Posted 09.22.2009

The 12-step plan for a failing restaurant

Running a successful eatery isn't rocket science -- it's even tougher

By Kevin Moll

Today you’ve written three checks that won’t clear the bank until the deposit is credited tomorrow morning. Last month’s rent was tough to pay – or maybe it’s not even been paid yet. The next payroll has you scared – literally. Your ulcer is acting up.

These are all signs that a serious financial disaster is looming for you as the owner/operator of an independent restaurant.

These problems are, unfortunately, commonplace today in our industry. It’s likely that you’ve never been more challenged personally and professionally. Your credit is tapped, a bank loan is out of the question, and you simply can’t ask anyone for more money.

The advice of well-meaning but inexperienced friends and associates was wrong. Financial mistakes have been made and when everything is considered, just shutting the doors and walking away looks pretty good. Fact is, running a failing restaurant can go on for years.

“We’re here to help you” I said, as the caller detailed her problems. Declining cash flow, increasing food costs, and her inability to make money were driving her crazy. I then explained to her that in the last week I’ve spoken with two different restaurant owners that have had similar situations.

In fact, one person had not shown a profit in more than four years, and the other had not made any money in more than three! Why an owner would work for free for that length of time just confounds me. Apparently it’s self-employment desperation that drives people to do things for themselves that they would never do for others.

Unfortunately, there’s no easy way out. But there is a proven action plan that can help you navigate through this difficult time:

• Rewind the clock six to 12 months. What was life like back then compared with what it’s like now? What changed to cause this dilemma? Try to isolate the top cause(s) and understand exactly what happened and why. This is not the time to place blame or point fingers – it rarely helps.

• Take a high level view. At 35,000 feet, the weather is always beautiful. By getting on top of the storm, this high level perspective will help you sort out the players, the problems and the potential solutions. Evaluate your financial pictures and create various scenarios for both yourself and your restaurant.

• Keep it close — and keep it private. Chances are that as the owner, you’re going to take the most direct financial hit. Of course, many others may be impacted. Don’t rush to conclusions, don’t needlessly share information, and above all, keep matters confidential between you and those that matter.

Giving the world advance notice of what may be an imminent closure is unlikely to be to your advantage – so you’ll need some legal advice in this regards. Also, depending on the number of employees involved and the state that you do business in, you may have to adhere to various mandatory requirements.

Now is also a good time to check with your accountant and attorney relative to what is at stake, what’s exposed, and how these matters will impact the restaurant, the various stakeholders, and you personally.

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Last updated on Sep 22, 2009 at 10:06 AM

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