Financial experts offer advice to cafés on surviving COVID-19

Financial advice cafés

BeanScene asks financial experts for advice on what government support small businesses like cafés are entitled to, and the value of their venues post COVID-19.

The Federal and State Governments have released a range of support programs for small businesses struggling during the coronavirus pandemic.

However, with much uncertainty about the future and so many initiatives in place, small businesses may be left confused and with unanswered questions.

BeanScene speaks to Parikshit Kikla, Founder of 360 Accounting Services; Nadi Elias, CEO of Equus Partners; and Dan Levitus, Senior Partner of Vision Brokers and Advisors; for clarity on the situation. Parikshit (P) and Nadi (N) have years of experience helping cafés keep track of their finances, while Dan (D) specialises in the hospitality retail market.

Can I apply for JobKeeper if my turnover hasn’t fallen by 30 per cent yet, but I believe it will soon?
P: If you believe your turnover will fall in future, you can nominate the month from which the turnover will reduce by 30 per cent. For example, you can forecast turnover falling by 30 per cent or more in the month of July. In this case, you can nominate July when you enrol and get the JobKeeper payments for that month.

What financial support can I receive if my business is less than a year old?
N: The JobKeeper Payment is not dependent on being in business (or having permanent or full-time employees) for over a year. You may still apply if you meet the basic eligibility criteria.
A business that employs people may also be eligible to receive a Cash Flow Boost if the business was established prior to 12 March 2020 and can prove it was legitimately in business prior to that date. The Federal Government is providing up to $100,000 to eligible small and medium-sized businesses, and not-for-profits, that employ people, with a minimum payment of $20,000.
State governments are also providing financial support to businesses.

Parikshit Kikla is the Founder of 360 Accounting Services.

How is pay-as-you-go (PAYG) tax and superannuation handled in regards to JobKeeper?
P: For PAYG, the employer needs to withhold tax before making the payment to the employee. For super, the business has the option of choosing to pay the superannuation guarantee on the additional amount. For example, Nick is a permanent part-time employee on a salary of $1000 per fortnight before tax who continues working for the business. The business needs to pay super on the regular $1000, on the additional $500 it will be optional.

Do my employees need to be working shifts in the café to receive the JobKeeper payments?
N: If any eligible employee currently earns less than $1500 before tax per fortnight, you will need to pay them $1500 per fortnight before tax to receive the JobKeeper Payment.

Does it matter if I pay my staff weekly or monthly instead of fortnightly?
P: No. You only need to make sure the staff receive $1500 per fortnight equivalent in each pay period. For example, if paid weekly, then $750 per week, if paid monthly, then $3000 per month.

What are the requirements for casual staff to be eligible for the Jobkeeper payment?
N: If they meet all other eligibility criteria, they will need to be long-term casuals, and have been employed on a regular and systematic basis for longer than 12 months as of 1 March 2020. Special rules apply for circumstances where, for example, the business owner has changed within the last 12 months and the casual employee has worked for both owners. A similar allowance applies if they were transferred from another member of a corporate group within the last 12 months.
An eligible casual employee cannot be a permanent employee of any other employer.

What concessions are there for foreign workers?
P: There are no concessions in JobKeeper for foreign workers [except NZ citizens on the 444 Visa]. However, the Victorian State Government has announced $1100 relief grants to struggling foreign students.

N: The Government has announced that foreign workers may be able to draw-down (withdraw) up to $10,000 from their superannuation. They would need to discuss this with their superannuation fund.

If JobKeeper is providing support for my Australian workers, can I prioritise giving shifts and regular payments to my foreign staff members?
P: I don’t see any issues with this. You can give foreign staff shifts.

N: Employers must follow the relevant employment award (including any temporary arrangement) applicable to their business. There cannot be any discrimination within a business. They are urged to discuss their circumstances with FairWork Australia for clarification.

Financial advice cafés
Nadi Elias is the CEO of Equus Partners.

What if my business continues to struggle past the end of September?
N: At this stage, the government has not indicated it will extend any stimulus beyond September 2020. I advise that all businesses have a Business Continuity Plan and Cash Flow forecast in place to predict early if the business can continue post-September after factoring all incomings, outgoings, and the impact of COVID-19 on their operations. The best person to speak to is your accountant, who is trained in these areas, understands the business, and the goals of the owner.

What tax concessions or reliefs can my business claim?
1. A 50 per cent subsidy on apprentice wages, up to $21,000.
2. A 100 per cent Cashback on PAYG Withholding, up to $100,000 in total.
3. Assets write off up to $150,000 for assets purchased between 12 March 2020 and 30 June 2020. Your Tax accountant will process this when they do the end of year accounts.
4. A 50 per cent additional depreciation for assets purchased between 12 March 2020 and 30 June 2020 that are over $150,000.
5. Tax Payment Deferrals from the ATO
6. The Government is providing a 50 per cent guarantee to any new loans to SMEs. Contact your bank and enquire about this.

What are my entitlements and requirements around paying my lease?
P: Small and medium-sized businesses hurt by the coronavirus economic downturn will be given at least two years to catch up on any deferred payments.
It is important to note that this is a deferment only. So, to reduce the impact of the debt on the business in the future, tenants should pay as much rent as they can afford right now.

How should I approach my landlord about reducing rent payments?
N: If you can’t afford to pay your rent, take the following steps:
Step 1: Keep paying what rent you can afford and work out your reduction in turnover associated with the premises during the relevant period.
Step 2: Apply for rent relief from your landlord in writing. Be nice about it. It is important to maintain a positive and mutually beneficial relationship with your landlord. They’re also somewhat affected by COVID-19 too. The way you negotiate will likely impact how they treat you when it is time to extend or transfer your lease in the future and that could make or break a potential sale of your business.
Step 3: If an agreement is reached, document what has been agreed to in writing.
Step 4: If an agreement cannot be reached, lodge an application with the Victorian Small Business Commission if in Victoria or your equivalent Small Business Commission in your state or territory.

