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The Restaurateur Insights

Top 10 Challenges Facing Restaurants

February 18, 2014

The restaurant industry is a tough place, understanding common challenges can help you succeed.

The restaurant industry continues to be a difficult place for entrepreneurs to explore business opportunities, but by understanding common challenges, owners may be able to develop unique strategies to increase their chances of success.

1. Keeping up with market trends

Before a potential business owner decides to open a restaurant, he or she must become familiar with the market. In addition, conducting periodic research into current and projected future trends is critical to staying a step ahead of competitors. A comprehensive analysis of existing trends and the viability of similar restaurant ventures in the community is a good way to forecast potential revenue in each quarter.

2. Having enough capital

An area where restaurant entrepreneurs can run into big trouble is capital, and specifically, a lack of it. Not having the capital needed to run a business long enough so that it can establish itself can have a negative impact on the longevity of an establishment. Owners should be sure that they have at least enough money to run for the first year, and should have enough resources to cope with unexpected cost increases.

3. Providing health care coverage

Individuals who own or operate restaurants also need to factor in health care expenses. Many parts of the 2010 Affordable Care Act have gone into effect. Starting in 2015, the Employer Shared Responsibility Payment provision of the Act stipulates that businesses with more than 50 full-time employees must provide health care coverage, or face financial penalties. Restaurants with 100 or less full-time employees can start purchasing group contracts through state exchanges in 2014. Traditional health insurance companies have begun to offer private exchanges to compete with the state exchanges. Navigating through this process to understand the law and the options is difficult. The National Restaurant Association has a resource center on their website to help. The site is updated frequently with new information and tools to help employers implement these complex rules. Your state restaurant association can also be used as a resource.

4. Effective inventory management and menu pricing

Restaurant owners should keep a keen focus on managing expenses. One crucial component of keeping costs low is effectively managing inventory. Those who fail to do so may face unforeseen expenditures and supply overages or shortages throughout peak business periods. People managing the inventory and menu pricing should fine tune the ordering process to limit waste and to continuously monitor fluctuating costs which impact gross profit on menu items. It is very important to know how much ingredients cost, as these expenses can fluctuate. Menu pricing should be as fluid as possible. Frequent and small increases in menu prices are easier to sell to customers than larger more noticeable increases done infrequently.

5. Hiring permanent and seasonal staff

Successful restaurant owners know the importance of having the right employees. An organization must be sure to have a good team in place during all seasons, but specifically during times of the year where customer volume increases, like the summer time. Placing greater emphasis on finding and training staff can reduce costs over time and enhance customer service - two significant priorities for owners. There have been continuing efforts by the House and Senate to pass a comprehensive immigration reform bill, which, if passed, will impact restaurants' hiring practices, particularly for seasonal restaurants that have trouble filling all positions with domestic workers. Restaurant operators should make sure they understand existing rules when hiring foreign workers.

Read challenges 6-10 for additional information. To learn more, contact Laura DaLomba, CPA or any member of our Hospitality team at trustedadvisors@kahnlitwin.com or call 401-274-2001.

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