Debt is certainly linked to the closure of many restaurants; however it may not necessarily be a major problem if money is managed well. Depending on the owner’s financial situation beforehand, he/she may need to take out a loan, and, if they are sensible in spending their loan, and not overspending it before their opening day, they are certainly on the right track to create a successful business.
A crucial part of running a restaurant is understanding food prices. It is commonly known that seafood is more expensive than lamb, which is more expensive than chicken meat, so buying the right foods <strong>at the right quantity</strong> is a must. Many times have restaurants overspent, by buying too much food, only at the end of the week to not even cook that food, thus having to chuck it away, which creates more expense for the owner. Usually, the owner will give the head chef the resposibility to buy the food themselves, and there is a tendency for the owner not to see how much food is being bought, and more importantly what is being done if there is any excess food.
The owner must watch the cash flow of the restaurant, and make sure that there is some money to cover the big expenses. If the owner has a close eye on the checking account, debt should not necessarily be a problem, and the restaurant shouldn’t close, as long as they are turning a profit. The owner is the one who can create changes to finance to turn a profit.
A lot is based upon the location of the restaurant, and the service given by the staff. If the restaurant is located in a ‘hot spot’ and the service is good, and the food is also good, there is no reason why the restaurant shouldn’t be turning over profit.
If money is not managed well, debt is a major cause for restaurant closure.