5 Ways to Save a Failing Restaurant

Owning and managing a restaurant is hard work. Some 60 percent of restaurants close their doors in the first three years of operation. This number soars during a recession, as fewer people have money in their budgets for dining out.

Not all restaurant failures are inevitable, however. Understanding all the working parts of your business, especially the money coming in and going out, can help you turn around your restaurant before it becomes terminal.

Here are five ways to improve profitability:

1. Crunch the numbers. When money is tight and you’re juggling funds in your company bank account, you may feel like avoiding a review of your financial statements. However, this is a critical time to scrutinize your financial performance. A restaurant can fail as the result of too little money coming in, too much going out, or a combination of both. Track the direction of your sales, cost of sales, and other large expenses to get a handle on what you really need to work on.

2. Read online reviews. If you notice that sales are declining, you need to find out why. Reading what customers think of your restaurant in online reviews is the best way to get honest (if painful) feedback. A few bad reviews don’t necessarily mean that you have a problem, but if most of the reviews are negative and report the same issues, you need to fix the issues to bring business back. Some sites allow you to respond to reviews; be sure to let customers know that you hear them and have addressed the issues.

3. Focus on food costs. Food costs can make or break a restaurant: They are the most important ingredient in profitability. Knowing how much you’re making on every menu item is critical to a healthy bottom line. If you haven’t already done so, cost out each meal based on your current supplier prices, and make certain that what you charge for the dish covers the costs of producing it — plus a healthy margin. Each type of food has a different ideal food cost (for example, you will make more profit on breakfast items than steakhouse fare), however, food cost should never exceed 35 percent of menu price. If your food costs are high, review your supplier list, shop around, and consider changing your menu to include higher-profit items.

4. Turn the tables. Routinely making customers wait for a table is a recipe for disaster: It will surely drive away business. Every restaurant has busy and slack times. When your restaurant is busy, it’s critical to get people in and back out again, so that no one has to wait long. This doesn’t mean that you should rush customers, but ensure they get seated and waited on quickly and that you stay on top of their needs throughout the meal. Clean and reset the table right away, even if it means hiring additional bussing staff. The more tables you can turn during a rush, the more sales you will make in a day.

5. “Rightsize” your staff. Have you ever sat in a restaurant where the number of wait staff rivals the number of customers? It can happen to any restaurant when it is less busy than expected. Because labor costs are likely your second largest cost after food, managing your staff levels closely helps to make sure that you are not paying people to stand around. As you monitor customer levels, let some staff go home early, or have a few who are willing to come in if it is busier than expected.

Managing your restaurant closely and paying attention to the numbers can save you from failure. Build a loyal following, serve them delicious (and profitable) food, and watch your bottom line improve.

About Angie Mohr

Angie Mohr is a Chartered Accountant, Certified Management Accountant, and financial consultant. She has worked with thousands of clients over the years from mom and pop startups to rock bands and celebrity chefs. She is the author of the best-selling Numbers 101 for Small Business series of books and writes for Forbes, MSNBC, the Globe & Mail, Yahoo! Finance, Investopedia, and Motley Fool, among other financial publications. Her new book, Piggy Banks to Paychecks, helps parents teach their children how to be money smart. She splits her time between Canada and the United States and currently lives by the ocean with her husband and two children, who have finally learned that money doesn’t grow on trees. For more, go to www.piggybanks2paychecks.com.
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4 comments
ReZamp
ReZamp

Very informative blog article.

BarryFrette
BarryFrette

Very interesting read.  I also highly recommend small restaurants to implement online ordering and delivery to help subsidize their revenues.  New platforms are available today for the small mom & pop restaurants and you can learn more at www.internetwaiters.com 

SupplyChainCowboy
SupplyChainCowboy

I liked your suggestions - and they apply to many different businesses besides restaurants.

 

Regarding number 5 - several fast food restaurants I've worked with have a set labor percentage metric they try to hold to. For example, every hour they check to see if their labor cost is around 20% of revenue for that hour. When the percentage creeps up, the manager will ask for volunteers to head home early. If it drops far below 20%, the manager usually makes a couple quick calls for help.

 

While 20% may not be the right number for every restaurant, it's nice to have that metric, which makes the decisions for assistant manager very strait forward.

 

Thanks for a great post Angie.

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