An Analysis of Five Factors That Contribute to the Failure of New Restaurants Essay

What Are Five Factors Which Contribute To The Failure Of New Restaurants? Darren Atlee Economics January 13, 1995 Definition of Business Failure Business that ceased operation followingassignment or bankruptcy ceased operation after foreclosure or attachingvoluntary withdrawal leaving unpaid debts. It is a common assumption in the restaurant industry that restaurants failat an exceedingly high rate, the highest failure rates in the U. S. economy. Inresearching this topic, statistics numbers and percentages fly around routinely.All give somewhat the same concept in the starting years, most restaurants fail. The most often cited statistic is the 955 ratio. 95 success and 5 failure.Conversely, another favorite concept exists. Somewhere between 50 to 80 percentof all new restaurants which open this year will fail within the first 12 monthsof opening their doors. The same conventional wisdom also suggests that about50 of the remaining restaurants will fail in their second year of operation andanother 33 in the third year. This means that if 100 new restaurants were toopen this year, 50 to 80 would fail before their first anniversary. That wouldleave 30 restaurants open in the year two. Half of these 30 would subsequentlyfail in their second year, and a final third of those remaining would fail intheir third year. As a result, there is about a 90 compound failure rate overthe first 3 years of a restaurants lifespan. (Mullen Woods, 61) You are not alone if you feel intimidated by the numbers. They can bequite blunt and negative which attributes to one simple fact - it takes planning,research and risk to venture into the restaurant world. There are five majorfactors which can lead to success or, in this case, failure of new restaurantscapital, type of establishment, location, labor and management. In order to start any business, an entrepreneur needs money or capital.This capital could include all expenses, such as loans, rent, payroll,...

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