Why Most Restaurants Fail (and How Great Managers Prevent It)

You may be surprised to know that a restaurant is the business most often to run out of money and shut down. Almost every time, that business shuts down because of POOR MANAGEMENT. How can you expect a restaurant to run well and make a profit if the management is unfocused and unmotivated – not interested in the betterment of the restaurant as a whole? At the same time, if you put a good manager in a terrible situation, you can find opportunity for success in places you’ve never thought of. In that way, the reason most restaurants fail is definitely poor management. Here is how great managers prevent the failure of restaurants and pave the path to success.

First and foremost, a great manager takes ownership of their store. This is the most important factor an owner looks for when searching for a general manager. Ownership is a focus and care of their work as if it were their own. That’s why it’s called ownership.  When an owner does not operate their business and a manager does not take ownership, the restaurant goes to ruin quickly. A good manager not only keeps the ship from sinking but also helps improve the operation towards betterment. Let’s take a look at some ways that poor managers cause restaurants to fail and good managers prevent it.

Have you ever been stuck in a mode where you are constantly just trying to get through the day? Do you feel like a success is to have no one break down in the middle of a rush? If so, this is because of too much of a day-to-day focus and not enough focus on future of the operation. Your moves as a manager should always have the question in mind, Does this action put us closer to our goals or further away? To answer this question, a manager should have goals for the improvement of the store. Once you have those goals, you can aim towards them and stop living a day-to-day nightmare that never gets any better.

A good manager sets the store on an upward trajectory. This means that a good manager concerns themselves with the overall plan for the store and implements improvements based on a bigger picture. This is actually what should separate management from team members in the first place. Team members aren’t expected to make decisions that change the systems or culture of the store – they are expected to adhere to it. So what is the manager’s job? It’s to create and improve those systems and culture. If you have a manager that doesn’t innovate change on an overall level, make a change. They are a manager acting as a team member that gets paid to do paperwork at the end of the day. That’s not management - that’s shift leading. You can see now that a manager who doesn’t look at the bigger picture isn’t really a manager at all, and that’s why the store is failing – because it doesn’t really even have a manager.

In more practical terms, a reason a business fails is because they run out of money. What good would a business be that doesn’t make money? Therefore, a good manager takes ownership by caring about the profits of the store, and a bad manager takes no interest in the actual money-making side of the operation.

I used to work as a General Manager of a fried chicken company that was almost entirely made up of individual franchises. One of the biggest reasons I saw these franchises go out of business was because the owners didn’t even know if they were making any money or not. They just assumed that as long as there were orders, there would be a paycheck. Experienced managers and owners know that this is not the case.

To remedy this, it’s a good practice to make sure your general managers (or even assistant managers) create their own P&L sheets so that they can actually see how their efforts make a difference in the finances of the restaurant.

The best way to explain to your managers to pay attention to cost is to have them solely focus on the most controllable parts – Food and Labor. Give your managers a food cost goal and a labor cost goal, and you will have protected your business from the majority of financial burden. With those fears out of the way, you can begin to look at ways to cut the smaller parts and begin to make a lot more money. Even your assistant managers need to be implementing the systems created by the general manager to cut the costs of food and labor. A great practice is having a nightly count of your most-used items. Everyone in a leadership position should be wary of this, but your general manager ought to have a very intimate knowledge with the cost of goods and what the trends of use are. A good manager not only keeps an eye on these costs but protects against loss and aims to create margins for growth.

Great general managers are tough to find. That’s why it’s important to reward them greatly. An owner is a manager as well, even if they only directly manage their single general manager. The management system starts from the owner and works its way down. If you are the owner of your store, be sure to take ownership of your store as well. If there were one person who had the most capacity to save a restaurant from drowning, it would be the owner, because he or she is the one whose choices set the success of management.

In summation, the reason a restaurant fails is due to lack of care of the manager and/or owner. So long as you truly take care of your work, you will most likely be successful. This is an ancient truth, and it is the reason why responsibility is so highly regarded by the wisest people. When you take responsibility for your work, not making excuses or blaming others, you tend to find more success in what you do. Therefore, my encouragement for you, if you are fearing failure as a manager, is to just take as much care of your work as much as possible. Focus on the betterment of the store, and you will have a better store.