What Are Five Factors Which Contribute To The Failure Of New Restaurants?

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Term Paper Title	What Are Five Factors Which Contribute To The Failure Of New Restaurants?
# of Words	1587
# of Pages (250 words per page double spaced)	6.35

What Are Five Factors Which Contribute To The Failure Of New Restaurants?

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 following
assignment or bankruptcy; ceased operation after foreclosure or attaching;
voluntary withdrawal leaving unpaid debts.
     It is a common assumption in the restaurant industry that restaurants fail
at an exceedingly high rate, the highest failure rates in the U. S. economy.  In
researching 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 95/5 ratio.  95% success and 5% failure.
Conversely, another favorite concept exists.  Somewhere between 50 to 80 percent
of all new restaurants which open this year will fail within the first 12 months
of opening their doors.  The same conventional wisdom also suggests that about
50% of the remaining restaurants will fail in their second year of operation and
another 33% in the third year.  This means that if 100 new restaurants were to
open this year, 50 to 80 would fail before their first anniversary.  That would
leave 30 restaurants open in the year two.  Half of these 30 would subsequently
fail in their second year, and a final third of those remaining would fail in
their third year.  As a result, there is about a 90% compound failure rate over
the first 3 years of a restaurants lifespan. (Mullen & Woods, 61)
     You are not alone if you feel intimidated by the numbers.  They can be
quite blunt and negative which attributes to one simple fact - it takes planning,
research and risk to venture into the restaurant world.  There are five major
factors which can lead to success or, in this case, failure of new restaurants:
capital, 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, and
insurance.  Some argue this is what causes restaurants to fail.  Given the
information that restaurants are most likely to fail than succeed, it is always
difficult and often impossible to interest bankers in making loans to
entrepreneurs who operate in a high risk industry.  Even when loans for
restaurants are available, restaurateurs often must pay higher inte...

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