To run a cafe you need a solid business plan as well as a good latte

AN inner city cafe owner paying himself a minimum wage needs to have a hard look at his business model, writes the Barefoot Investor.

The best way a small-business owner can be futureproof is by not owning a dud business.

AN inner city cafe owner paying himself a minimum wage needs to have a hard look at his business model.

 

DONNA ASKS: My husband owns a small CBD cafe, which he purchased two years ago. After a lot of hard work, it nearly pays him a minimum hourly wage, while employing four staff. I am concerned he is in a vulnerable position, if there is a recession. Do you have any general advice for small business owners to help futureproof themselves? The business lease is up for renewal in two years. Any advice on negotiating terms based on the potential economic climate would be appreciated.

BAREFOOT REPLIES: The best way a small-business owner can be futureproof is by not owning a dud business. And judging by your brief description, that’s what your husband owns. Let me put it this way: do you think he could employ a manager to work around the clock, have the responsibility of paying staff, suppliers and the landlord — and pay them below the minimum wage, with no holidays? Of course not. It’s against the law. What I’d do is this, I’d sit down with your hubby and set him a goal. Work out what the business needs to do to generate him a decent wage — one that will compensate him for all the work and stress, and will earn him a decent return on his invested capital. Give him 12 months, or at a stretch two years, when the lease expires, to reach this goal. If he can’t, encourage him to sell the business — and get a job in a bottleshop. At least he could enjoy a stress-free stubby after knock-off.

BUDGETING BUSTS STRESS

JANE ASKS: Last week you wrote about MyBudget, saying it is not worth the money. But you’re wrong. Not everybody is good with figures like you. Some are very bad, like me. MyBudget have been brilliant at helping me set up a budget, pay my bills, and organise my financial year. I have found it a great stress reliever to have skilled people close by to help me. I have referred several friends, who also love it.

BAREFOOT REPLIES: Here’s my take. To get out of debt — and to stay out of debt — you’ve got to get a bit of mongrel in you. You’ve got to get as mad as hell. You’ve got to reach the point where you scream “enough” and cut up your cards, pay the suckers off one by one, and swear to yourself “never again”. I’m talking about making deep behavioural change — and that can only come from you. You don’t get it by paying some overpriced, glorified budgeting software sales outfit thousands of bucks to wave some pompoms and chant “you can do it”. Last week’s question was from a couple who had $37,000 in personal debt, and they were asking whether they should pay MyBudget over $3500 in the first year to help them tackle it. My advice to them — and to you and your friends — is to get angry and then put the money you’re paying to MyBudget towards paying down your debts even quicker.

THE KID ISN’T ALRIGHT

NELLA ASKS: My son is 45 years old. He earns in excess of $200,000 but loves spending borrowed money. He has 10 per cent equity in his house, which is worth $1,000,000, and an apartment. He recently made an unconditional offer on a block for $750,000 on which he and his new girlfriend intend to build. The bank refused him a loan. He approached us (retired) and suggested we take out a $400,000 loan on our house, which he would pay back when he sells his existing house. I refused because I believe he needs to stop spending. What is your opinion?

BAREFOOT REPLIES: I think 45-year-old men who are earning 200 big ones shouldn’t be hitting up their retired parents for money. You made the right decision.

CRYSTAL BALL FOGGY

BILL ASKS: I am 43 with $240,000 in my SMSF and I have liquidated my portfolio after reading up on the coming financial crisis. The US Federal Reserve will lift interest rates, which will cause a tsunami of defaults around a world that is addicted to cheap money. What are your thoughts?

BAREFOOT REPLIES:

I think you’re bonkers. I also think you’ve been reading too many scary emails from too many financial gurus trying to sell too many get-rich-quick newsletters. The world is far too complex for anyone to forecast anything with certainty. If these guys could accurately predict the future, they’d be rolling in it — so why the hell would they be emailing you, mate? Let’s look at someone who really is fabulously rich: Warren Buffett. He doesn’t waste his time trying to predict the economy, or interest rates, or anything else. He believes our best days are ahead of us, and that you get rich by owning businesses that create prosperity. History tells us he’s right. Another fabulously wealthy investor, Peter Lynch said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

SUPER IS STILL SUPER

GARY ASKS: I’ll keep this super-brief. What do you think of the latest super changes?

BAREFOOT REPLIES: I think the Government has achieved the impossible: they’ve managed to turn people off the best tax dodge going around. Which is a shame, because super is a much better long-term investment than buying an overpriced negatively geared property. For those readers who snooze when it comes to the mention of super, the Federal Government has dumped their proposed $500,000 (backdated, lifetime) cap on after-tax contributions. Instead, starting on 1 July next year, you’ll now be able to put $100,000 in per year, rather than $180,000, after tax, on balances up to $1.6 million. The best analogy I can give is super is like marrying a hottie. Sure, with each passing year they get a little less attractive — but it’s still a damn good deal compared to the alternatives.

 

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as To run a cafe you need a solid business plan as well as a good latte