Seven Things That Kill a Restaurant Business

1. Prime cost that creeps past control

Prime cost is food plus labor. When it runs too high as a share of sales, little is left for rent, utilities and profit.

Prime cost is the biggest number in your income statement. Many operators aim to keep food and beverage cost plus labor within a range that leaves room for everything else. The exact target depends on concept and market, so find the benchmark for yours by reviewing your own history and asking peers or an accountant.

Track it weekly, not monthly. Weigh portions, count inventory regularly and compare actual usage with what sales say you should have used. A few cents of waste on every plate adds up fast. See boost restaurant sales for the top-line side.

2. A lease you cannot carry

Rent that is too high relative to sales can sink a restaurant in a slow season. Know your occupancy cost before you sign.

A great corner with heavy foot traffic is worthless if the rent eats your margin. Before signing, calculate rent plus common area charges, taxes and insurance as a share of realistic sales. Ask what happens if the landlord raises rent at renewal, and whether you can exit if sales fall short.

Negotiate a rent abatement or a tenant improvement allowance when you can. Have an attorney read the personal guarantee clause. It is a common trap.

3. Running out of cash before the concept proves itself

Many restaurants open with just enough money for construction and nothing for the slow first months. A cash reserve buys time to find your rhythm.

New places rarely hit target sales on day one. Build a startup budget that includes several months of operating costs, not only the buildout. Our guide to restaurant startup costs and complete guide to starting a restaurant help you plan.

Existing restaurants face the same risk when they expand or remodel. Keep enough cash on hand to survive a quiet month without missing payroll or a supplier payment.

4. Ignoring the numbers until it is late

Owners who review sales, costs and cash weekly spot problems early. Those who wait for the accountant's year-end report find them too late.

You do not need a finance degree. Build a short weekly routine:

• Sales by day and by daypart
• Food and beverage cost percent
• Labor hours and labor percent
• Cash balance and upcoming bills
• Top five items sold and their margins

Read cash flow analysis to learn how to see trouble ahead. Profit on paper does not pay the produce vendor. Our guide to cash flow vs. profit explains the gap.

5. Menu and concept drift

Too many dishes, unprofitable items and a concept that no longer fits the neighborhood strain the kitchen and confuse guests.

Long menus raise waste, slow service and require more skills from every cook. Review each item for popularity and margin. Keep the stars, fix the plowhorses, and cut the dogs. Pay attention to delivery apps, which have their own pricing and fees; see DoorDash and Uber Eats for restaurants for a closer look at those economics.

6. People problems

High turnover, weak training and a lack of a strong manager raise costs and hurt the guest experience.

Replacing a line cook or server costs time, training and mistakes. Pay fairly, schedule predictably and train systematically. A strong general manager can be the difference between a place that runs well when you are away and one that falls apart. Write down recipes, opening and closing checklists and cash handling steps so they do not live in anyone's head.

7. Debt that does not match the use

Stacking expensive short-term financing for ongoing losses turns a cash problem into a debt problem. Borrow for projects that pay back, not to cover a broken model.

Financing can help a restaurant replace a failed walk-in, remodel for more seats or bridge a seasonal dip. It cannot fix food cost that is 15 points too high. Here is an illustrative example. A $40,000 remodel that adds $5,000 a month of profit pays back in 8 months before financing costs. A $40,000 advance used to cover monthly losses simply delays the same problem and adds the cost.

If you have a project with clear payback, ROI Funder places working capital, equipment financing and a line of credit. It considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. See also restaurant funding.