Starting a new restaurant is a big step for any owner. Turning a passion for food into a restaurant business is no easy feat, given the increasing amount of competition in the market.
The restaurant industry is not for the faint of heart: Around 60% of restaurants around the world fail within their first year, according to a heavily cited study by Ohio State University; 80% do not make it past 5 years, mainly due to mismanagement, low profits, or poor reviews.
While starting a restaurant can be a huge undertaking, the payoff can become substantial if managed and planned correctly. Successful restaurants often become tourist spots, landmarks, or famous hangout places and can become huge sources of income for business owners.
If you want your restaurant to thrive, you have to set your restaurant up for success from Day 1 – and learn how to address typical challenges restaurants encounter in their first year of operations. Here are 6 of these challenges.
Challenge #1: Unplanned Extra Expenses
A restaurant’s first year of operations is oftentimes its most costly.
Restaurant equipment can break down unexpectedly, or your initial restaurant menu might prove costlier to execute than planned, so you have to redesign and reprice your menu. Plates and utensils can go missing, and kitchen accidents are bound to happen, triggering repairs and extra expenses.
Newly hired staff will be just as new to restaurant processes as you are. Even if they have a lot of past restaurant experience, it will still take some time to optimize your workflow as some processes may be unique to your restaurant.
Strictly sticking to your accounted expenditures may help you save some money here and there, but over time penny-pinching, especially in your first year, can lead to more problems down the line.
Solution:
When opening a restaurant, be prepared to have money reserved in case anything goes wrong. A good rule of thumb is to have a reserve fund equal to 3 months of operational costs to keep you ahead of unexpected expenses.
Over time, as your staff gets more used to the processes and procedures, accidents will happen less and you will have a better idea of what wastages to account for as time progresses.
Prevent accidents as much as possible. Take your restaurant’s layout into consideration, and invest in good kitchen equipment. When buying new restaurant equipment, consider purchasing extended warranties to minimize equipment downtime.
Make sure you and your staff are well aware of the Occupational Safety and Health Administration’s (OSHA) best practices, as they can serve as a guideline to minimizing accidents in your workspace.
Challenge #2: Hiring the Right Amount of Staff
While predictions and accounting can paint a picture of how much staff to hire, it’s very likely that you will run into over or understaffing in your first few months of operations.
Given that your restaurant is new, you will only have some idea of your target demographic’s reception to your business. The number of customers you serve may fluctuate wildly from day to day, and it may be hard to pick up on patterns for a while.
Hiring the right amount of staff is crucial to optimizing your revenue. Hire too few, and you’ll lose potential customers if you take too long to serve everyone. Hire too many, and you’ll end up paying for staff who won’t have enough to do.
Solution:
With a good POS, restaurant owners can check the hourly status of their restaurant’s performance and make adjustments accordingly. With proper data, you can determine which days you can cut down on staff and when to prepare for busy nights.
When finding the right amount of staffing, you need the proper tools to analyze and accrue data over time. Investing in a good restaurant POS system can help significantly in keeping track of your sales over time.
Challenge #3: Inaccurate Financial Accounting
Proper accounting is crucial for any business to thrive. Accurate financial reports can make or break a restaurant’s success, as they show if a restaurant is sustainable, profitable, and worthwhile running.
Inaccurate financial accounting can be caused by a number of factors, including unforeseen insurance or staffing costs, inadequate equipment purchasing and planning, faulty accounting systems, or incorrect food costing.
Inaccurate accounting can lead to serious problems down the line and can mislead you into believing that your business is doing better or worse than it actually is.
Solution:
Plan carefully for staff turnover and staff development to minimize attrition. Look hard into your menu plan and what equipment you need to execute it. If inflation and food wastage are eating into ingredient costs, drill down on your inventory management practices to make improvements.
Turn to your restaurant POS for accurate financial information to help you make informed decisions. Project your revenue in the future and always go back and forth on past financial reports to truly see your restaurant’s financial stability and health.
Challenge #4: Cementing Your Niche
In your first year of operations, you have to focus on staying profitable. To help you do so, you have to learn as much as you can about your competitors as much as your own business.
Learn from reports, listen to customer feedback, and review your performance. It will help you refine your menu, develop the right promotions and events to attract more customers, and help you plan for your busiest, most profitable days and hours.
While restaurants are built on meticulous planning and well-thought-of concepts, at the end of the day customers ultimately shape the industry. If you want to thrive, you have to adapt to your customers’ wants while staying true to yourself.
The restaurant industry is a dynamic landscape. New tastes and trends pop up constantly, and markets change to adapt to demand. If you want your restaurant to survive, you have to learn how to differentiate yourself from the competition.
Solution:
Be conservative, focused, and receptive. While adapting your restaurant may sound like you have to jump in on every big trend, that’s simply not the case. You cannot create a niche if all you do is what everyone else does.
Remember, you’ve put time, money, and effort into creating your unique restaurant. You can’t please everyone with your restaurant so instead invest in the ones who believe in your brand.
If you want to create your niche in the market, you have to adapt to what your customers want while staying true to your identity. Work on polishing your menu and focus on creating a loyal customer base.
Challenge #5: Poor Brand Visibility
When creating a new restaurant, building brand presence from the ground up will takes time and effort. People tend to stick to what’s already familiar, and you may need to exert extra marketing effort to create excitement about your offering.
Brand visibility is crucial to competing in the market. Starting small oftentimes means starting relatively unknown. While some restaurants succeed even with low-key or almost non-existent promotions, there’s a much bigger chance of surviving past one’s first year of operations if you create a good online presence for your restaurant and invest in restaurant online and offline marketing activities.
Solution:
Social media is a relatively inexpensive medium to get started on brand promotions and connect with influencers who might be interested in sharing the good news about your business. Build a good origin story around your restaurant and the restaurant name you chose for it.
Listing your business on several online ordering platforms is also a way to attract and capture new business. Having your restaurant on Foodpanda, Grab Food, Deliveroo, or other known platforms will boost your chances of getting noticed and give you access to their customer base.
Challenge #6: Investing Enough Time in the Business
One of the worst things a restaurant could have is an uninvolved owner. Unless you’re a pure financial investor with no obligation to provide “sweat equity” in the business, you have to be at the restaurant to help it grow. Owners have to invest extensive time and effort and personally involve themselves to help their business thrive.
Likewise, being too involved can make certain owners lose track of the business aspect of their restaurant and become too casual with the way they manage it. This may be the case for bar owners who would rather have a good time than strive to stay in the business.
Solution:
Keep your priorities in check. Remember, your restaurant is both a passion and a business. Stay involved with all the processes and changes that happen within your restaurant.
Have fun and be proud of what your restaurant has to offer. Your restaurant is just as unique as you, so go out there and show the world what you have to offer!
Your Restaurant’s First Year
A lot of problems and achievements can happen in your restaurant’s first year. Even if you expect the unexpected, there will always be more surprises that will come your way, both good and bad.
Always learn from your mistakes and be open to others’ input. You can learn a lot from past restaurants and their mistakes, and set up your restaurant to receive business from multiple channels.
Getting through your restaurant’s first year can be a challenge, but it’s one worth taking. A lot of planning goes into a successful restaurant. If you want to effectively monitor your restaurant, consider investing in a proper restaurant management system.