August 4, 2023 • By Dennis Beaver

Dennis Beaver“Mr. Beaver, I inherited quite a bit of money from my father recently and have been asked by his much younger brother, “Ben,” (my uncle) to invest in a restaurant he plans on opening.

He ran two restaurants that failed, but has assured me he learned from his mistakes and can guarantee this one will be successful with a 30% return on my investment within a year.

“He wants $250,000, which is almost all the money I inherited. ‘Cindy,’ my wife says that Ben is incompetent, and she will divorce me if I give him the money.

What do you think, Mr. Beaver? Thanks, ‘Harry.’”

I replied:

The best decision you ever made was marrying Cindy. But I disagree with her filing for divorce. My advice to her would be to have you admitted to a mental hospital.

Are you out of your mind giving money to someone who has this track record of failure?

40 Years Gives a Perspective

I ran Harry’s question by Las Vegas-based Eric Barth, who has been a consultant in the hospitality business for over 40 years and has opened over 100 restaurants, casinos and food halls.

I asked, “What mistakes lead to a restaurant failing?”

(1) Failure to Understand the Market – Failure to do a localized market study.

Consequences: You need to understand offerings in the area, pricings, and if you can be competitive based on this data? If you can’t be competitive to what’s available in the market, then you are on a sure path to trouble.

If someone wants you to invest in a restaurant, your first question should be, “Please show me your concept statement and your local market study.” No market study? Forget it.

(2) Write a Menu That Your Guests Don’t Understand

Consequences: If the guests have to Google half the items on your menu, what are the chances they will return? Your job is to help people enjoy the food and experience, not educate them! 80% of what is on your menu needs to be recognizable to your guests. If your menu is listing dozens of ingredients in the descriptions and no one knows what they are, you are going to fail miserably as your customers will not come back.

(3) Fail to Test Your Dishes with Potential Guests, Friends and Family.

Consequences: Just because you like it does not mean the customer will. Invite friends and family to try your dishes and ask them to tell you the truth. Respect their opinions.

(4) Don’t care about creating a great work environment or guest comfort

Consequences: Without a positive internal service culture where the staff cares about helping each other, you will not have a positive external service culture, which is what the guest receives and can feel.

Inexperienced restaurant owners have no understanding of how important this is and partly explains why 60% are gone in three years. Owners who are destined for failure think, “They work for me.” No, they don’t! You work for them!

Pay attention to the details; are the chairs comfortable? Do the napkins fit the concept?

There are industry studies that demonstrate just how important good-quality napkins are.

If you are serving food that your guests will eat with their hands — such as ribs — or food that is very moist and greasy, napkins that resemble bathroom tissue will upset your customers, and they will point this out in their reviews. Are the right condiments available? Every choice is critical.

(5) Fail to learn and grow

Consequences: Good operators are always learning, what sells, what doesn’t— asking why—and trying new items. They make adjustments. Items that are not selling well are always open to be replaced and this is an area where you can experiment and possibly create some great signature dishes.

You will help your restaurant to grow more interest in the community by being aware of what works and what doesn’t.

(6) For a Guaranteed Migraine, Do Business with Family!

Everybody is a restaurant expert in their own mind because they think it is easy. It’s not!

Independent restaurant people work 363 days a year. Whether they like it or not, it is all consuming – enough to badly affect your health and relationships.

“The smartest thing in the world is: Don’t do business with friends and family,” Barth underscores. Don’t invest with friends and family unless you can absolutely afford to lose the money with no resentment. Once that guy loses your reader’s quarter million dollars, can he still sit across the table from him and be in the same room?

My Advice

In my law practice I’ve been witness to the real life tragedy of what happens to families when a restaurant fails, taking with it their retirement savings, homes, kid’s money for college and more.

So, if asked to invest in a restaurant, schedule a consultation with an attorney and CPA with experience in the hospitality area who will run the numbers, do a background check and give you a candid opinion.

Don’t jeopardize your future financial security for what often becomes a losing visit to a casino because you want to please a friend or family member.