Everyone knows that opening a bar or restaurant is risky business. But just how risky is it? If you ask Chef Rocco Dispirito from the popular reality TV show “The Restaurant,” he would tell you that 90 percent of restaurants fail in their first year! His millions of viewers would tell you the same thing, as would most American bankers, who rarely, if ever, give loans to people opening up new restaurants. Many people would also tell you that certain restaurant locations are “cursed,” and that simply leasing one of these properties is instant business suicide. These ideas are widely agreed upon and even referenced in research and advertising without citing any real data.
But these oft quoted stats are overblown. Not that owning a bar or restaurant isn’t a huge challenge and commitment, but the true facts aren’t as negative as what you typically hear. After finding no definitive studies on restaurant closure, even from authoritative organizations like the National Restaurant Association, researchers from Ohio State University conducted their own study and found very different numbers from the ones Chef Rocco was spreading:
- Only 27 percent of new restaurant owners exit the business after their first year
50 percent exit after three years60 percent after five years- 70 percent after a decade
And while these numbers paint a better picture than the widespread myth, they are still deceivingly high because they count any business turnover as a failure. Restaurant owners, like the rest of us, change jobs for a variety of reasons, not just because their restaurant isn’t financially successful. These statistics include cases where profitable restaurants change hands, which inflates the number dramatically.
In fact, more than 80 percent of all small business failures come from forces entirely within the owners’ control. Restaurants fail for a variety of reasons: lousy food, incorrect menu pricing, poor customer service, flawed concepts, bad marketing, and tax evasion to cite a few. When a restaurant goes out of business early, it’s usually due too poor planning and management on the owner’s part. For instance, many restaurant owners stubbornly keep their food at prices above what their customers are willing to pay, or expect business to pour in without doing any outreach, or sit at home and trust a hired manager to run the restaurant for them. Remember that no one cares about your business as much as you do, and if you put in the money to open a restaurant, you better put in the time and effort to run it. That means you need to be there, listening to your customers and employees and finding ways to refine your operation until you’ve established a loyal clientele.
However, location is also a huge factor in business success. A location that has housed numerous other failed enterprises over the years is often referred to as “cursed”. If you are considering such a property, make sure you have solid facts on why the previous businesses in that spot have failed so you can evaluate whether the location or the prior management is truly the curse. Disadvantaged locations can be hard to identify on first glance; sometimes a simple lack of parking or foot traffic can sink a business. No location is actually cursed (as far as we know), but some properties pose greater challenges than others. If you are considering leasing or purchasing a hard-to-find or off-the-beaten-path property, you will need to compensate for the disadvantage with excellent food, service and marketing. Before making any location selection, make sure you learn everything possible about the property, its history and limitations so that you can make an educated decision.
How to use this Information
While the restaurant business isn’t easy, it can be incredibly rewarding. Don’t believe all the statistics you hear! If you are looking for Colorado businesses for sale, make sure you get the best advice possible. Sanborn and Company, industry leaders since 1994, have been helping restaurant owners overcome the odds for years. As Denver’s preferred restaurant brokers, we have consulted with hundreds of Colorado bars, restaurants, hotels, and liquor stores on buying, selling, leasing, real estate, valuation and successful business operation. Call us today at 303-220-7919 or request an appointment online. We’re here to help.
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