The food service industry can be a precarious sector. Defined by low profit margins and tight cash flow, it doesn’t take much to push a fragile enterprise into severe financial distress.
Common Problems for Restaurants Teetering on Insolvency
- Market Saturation
With a plethora of fast food, limited-service, and full-service dining options available, declining traffic can be a real threat to any restaurant.
- The Cost of Real Estate
Restaurants who want to survive need to be in high traffic and desirable locations. For struggling eateries, the expensive rents in these areas exacerbate existing challenges.
- Poor Management
Inability to oversee inventory and neglect of food safety all point to operations that are spiraling out of control.
- Cost of Labor
Dealing with minimum wage increases or navigating a seasonal workforce can leave an enterprise struggling to schedule their staff in a realistic yet profitable way.
- Merchant Cash Advance Struggles
MCA companies market themselves innocently to restaurants as an alternative to loans, but the extremely high interest rates and ability to sweep cash accounts in this almost entirely unregulated industry can be crippling.
- Franchise Issues
Difficulties in the franchise relationship often include failure to uphold brand standards, failure to follow franchise systems, and failure to make expensive franchise fees and marketing payments.
Outcomes for Restaurants that Become Insolvent:
There are two likely outcomes for food service enterprises that spiral out of control…
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