Dave Ramsey Dishes Advice On Opening A Restaurant: '#1 Way To Go Broke'

Financial guru Dave Ramsey shared some eye-opening advice on the Ramsey Show about opening a restaurant without a business plan. Here's why, according to Ramsey, opening a restaurant can be a bad idea. 

During an episode of the Dave Ramsey show, the personal finance expert, accompanied by his daughter Rachel Cruze, who also happens to be a personal finance guru, received a plea for advice from a woman whose husband wants to open a restaurant. Cruze read out Lindsey’s written question. In her letter, Lindsey explained that she and her husband are in their 30s with daughters, and now her husband wants to quit his job and open a restaurant with no experience in the industry. 

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Lindsey reveals that her husband wants to sell their fully paid-off home, which amounts to half a million, and use that money to start a restaurant. What is even more worrying is that Lindsey revealed that her husband has no business plan and has done no research. Lindsey writes, "I could see us putting all of our money into this venture and end up losing everything. How do I convince him it's a bad idea?" 

Both Ramsey and Cruze laughed in disbelief at the idea of opening a restaurant while being so unprepared. Cruze started off by telling Lindsey, ‘You have a vote too. This is your life as well." Ramsey added, "You're on the deed of that house. So don't sign it." 

Ramsey explained that Lindsey is 100% justified in her concerns. Her husband needs a business plan and that "you would need some experience in the freaking restaurant business," and Cruze added, "Which is hard." Ramsey also revealed that by opening a restaurant, you're taking on a category of small business with the highest failure rate of all the small businesses you could open.   

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"The #1 way to go broke is to open a restaurant. It's like freaking guaranteed," Ramsey noted.

Restaurants are notoriously some of the hardest businesses to run, and going into the business without any experience or plan is a recipe for disaster. Even the most experienced restaurant chains can go broke. In his advice, Ramsey pointed out that casual dining chain Red Lobster has recently filed for bankruptcy protection after shutting down dozens of branches across the U.S. The restaurant lost millions of dollars running its "Ultimate Endless Shrimp" promotion, which Ramsey quips, "Too many shrimp!" 

The restaurant industry is tough. According to industry statistics, three out of five new restaurants will close within one year, with four out of five closing within five years. According to the National Restaurant Association (NRA), only 20% of restaurants can succeed in the market, and some of the biggest reasons restaurants fail are poor location, poor staff management and lack of technology. 

Ramsey told Lindsey that opening a restaurant involves a lot of drama and an average annual employee turnover ratio of 300%. Is this a good idea? Ramsey says, No. 

In her letter, Lindsey revealed that opening a restaurant was her husband’s dream, and Ramsey understood this. In a post on social media platform X, he wrote, "Is there a way for him to live his dream without it destroying his own family and himself in the process? Yes, sure there is." 

Opening a restaurant can be done smoothly, only if you have a business plan. Ramsey also recommends gaining experience in restaurant leadership and management before starting your own business Additionally, he suggests starting a catering business on the side, like a food truck, and using that money instead of selling your home to open a restaurant.    

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