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Why restaurant owners obsess about seemingly minor changes in the minimum wage

Summary:
On the one side we’ve the people complaining that restaurants don’t pay great wages. Often enough not “living” wages. But, but, they’re big businesses with decent cashflows. They charge, £10, £30, just for a meal that can be cooked at home for pennies! Of course they can afford to pay decent wages!On the other side we’ve those who understand the realities of the business. Margins are tight, there’s a great deal of competition - much the same statement of course - and profits rare. Thus wage levels are obsessed over.A little data here. Sure, it’s about Washington DC but London won’t be much different:CP: Some D.C. restaurants are celebrating their 25th and 30th anniversaries. Is there hope for restaurants opening in 2019 to have that kind of lifespan?MG: It’s rare. One percent of openings

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On the one side we’ve the people complaining that restaurants don’t pay great wages. Often enough not “living” wages. But, but, they’re big businesses with decent cashflows. They charge, £10, £30, just for a meal that can be cooked at home for pennies! Of course they can afford to pay decent wages!

On the other side we’ve those who understand the realities of the business. Margins are tight, there’s a great deal of competition - much the same statement of course - and profits rare. Thus wage levels are obsessed over.

A little data here. Sure, it’s about Washington DC but London won’t be much different:

CP: Some D.C. restaurants are celebrating their 25th and 30th anniversaries. Is there hope for restaurants opening in 2019 to have that kind of lifespan?

MG: It’s rare. One percent of openings last that long. I think a 15-year run is something to be damn proud of. I would love if any of my clients or people I know in the business have a good 10 years with a five-year option.

That’s success.

CP: What are some of the most common financial missteps new restaurants make that can get them into trouble quickly?

MG: The main reason businesses close quickly is because they undercapitalized. They thought they could open a restaurant for $1 million, but they end up spending $1.1 million. The business didn’t take off at the beginning. Now they have all these creditors coming after them. The construction guy didn’t get his final payment. The architect didn’t get his final payment. Everyone’s getting nervous. You’re scraping every dollar that comes in. There are a lot of businesses that can’t weather that. That’s the reason a restaurant turns in three years or less.

That’s the average experience. To try and fail within three years.

Now does it make sense why restaurants obsess about wage levels? Care deeply about 30% of their costs?

Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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