Why would I close the restaurant business, I work hard to make it popular and am making money.
If you are making money in your restaurant, good for you. But the reality is that not many restaurants make money and close down within 2 years.
In fact one survey we read online put the number as high as 60% in the first year.
Running a restaurant is the most challenging business you can get into, but people get into it all the time as this offers an low barrier to entry option to many people.
So how do you know if it is time to close your restaurant business?
Look at Profit:
Profit is the lifeblood of any business. If your restaurant is not making money independentaly on a unit basis, it may be time to consider if it there is a better use of your space in the hotel for this restaurant.
Profit is revenue – expenses. If you are consistently making a loss, try to do a deep dive into the Profit and loss statement of the restaurant to understand what is causing the issue.
Some key issues where you loose money are due to
- Pilferage and theft
- High food cost
- High labour cost ( expat chefs, sommeliers etc. )
- No guest in restaurant due to lack of marketing or poor food quality
If you are able to revive a restaurant profit by changing your restaurant offering, you may be able to survive and run the restaurant
Running out of working capital
You need money to run a restaurant. Even if you make a loss, you still need to pay some fixed cost like rent, property and other taxes, HLP cost ect.
These put a drag on the working capital and your cash flow and you need to borrow to make your restaurant work.
Even if you make a profit, if your if you do not collect money on time from your debtors, you may loose out since you have to pay your creditors on time.
Working capital management is critical when you work with thin margins like the restaurant business.
Other uses of the space
This is the 3rd major reason you may want to close your restaurant. If you can convert a non performing restaurant into a banquet or use it for any other purpose like a spa treatment room, you may be able to generate more revenue out of the space.
At the end of the day, an investor puts in the money to get a return on investment.
You must be clear that profit is the life blood of any business and if it is not helping the hotel, it may be time to close the restaurant and move on to something else