Nightclubs may seem fun to own and run, but the club business is precarious at best. Because of quickly moving trends, a club can go from hot spot to passe within two years. There's little recourse except to close or revamp to fit the next hot gimmick. Because of the highly volatile nature of the industry, the nightclub business is best left to those that don't mind taking a gamble.
Simply owning a club is fraught with problems. Often, parties and entertainment acts are transient, with promoters ready to move to a new venue at a moment's notice. DJs and employees develop a following at one club, only to pack up and leave because of low pay or burn-out.
Club consultant Dave Hollingworth writes, "At times, [the club industry] almost seems to attract a lot of people that either appear to suffer from a profound sense of insecurity, or they view this industry as an easy way to obtain the attention or professional status they could not in conventional occupations."
Many nightclubs fail not because of trendiness; they fail from legal problems. Keeping a liquor license can be tricky, with the penalties for infractions expensive and dear. In some states, a club owner who accidentally admits and serves a minor alcoholic beverages can be sent to jail. That's in addition to being liable for monetary penalties.
Clubs can also run afoul of the IRS for tax violations, or they can fail fire and safety inspections. If they do either of these things, it's enough to close a club for a week or two. In turn, the shut-down could lead to reduced turnout and possible closure.
High risk of violence, bankruptcy and instability are all factors behind nightclub closure. There is also the fact that most clubs base their whole financial models on making a profit on two to three nights of business per week. With so few hours to make income, it's very important that a club stay perpetually hot and happening, which is nearly impossible. The combination of all these factors show that nightclubs are risky for investors, employees and owners, with few that successfully beat the odds.