Another key factor is their ability to market well. Understand how they are going to increase or maintain the flow of customers.
Right. Yes that’s very important. Because usually what will happen in the first year a restaurant’s in businesses they’ll just get enough traffic because they’re new and there’s kind of a newness to it. And then after a year people kind of have been there and it’s less exciting. They have to have a good marketing strategy in place to really keep business coming in. And if they don’t have that, then I think they’ll see a decline.
My sense is that in a lot of businesses, particularly that type of business, there’s still a propensity some people doing that that have the mentality of “if I build it they will come” as against the understanding that they have to work hard to grow or maintain their client base.
Yeah. I would say there’s a couple major factors. Everyone there’s location, location, location. I mean that’s super important in that type of business. And also kind of what their cost structure is too. I’ve seen clients just because they’re not really in an ideal location, they’re in a mall for example, and their rent was really high. And that didn’t really support their business model. So ultimately they can’t afford it and had to go out of business. Had they been more experienced or kind of understood the numbers involved versus the ratio that they’re looking for based on their capacity. Then it would have been more well off in the long term.
Locally, where I am, there’s a particular corner restaurant building on a strip mall. And it’s a fairly busy strip mall but I’ve seen in the last two years, probably separate businesses go in there and then disappear after six months or so.
Yeah. Those businesses fail because they run out of money. But I see with restaurant businesses it is a capital-intensive business for sure. And it’s just about having enough capital when you really go in there to kind of weather out the storm. Because of obviously the ones that are kind of boots-strapped. And they only have x amount of dollars and once they run out, that’s it. They don’t really fair very well versus someone that’s got backing behind them. But you know kind of like when you have a brand new concept, you try to really… the concept and the market to see if it works. And then a lot of times it’s just a matter of rolling the dice. They don’t really know. I think people that tend to do better or people that have had a similar concept before, they’ve… and now they kind of just of squeak it. But when people are just kind of experiencing it for the first time, I see a higher failure rate.
This one’s a franchise and I’m curious that would you not typically see in a franchise that the accounting system would be part defined, at least defined as part and parcel of the franchise or no?
It really depends, you know. Some of them have a standardized franchise chart of accounts they’d like to use. So everyone can kind of have a similar type of when they run financial you’re going to have similar types of metrics and reporting.
They kind of leave it up to them. You know a lot of the franchise are just looking at gross sales anyway. As long as they have a total sales number, they can calculate their percent and that’s all they care about at the end of the day.
It really varies from franchise to franchise.