Reasons Why Restaurants Fail

Factors that Affect the Failure of Restaurants
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Setting up a business is not an overnight work. It demands courage, time, planning, and investment to build one. A restaurant is no different in terms of business management. Planning for a restaurant business thoroughly considers factors like the theme, budget, location, menu, target market, and many more. These factors would help establish the restaurant to operate for a long time. However, despite rigorous planning, restaurants still have the probability to fail.
From an economic perspective, bankruptcy is one of the many reasons why restaurants fail (Gu, 2002; Parsa, et al, 2005). In a study by Parsa, et al (2005), restaurants with low revenue usually have problems with profit, expenses, marketing strategy, and competition. This may lead to the restaurant's bankruptcy due to the inability to meet the necessary expenditure like tax and lease (Gu, 2002). To avoid such a situation, it is crucial to sense and resolve the problem early on. For instance, the problem with revenue may root from mismanaged expenses. Strict cost control and debt financing may be applied (Gu, 2002).
Another reason for a restaurant's failure is its incompetence, which falls on the managerial perspective (Parsa, et al, 2005). A restaurant's competence can be measured through its performance in terms of service, management, and economic ability. A study (Parsa, et al, 2005; Parsa, et al, 2014;) shows that a strategic location plays a significant role in raising the restaurant's income. It determines the volume of customers as well as popularity. However, failure to meet this standard can cause income loss which may affect the whole business operation. According to the study (Parsa, et al, 2014), restaurants are most famous around apartments and transient houses where students, professionals, and non-household families reside. It means that universities and central business districts are strategic locations for restaurants.
The two mentioned major factors (bankruptcy and incompetence) in the failure of a restaurant can still be avoided if the small probl...