One persistent rumor is that restaurants are very risky and most of them fail. It has been said that 60% of restaurants close their doors within 1 year. This isn’t hard to believe, especially if you have seen it personally. Haven’t you seen restaurants open and close in your neighborhood before?
The figure of 60% is for the first 3 years, not the first year, as per a 2005 paper. The first year is closer to 20%. And the strangest thing? The high failure rate of restaurants is due to the lack of access to startup capital. Banks do not usually lend to restaurants because they consider them too risky. As a result, a vicious cycle is created and they fail because they don’t get enough startup capital to turn a profit. (But the good news is that alternative lenders don’t have much of a problem lending to restaurant owners.)