurant funding options.

However, the fact that food products and services are viable for business does not equate to a proper business run. Challenges abound and the facts say it straight. For a restaurant that can generate a million dollars, the operating profit only adds up to 4-5%. There are ways and factors to consider, though, that when handled improperly, can ruin any restaurant business.

1. Failure in Proper Financial Planning

The problem

It is not a secret that variable and operating costs must be handled well to create good profit margins for restaurants, despite other costs involved such as people’s wages, extra charges, procurement of ingredients, and management of inventory.  

Labor alone, on average, already makes up for 30% of most restaurants’ revenue; the costs of goods sold have more or less the same weight. This means that restaurant financial planning should be on top of the priority chain.

What can be done

With a quarter of restaurants bound to expect challenges within their pilot year, it is important to learn what to do in the industry. 

One of the options is applying for restaurant financing. This will allow your restaurant business to undergo a comprehensive review of their business plan, and when lucky, get suggestions for better equipment as well as ideas on where to find more latitude for resources. 

Of course, we cannot overlook the benefit of getting extra financial support. Having any additional financial net is always welcome, especially when you’re just starting off. 

Other solutions include proper optimization of tips for the staff to boost not only their morale but also their benefits, a thorough review of one’s inventory items and menu fees, calculated control of food portions, as well as the use of real-time data for cash flow operations.

2. Lack of Consumer Knowledge

The problem

Another important aspect to consider is the knowledge of the business regarding consumers. This includes having a deeper understanding of customer behavior and trends. 

The name of the game is not only about income generation, but also reputation and relevance. Being the last to know the latest in beverage and food trends is a no-no. Nowadays, maintaining a good online presence is key to keeping and attracting new customers.

What can be done

Give your consumers variety as a way of coping with the signs of the times. In-home experiences are a way to go now, with bundled meals, special items, and lunch specials. 
Local business partnerships are another option, as well as improving tech use for digitally-inclined followers. 74% of customers are highly likely to return or buy products from a restaurant once they are engaged this way.

3. Weakness in Leadership Structure

The problem

Leadership entails striking a balance among your clientele, your partners in the business, and most especially, your staff. 

The staff members are the front liners and the ones who serve as the face of your restaurant, but weak leaders fail to see this by not noting scheduling, labor, and inventory management properly. 

Micromanagement may also be a factor that can drive good people away. Having a dedicated staff but weak leaders will most likely result in underperformance

What can be done

It is important for restaurant leaders to be good communicators, be it information and rules. Setting clear accountability roles and goals is also key in making sure that the restaurant is managed well. 

This includes looking at costs and client data. Moreover, good leaders empower their staff; managers, cooks, and waiters must be encouraged to take their job responsibilities well and clearly. Retain your workforce’s loyalty, too, by rewarding loyalty through programs that track performance and security training needs.

4. Inefficacy in Marketing Messaging

The problem

Not everyone can market well, and the same can be said for those in the restaurant business. Among the top marketing, failures are not having a well-maintained website, not paying attention to customer reviews, and employing inconsistent branding. 

Erroneous presentations of offerings such as misleading photos and lackluster visuals are also part of ineffectual marketing.

What can be done

Good marketing requires good research. This means knowing what the right promotional channels are, prioritizing marketing duties, monitoring customer reviews, and strengthening social media channels. 

Don’t forget the tried-and-tested customer retention methods as well such as offering loyalty rewards systems and utilizing personalized email marketing.

The Bottom Line

At the end of the day, proper financial management is still key. 

Restaurant owners and staff are encouraged to look into the most profitable items that yield the best profit margins, sticking to a good labor budget, and monitoring which costs are most essential一whether these steps are for labor or marketing, keeping track of both loss and sales, and staying up to date with consumer data and behavior. 

Do not lose sight of your goals and avoid making the mistake of overspending right even before opening the restaurant. 

With these in mind, we’re confident that you won’t only be able to avoid the most common financial struggles of new restaurants, but you’ll also increase your chances of success.

Mike Abelson

Mike is the Editorial Director at Lendza. He enjoys helping entrepreneurs and startups succeed
through smart, innovative strategies. He’s partnered with CEOs and executives to grow
businesses from the ground up. Before his work at Lendza, Mike was a stock market analyst.
When he’s not traveling for work, he enjoys reading adventure and science fiction novels.

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