Business Advice

Cafe Health Check (2-3) How to pay yourself.

In this blog series, we look at how you can make your cafe bottom line healthier.

Please read section 1 of this post before continuing with this post.

The action step last week was to open a second business bank account for your taxes.

 

Part 2 Cafe Owners Wages 

How to determine your wages?

Currently, you should have an understanding of what expenses you can get rid of from your Cafe. those non-essential costs. With the unnecessary fat trimmed. Your business is about to start functioning on efficiency.

You should also know the ballpark figure of tax due by comparing last year’s tax liability to your forecasts for this year. As it is Tax return time, you will know exactly how much.


Time to pay yourself 

It is now time to pay your wages. Café owners sometimes view themselves at the bottom of the pay hierarchy, putting the needs of everyone else ahead of their own.  That has to stop now, no more surviving on crumbs, now the unnecessary expenses are gone from the business it’s time to eat.

If you are the only worker in your business you can expect to get the majority of the sales. Up to 30%, this leaves 20% for Taxes, and 50% for the cafe’s operational expenses.

This may not be viable for you currently so we start slow and build. Review what wages you are currently taking form the Cafe. Compare to the examples below.

Example 1 

Drawings for 6-month is €5,000, sales for the 6 months is €40,000

Based on the current ratio you are getting 12.5% of wages from the sales.

Taxes estimate are 25% you should have allocated into the second Tax account.

This means 62.5% of sales are been spent on business expenses.

Example 2 expenses trimmed and a wages % determined.

Drawings for 6 months are now €15,000 of sales for the 6 months €40,000

Based on the current ratio you are getting 37.5% wages on sales. The goal is to increase this percentage each month by reducing the costs until you get to a level where you have 30%-35% of the sales or can live comfortably on the wages you take out.

Taxes estimate are still at 25%, you should have allocated these to the second Tax bank account opened.

This means you have around 37.5% of sales to spend on the business expenses.


What if you employ staff in your cafe?

The percentage of what you can take in wages must reduce if you employ staff. In the 30% allocation example above; you were the most important staff member in the business. employing staff you offload some of that responsibility. This needs to result in the cafe owner taking less of a percentage as more staff are employed.

Less of more is better than a lot of less. hiring additional staff will mean the cafe is busy, therefore naturally sales increase.

Example 3 reducing your wage % 

On your own = Owner get 30% of sales €100,000 or €30,000 per year.

1 Staff = Owner get 25% of sales or €150,000 or €37,500 per year.

2 Staff = Owner gets 15% of sales of €250,000 or €37,500 per year.

The more you work on your business rather than in your business the less of a percentage you can take as direct wages.

 

Action step

Look at what wages you have taken from the cafe and divide by the sales in the same period.

Aim to increase your wages over a 4-6 month period,  by 1% at a time.

 


Conclusion

This is not an exact solution as each café is different, you must determine the market you operate in, your financial commitments, the ability to monitor and control expenses. And finally where your business is positioned in its business life cycle (start-up or well established)

Next week in Part 3 we will be looking at how to make a profit on every sale you make so you can know how profitable your business is rather than waiting for the final accounts to tell you.

I hope you have been able to get some benefit from this post. If you have questions be sure to get in touch.