I have been working in the hospitality industry for the best part of 7 years, from waiting positions to managing restaurants. It is an incredible industry, we can all agree that is not for most people but for us (the selected few) it is an industry that keeps calling you back even if you try to move to another job. One thing that is quite interesting about the industry is the sheer amount of new restaurants, cafes, bars and everything in between that open and then close within a year or less, why would this be? well, there is a lot of reasons, but I wanted to run through some of the key points why hospitality businesses can fail and how to mitigate those risks.
Business Perspective:
Most restaurants are opened by chefs or bartenders or people that have worked in the BOH or FOH of a restaurant. This is fantastic from an operating point of view because it means you will be able to run and understand the day to day operations of the company, but what about the business side of things? The answer is a tricky one, unless you are partnered with somebody chances are that you are trying to put the money yourself and build the business by yourself. This is something we do not encourage, when you run a restaurant you are running a business, that comes with all of it, from payroll to recruitment to liability, insurances, fixing broken things, dealing with staff, managing cash flow, funding etc…
This is one of the biggest reasons hospitality businesses fail, they are not managed like businesses consequently fail. So one of the most important sides of opening a bar/restaurant or cafe is to associate yourself with either a business partner, investor or consultant that can bring a business perspective into the equation.
Funding:
Another issue that a lot of hospitality businesses have is the upfront expense to actually start producing money, I.E you need to set up a whole restaurant before you make even 1$. Normally the initial investments for cafes, bars or restaurants can be around 70-300k (depending on the market you are heading for), that is quite a lot of money. But one of the most frequent issues is the cost underestimation for the setup and operation of the business. What does that mean? well, you might have projected 70k of set up fees and 5k of expenses a month and that you will have 6 months worth of expenses covered just in case (that means 100k altogether). But then the actual set up was 85k, and the recurrent expenses are 6k, not 5k. Straight away your projection is completely blown out, consequently, you run out of business before even starting.
Our recommendation with this is to discuss your projections with other restaurant owners or industry consultants, they can bring some value (sometimes for free) and point you in the right direction and how to manage your cash flow, funding and business more effectively.
BOH vs FOH:
Anybody that has worked in the industry knows the rivalry between FOH and BOH, it is like there is a wall of China between chefs, waiters, and bartenders, yeah sure we are the same team but when the shift is on it sometimes doesn’t feel like that. That same wall restricts a lot of business owners from running their business appropriately, let me explain. A lot of restaurants are opened by chefs, and sure they hire a FOH manager but one way or another the business will be run according to their point of view, I.E. “if a waiter calls sick, he is weak, get rid of him” ; “this guy is not willing to work 50 hours a week, fire him”… etc.
When you open a business you really need to work as a team, you need to be flexible, understanding but decisive, the more your team feels like a team the more commitment they will have to you and your company, so it is important to leave the BOH and FOH categories and limitations and run the business as a whole.
Inventory Management:
This is a tricky challenge as well, particularly when it comes to bar inventory. A lot of restaurant managers overthink the start of a restaurant, they want an extensive wine list, 5 different types of bourbon, rum, vodka, liquors etc… From our perspective, this is unnecessary unless you are heading into a top restaurant market. If you are a simple restaurant just keep it simple, don’t overthink it. The beginnings need to be a testing ground and then you can incorporate different levels of more sophisticated wines and spirits.
There are plenty of other areas which can be pivotal for the success of a business but by doing managing the above points in an effective and productive way you should be able to both mitigate costs and lead a better team to a more successful business.