What is your best advice to help cafés upsell or add to their regular income?
P: It is important to be flexible as a business owner. During this period of lockdown, many people are supporting their favourite businesses by ordering takeaway and delivery.
It is important to maximise your ingredients, staff, and sales when developing a simple takeaway menu. By keeping the menu simple and utilising the same ingredients across multiple dishes, you will guarantee a greater profit margin with less food wastage.
Encourage people to buy gift vouchers. This will bring cash in the short term and ensure you will have guests in the restaurant in the future.
Promote [your café] online, via an email database, and on social media. There are best practice hashtags and keywords businesses can use to increase their visibility. It is important to reinforce through your messaging your ongoing commitment to reduce contamination via cleaning changes and social distancing protocols within your business.

What are some easy cost-cutting ways a small business can save money?
P: Wherever possible, employers should focus on upskilling their staff. They can train their existing staff in additional skills to increase productivity and efficiency, rather than hiring more staff.
Reduce the operating hours to core trading periods to reduce variable costs like heating/cooling and staff wages.

N: Request an immediate rent reduction and review all expenses. Suspend, reduce, or stop anything that doesn’t assist your business to make more sales, run more efficiently, access financial support and funding, is a legal requirement; or ensure your business continues operating.
Can you extend your supplier terms? Can you obtain a discount for paying early?
Liquidate stock at just above cost price if you are holding too much of it and sell unused equipment.

What are some easy mistakes that I should avoid during this period?
N: Thinking you’re the only one that is doing it tough. We’re all in this together and have been affected somewhat because of COVID-19. In all of this negativity, you need to be and remain positive because positive thinking leads to positive decision making that ultimately helps you, your business, your family, and your community.
Don’t try to learn or do everything yourself. Engage professionals who are experts in helping businesses get through crises such as COVID-19. Listen to those professionals.

P: If you are leading a team or a company, you need to understand that your ability to manage other people in this crisis is critical. While we need to maintain social distancing, we also need to make sure that we are in touch with our team.
Make sure you also take care of yourself. It is very easy to get overwhelmed and not invest in one of your most valuable assets, your mental health. Be sure to talk to family, friends, and your GP if you feel that you are not able to cope or need additional help. This is a time when people are banding together, and if you need help, all you need to do is ask.

How can I prepare my business in case something like COVID-19 happens again?
N: Have a Business Continuity Plan in place – a plan that focusses on seven key areas of your business: cash, protection, banks and funding, management team, employees, customers and suppliers, and mental health.
Remember that while cash flow is under control, then so is your business. Downturns can be scary in the moment, usually because there is no plan in place for your business and the world around you appears to be panicking. An accountant can work with you to develop a continuity plan for your business.

Financial advice cafés
Dan Levitus is a Senior Partner of Vision Brokers and Advisors.

How is COVID-19 likely to affect the value of my café?
D: A café will only be worth less if you decide to sell during the restrictions. There are plenty of buyers looking for bargain cafés, because they know the value of cafés will recover. Think of a business like any other asset class. When the value goes down, it is only realised if you choose to sell. I know a lot of brokers are promoting the fact that there are plenty of buyers in the market and that now is a great time to sell, but what they are leaving out is that these are highly experienced buyers, looking for bargain deals. We strongly encourage all café owners to take advantage of the various stimulus packages and hang in there.

What can I do to improve the value of my café if I want to sell?
D: One of the most significant factors attributing to value is the lease. Vacancy is expected to increase by 300 per cent over the next 12 months, and all the leverage has shifted towards tenants. In conjunction with the new mandatory code of conduct for commercial leasing, there has never been a better reason to negotiate a new lease with your landlord. A prudent landlord will be highly incentivised by longer lease terms, even if it means some short-term pain for them now. If your lease is less than 10 years, strike up a conversation.

How is the café buying/selling market likely to looking post restrictions?
D: We also anticipate the demand for cafés will increase just like they did at the end of the Global Financial Crisis in 2009. What happened was, new buyers flooded the market as a result of massive corporate redundancies. Newly unemployed people were literally buying themselves jobs, and the perception was that cafés were relatively simple businesses to run. I know most café owners will laugh at that sentiment, however, we expect a similar pattern to play out over the next 12 months.

What are my obligations if I buy a café that has accrued significant debt over the pandemic?
D: If you buy the business with a new ABN, creditors will only be chasing the old ABN via the old owner. However, creditors may associate the business name with the new ABN and be less inclined to do business with you. It’s important to address this, and understand which creditors are still owed monies. Communicate with the creditors and give them confidence that you are a new owner, in a stronger financial position, and they are safe to sell their products/services to you and get paid.

What should I keep in mind if selling a café post-restriction?
D: A buyer will hold a microscope over one thing: your trading figures and how strongly they recover. They will want to see trading figures on a weekly basis from the time the restrictions were lifted. It will be critical for café owners to make sure their bookkeeping practices are improved and updated on a weekly basis if they aren’t already. Don’t wait until the end of the month or quarter to reconcile, do it every week.

What else should I know regarding buying or selling cafés during/after COVID-19?
D: Whether you are buying, selling, or just continuing to operate, check in with the staff and do it regularly. This has been an incredibly uncertain time for a lot of them, and the best investment you can make is to ensure they are OK. The staff are the crown jewels of any business, when they don’t shine the business will inevitably suffer. As a business owner, you are also a leader – not just the person in charge.

This article appears in the June 2020 edition of BeanScene. Subscribe HERE.

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