Advice for Bar and Restaurant Entrepreneurs: Wealth vs. Income

For young entrepreneurs in El Paso, the popular thing to do these days to open a restaurant, or a bar. And that’s great. Successful restaurants and bars provide positive cash flows. A stream of money that allows you to participate in the consumer society.

But they don’t create wealth. When you lock the door every night, you’ve essentially turned off the faucet, and all you have till you open the door the next morning is what you’ve accumulated. The cash in your pocket, and your bank account, and that collection of vintage Hawaiian shirts hanging in your closet.

That is, not wealth. Nothing to carry you over into retirement. Nothing to see you through the next economic downturn, whether it’s part of the national business cycle or due to that new bar that opens up across the street.

Nothing with lasting value.

You can take that money out from under your mattress and put it into the stock market, that illusory repository of wealth. But stocks are only valuable because everyone agrees that they’re valuable. When that opinion changes, you could be left holding an empty bag. Wiped out.

The stock market is this peculiar gambling game with lots of winners and a few losers. Stocks take active management. You have to pay attention.

Or I guess you could buy stock in Apple or Google or Amazon, and you’d be okay. Till you aren’t anymore.

Or maybe you’re thinking you could sell your business. Your bar or your restaurant. Right? It’s got positive cash flow. It must be worth something.

Well, investors are reluctant to buy bars or restaurants, because the bar and restaurant business is notoriously fickle. Some of those bars and restaurants are dependent on the personality behind the wheel. And lots of the fun of opening an operation like that is imbuing it with a personality. Like parenthood.

And part of the reason so many people are doing opening bars and restaurants is the industry’s ease of entry. You don’t have to spend years in school, or have a ton of capital. But if you’re running an enduring operation, over time, you’ll be fending off a slew of new threats, as other young entrepreneurs emulate your apparent success. And they’ll wear you down. As trends and fashions change, you’ll be constantly striving to reinvent yourself, to keep your business relevant in the face of a dynamic marketplace. And, without a sufficient store of cash, you’ll eventually make a mistake, and then it’s adios.

There are ways to build wealth in the bar and restaurant industry. One is to own your own building. That makes sense no matter what your business is. If the business fails, you can always rent, or sell, the space. And if the business is successful, you’ll have the option to sell the ongoing concern lock, stock, and barrel.

There’s a reason they call businesses in operation ongoing concerns.

But good luck buying any commercial real estate in El Paso. Our landlord class pretty much has the real estate market sewed up. And those landlords think they’re your partner. When your business is doing well, they think they should get more for rent.

Another way to build wealth in the bar and restaurant industry is to franchise. That’s more complicated. You need to develop a recognizable brand that can be duplicated. You need to develop, or at least implement, processes and systems that can be replicated. And you need people. Human resources, and training. I reckon the first step on that career path is getting a job at Chile’s, or Applebee’s. You don’t have to reinvent the wheel. You can just tweak it.

Or you can both franchise and own the building. Did you know that McDonald’s owns the real estate under most of its franchises? That’s beautiful. You get to collect rent, and franchise fees, and maybe a percentage of sales.

I don’t mean to discourage you. At least, not too much. But keep your eye on your lifepath. Look two steps, five steps, miles down the road. Running a bar or restaurant can be a rewarding experience, but have a plan that extends further than the next pay period.

One comment

  1. I suggest these kids put their surplus money in the used car market. I have a simple three point plan that will put them a fast track to real wealth. No need to thank me. You know where I live.

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