Looking forward to 2010 in Cafe Foodservice: Taxes, Insurance and Your Lease

This is Part 1 of a 3 part series from Stockton Graham & Co. This article will focus on what to look for with taxes, insurance and your lease. Part II will center on getting to know your customers and giving them what they want. Part III is an evaluation of the aesthetics of your café.

At this time of year, I find myself with a bit more time to read as well as finalizing Stockton Graham & Co.’s 2010 strategy and plans. When we are making personal goals and resolutions for the New Year, it’s a great time to make some resolutions for your business.

With my financial and accounting background, I am often asked for business advice on a number of fronts. Today, for example, my brother called me with year-end tax planning questions, which not being on top all of the new regulations, I was at least able to point him to in the right direction to help gather data for his accountant.

Now is a great time to think about your café in terms of successes as well as challenges. I often tell our customers that a lot of what I learned was from trial and error (a lot more error on my part) to see what works. Sometimes we were dead wrong in our planning and execution and other times we had great ideas, but failed to execute properly. On a few occasions, the great ideas we saw or read about in other parts of the country were ahead of their time for our market.

I hear in the news media about the difficult year 2009 has been for business, but for the café and foodservice industry, the tough times have been longer as we felt the impact of higher gas and energy costs, as well as rapidly rising food and commodity pricing from 2007 forward. We have had to be very creative and on our toes during these times.

I think I could write a book or two about the things I have learned about the specialty coffee industry in my 16 years, but when looking at my peers, I recognize that I have a lot more to learn. However, I felt I would share some of what I have learned, and what is on my mind, as we enter a new decade.

I remember some past entrepreneurial customers who have started and sold several businesses often told me to get out of the business to work ON it and not in it. I have seen the same sage advice in many small business articles. I find that no matter the age or size of your business, it’s a useful recommendation to keep your business current and relevant to your customers today.

These tips may seem overwhelming, and will be if you try to do them all at one time, but I think they are good to look at over the long term and to put them into your organizer software to help you throughout the upcoming year as you work ON the business and not IN it.

Tax Planning

I cannot emphasize enough that you should view your accountant as a valued business partner. With the number of new taxes, regulatory changes from sales tax to payroll and health care taxes, their advice is invaluable. So if you do not have an accountant specializing in independent retail and food service businesses, I would find one near you ASAP!

They can help you review where you have been and help guide you on some of your future decisions. You may be surprised at the savings lurking within your current business. Are you charging, collecting and remitting sales and use taxes properly at the correct rates? Are you looking at equipment or other capital expenditures and how can you use the tax code to accelerate your deductions and save money. As an owner of your business are you paying yourself properly to avoid overpaying payroll taxes, income taxes and worker’s compensation insurance?

A good accountant will know what questions to ask you and can help save you money and keep you out of trouble.

Insurance

Being an accountant by training, I tend to be risk-averse which, being an entrepreneur, may sound like a contradiction. However, sometimes I have learned the hard way not having the right insurance. I overpaid in areas that I did not need to or had “naked exposure” in other areas that I needed coverage.

Before it’s time to renew your policies, you should sit down with your commercial insurance agent to fully understand the risks of your business and what coverage levels you really need. Sometimes the proper coverage can be had at negligible expense to your policy, while ensuring proper levels of coverage in other areas may save you money.

On worker’s compensation, are you and your workers classified properly to make sure you pay the correct rate? I remember working with our agent to find out that I classified our workers at class codes inappropriate for our business and thus overpaid our premiums. Also, owners, if covered, need to make sure their income or draws are classified properly to avoid overpayment as well.

Two areas that I learned after experiencing long electrical failures due to a hurricane are “frozen/refrigerated food coverage and business interruption due to utility failures.” The standard policy that I had when Hurricane Fran struck Raleigh, NC several years ago provided minimal coverage for our frozen items. For a small incremental premium I could have added a frozen food rider and covered many thousands of dollars in food losses. Our policy also provided for coverage due to business interruption or loss of income due to an insured event. If it blew our windows, dropped a tree on us, or caused a fire, our coverage kicked in. I never imagined being without power for 7 days due to a general grid issue. I later learned that, at that time in North Carolina, I could have added the coverage for an additional $30.00 per year.

Those series of events and losses convinced me to consult a commercial insurance agent to properly evaluate our business and exposure. I now believe we have the correct coverage at very competitive prices.

Your Business Lease

In my reading of some recent publications (Bloomberg Business Week and the Wall Street Journal) I recall several articles about how larger retail chains are renegotiating their leases with their landlords. I am not an attorney, nor commercial leasing agent, but it might be a good time to pull out that long document and read through the major sections.

Depending upon how long you have had your lease you might want to revisit these items with professional advisors:

1) In your building or center have you had a large anchor tenant or a number of tenants leaving that have reduced traffic coming into the centers? Do you have a clause in your lease that might allow you to break your lease, reduce your rent accordingly, reducing your TICAM (taxes, insurance, common area maintenance) and center marketing monies paid to the landlord?

2) Do you know the current rental rates for similar spaces in your market? Should you look now to renegotiate your lease to extend or modify it at more favorable rental rates, terms and expenses? Does the term of the lease and other provisions work for your business plans: growth, selling or transferring your lease / length of term? A favorable lease and rates should help to increase the value of your business.

3) TICAM and Marketing expenses. These are often paid every month along with your rent or mortgage payment and often times, one fails to understand if you are paying the correct amounts and if the landlord is performing the services included in the TICAM payment. Your accountant or other legal consultant can help review and guide you in these expenses. It’s not uncommon to find you may have overpaid, but beware if the taxes or insurance is much higher than the landlords’ estimates; you might owe them! Regardless, I think it is good to understand what you are paying and if you are getting the optimal value.

For more business-building tips and advice from Stockton Graham & Co. professionals, call 800-835-5943. Also, we invite you to become a fan of Stockton Graham on Facebook, follow us via Twitter @StocktonGraham and check out our blog for more specialty beverage news and info!

Jeff Vojta
Co-founder & President
Stockton Graham & Co.