My apologies for not updating this blog with your regularly (?) scheduled updates on food, restaurants, the cooking life in general, there have been much more dire and pressing news that have demanded the attention of this campaign. For the moment, KitchenStink will suspend this blog post to bring you a layman’s understanding of the economic crisis. What does that mean in relation to the upcoming national election, where to eat in San Francisco, or why pork chops can be served medium rare? Plenty, and it has everything to do with your food, where you eat, and my restaurant business.
First of all, what the heck is a Credit Default Swap or a Mortgage-Backed Security and what the heck does it have to do with you or I? Well four or five years ago it had jack squat to do with me since I had no money or interest in purchasing a home, though I probably would have qualified for a home loan. I’ve been catching up on the past years of this unregulated industry through NPR: mostly these podcasts from This American Life:
Another Frightening Show About the Economy
and other great shows:
Fresh Air and Marketplace.
The impact of the credit freeze has obvious implications on small business owners such as restaurateurs. It takes a great deal of capital to fund any small restaurant, for my business plan of a small 30 seat restaurant I budgeted $500,000 to try to get it off the ground. In the 5 year projections, investors wouldn’t make their money back until midway through the 4th year. This makes me think back to when I first started thinking about making this life direction after reading an article in the New York Times about why people invested in restaurants in the first place. The reasons being, mostly for vanity and some for actual returns, but the ones that actually expect to see their money back, there’s far more better things to put their money into than gambling it away in an industry with a 60% failure rate (according to this Ohio State University study vs. the commonly held axiom of 90%).
From the ground, it seems that most restaurants fail because of inexperience and underfunding. The reason why I decided to look for half a million dollars is because it’s generally recommended that you raise six months of operating costs to keep your idea afloat to let the audience find it’s way through your doors. If you’re able to keep your cash flow going, the idea is that hopefully you’ll make it to that 5th year where you’ve paid all your loans and investors back and start turning that mythical pot of gold called profit. However, from the ten plus years I’ve observed this, there’s every other factor that gets in the way such as mismanagement, personnel, inventory, cash, funding, etc, that derails the establishment. Every time I give this schpiel, I like to echo Anthony Bourdain’s words: this is a business full of thieves, drug addicts, alcoholics, womanizers and overall degenerates.
The sky is falling and the economy is crashing, yet most of us with or without a 401K are going about our business as usual. We may not go out to some of the nicer places to eat as we normally do, but here in San Francisco, the restaurant industry has been doing steady business for the past 2 years amidst the overall national murmurings of a recession. The tourist industry has been doing well here because of the strong Euro, though I have yet to even see a Euro tourist eat at same places I go or work in. While there have been closures, there’s been a steady stream of new places ready to take their place.
Back to me. In the coming months, it’s not likely that I will be able to get a loan, even from the Small Business Administration as all credit markets are still frozen despite the $700 billion bailout. The investors that I started lining up are rethinking where their cash flow is going and are mulling over whether or not to pull the trigger.
Meanwhile, everyone’s watching the presidential election more closely than ever. I stank at macro-economics, but I was a political science major back in school. I’ve been watching this election even more closely as this country sinks deeper and deeper into a hole that not just the leadership will be able to dig ourselves out of, but an effort of all Americans that care about their jobs, their health and their futures. Everything I read or hear from historians, economists, and even investment bankers (my current day job is monitoring webcasts for tech, finance and publishing companies) is bracing for a bad economic downturn.
It’s going to take big ideas like this:
No, not John McCain. I’m supporting Barack Obama, I have been for awhile, but hearing this verbalized just crystallized the moment for me:
And we provide a 50 percent tax credit so that they can buy health insurance for their workers, because there are an awful lot of small businesses that I meet across America that want to do right by their workers but they just can’t afford it. Some small business owners, a lot of them, can’t even afford health insurance for themselves.”
Here in San Francisco there’s a mandatory health care law that the GGRA fought against. It’s been my opinion along with some friends in the business that this is a national problem that San Francisco has taken the lead on forcing the issue, despite the affects on the industry. It’s my belief that if we can stop worrying about our health, the economy itself will get back on track and we can reach productivity levels to offset the recession and get back to that American prosperity thing called the middle class American dream…
I honestly never thought I’d personally say those words but that truly is the truth of the matter for me as young 29 year old going on 30 trying to make a life for myself, start a family and have a business of my own.
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pick up this Exact-Science tee from Karmaloop
It’s funny, despite me being a very political person, I truly never intended this to be a political blog aside from monitoring from the sidelines the food politics in general. However, everything’s attached to what’s happening on the larger level. This is my two cents:
