My mother-in-law got it into her head to open a restaurant.
On the other hand, we live in a tourist resort whose gastronomic specialities, of which she knows every secret, are not yet as celebrated as they deserve.
And rightly so, she clearly sees it as a segment with good growth potential.
So she says to me: “Michele, I have this idea that can’t fail to work but my savings are few and I wouldn’t want to throw them out the window. What do you advise me to do to get the maximum yield with the minimum effort ?”
“Well worse than leaving them in the mutual funds of the Cassa di Risparmio di Genova e Imperia you can’t do” I reply.
“Yes, but there, unless the bank fails, at least I keep the capital.”
“Well, wait and see…”
“All right, I get it, but every time I ask you for advice, you take advantage of it to fuck with me. Tell me something I don’t know, God damn it!”
When my mother-in-law gets pissed off and starts quoting Gordon Gekko, it’s time to drop the wiseass attitude and answer his questions.
“See Lucia, the first thing you need to know is that your preference for investing in CaRiGe money funds is indicative of what is called risk appetite“.
That is, the less risk you like to take, the less return you make. At the same time, however, you also have little chance of losing something.
By taking more risks, an experienced poker player, for example, can earn much more than a great cook. Who, in turn, obtains much higher levels of return than the balanced funds that they give you in the Bank.
You have to think that the return is always commensurate with the effort, which in finance is called risk”.
“Exactly, but what are risk and return ? How are they measured?”
“It’s called Return On Investment (ROI) and in this definition there are two elements: return and investment.
- A stake in roulette can have a return of 36 times the investment (or lose everything).
- The bank’s balanced money funds, these days, have returns between 0 and 2% per year.
- To know how much the restaurant can yield, then, you need to make a Business Plan.
In other words, you have to make assumptions and simulations on the necessary investment according to the result you want to obtain and the risks you want to take”.
“But I just want to open a family diner to supplement my pension in the summer months… what do I care about doing business plan?”
“And here you’re wrong. When you get in the car, you must know where to go, right? The same goes for an investment. Because maybe, by making your assumptions and doing your maths, you realize that there is another way to earn more money or invest less (the two conditions that allow you to get a higher ROI).
As a GPS could tell you, “be careful there are queues here, if you take the other road you will arrive earlier” so the Business Plan can dissuade you from going in the wrong direction”.
“For example, using a bank loan and not your savings…”
“Oh no, I’m not going to take out a bank loan at my age.”
“Okay, but if you are so self-confident, why did you ask me for advice in the first place ?”
“I thought it would be less complicated.”
“But it’s not complicated at all.
Going back to your original idea, at first glance there are three alternatives that can be developed:
- The first is to size the investment out of your total savings. The number of covers available will be limited, the surface area of the restaurant will be reduced, the renovation work impossible to carry out, you can only afford to work with underpaid sons and grandsons (and in any case everyone will have to bring home a minimum income), etc. etc. From there we will see how much it will be possible to obtain and calculate the ROI;
- The second: not setting limits to the investment. We will imagine the place of your dreams. Depending on what you want to achieve as a profit at the end of the year, we will size the necessary investment and then we will go and ask for the money in the bank;
- The third: imagining that the motivations that make you want to open a restaurant in Alassio also include the pleasure of sharing knowledge and the lust for honour and glory, is the way to make you a Youtuber.”
“A Youtuber? Are you out of your mind ?”
“Think about it. Zero investment. Zero fuckups: ‘pasta is overcooked’, ‘meat is cold’, ‘pizza is white’…
You can show your talent in Ligurian cuisine to the world, leaving all your money in those CaRiGe funds of yours. With the difference that instead of tens or hundreds of loyal customers you can reach millions of people.
A couple of subtitles and the recipe for your famous stockfish can reach the most hidden corners of the planet.
Every thousand views YouTube pays you about 5 euros. One recipe per month, one million views per recipe, you get 5000 euros per month.
Not to mention the possibility of getting hired, you from Jamie Oliver and me from Bocconi Alumni to tell the alumni of my prestigious University how I built the success of the century”.
(to be continued)