There are many reasons why bars fail. It is widely believed and may be true that small business has a 90% failure rate in the first year of operation but that is not true of bars and restaurants. Studies have shown the actual first year failure rate falls between 25 and 30 percent with a 10 year failure rate of 70%. It is simply the natural order of all things business. Think of it, in 10 years there is no guarantee that Facebook will still exist
Many bars fail because they are not adequately financed at start up.
Beside lack of funding the most common reasons for failure are:
Simply the owners do not get along and have different ideas how the establishment should be run. If partners are feuding, this will affect employee morale and in time affect the customer base. If customers are unhappy they will quit coming. Remember a bar is meant to be a happy and cheerful place.
Having too much money tied up in inventory that is not selling. Pubs as many other businesses must use a form of “just in time” stock delivery. In this way food stuff is fresh and more importantly you are not paying financing costs for any “stagnant” inventory. On the other side of this coin there should be good inventory control to ensure the bar never runs out.
Cash flow is not properly managed. Bills are not paid on time. If suppliers are not paid on time you will soon have no product to sell. Employees are not paid on time or are short changed. This will result in high staff turnover which results in costly training and poor service.
Failing to pay taxes and to submit government employee wage deductions on time. This may result in warnings and fines. Once again it is of utmost importance that you have a trustworthy, experienced accountant as part of the team.
Skimming, stealing and other partner or employee illegal activity. You must be on site and be aware what is happening on a day to day basis in the pub. It used to be said that the owner must be close to the cash register. It is not so important with today’s technology but is still a good rule of thumb.
Skimp on food portions, poor quality food, warm beer, mushy ice, dirty plates, glasses, cutlery and surly servers and you are sure to fail. This all alienates your customers who will then not return and further kill your pub by word of mouth.
Early warning signs of impending failure are, traditional busy nights are slowing down, the help is moving on, the neighbourhood is on a downward trend with other businesses failing, you are months behind in your bills, suppliers are demanding cash on delivery and on a personal level you can sense impending doom.