Why own a cash business

Key Markets report for Tuesday, 4 March 2025

In a crisis, even a street food cart could be a strategic investment.

As the Western world descends into a deepening economic, political and social crisis, many investors are increasingly thinking out of the box to formulate strategies to preserve their capital. Sensing that their savings could be depleted through inflation and taxation and that capital controls might be close around the corner, beyond investments like farmland, precious metals or cryptocurrencies, more and more of them are looking at moving their assets, and in many cases their families abroad, to preserve their wealth under jurisdictions that seem safer - to places like Uruguay, Costa Rica, or UAE. Of course, this seems like a sensible idea, but it also comes with considerable risk.

To begin with, there's a substantial cost involved with making all these arrangements. Furthermore, a different jurisdiction may look great on paper, but things can change over time. Tax laws, residence rules, property rights, taxes and capital controls can all change, and they can even change retroactively. The deal you thought you were getting might end up much less advantageous at some point down the road and you might find yourself at the mercy of local bureaucrats, lawyers and bankers. These are often predatory classes that can work in cahoots to prey on wealthy foreigners. The courts could prove less than fair and equitable.

A stranger in a strange land?

Most importantly, in moving to a new place you deprive yourself of the social support network you have on your home turf. In deep crises of society, the social support network is probably the most robust foundation of your and your family's resilience: your friends, family and neighbors who are all similarly affected by bureaucratic abuse share the same incentives to push back against the system and seek redress, or to game it to their advantage. The power of this force for change shouldn't be overlooked. Staying put, battening the hatches and making a few strategic investments could be a safer bet than uprooting yourself to become a stranger in a strange land.

Given that many of us and our businesses depend on banking services and that "unbanking" is the new thing in the West, one way to gain resilience perhaps, is to make a strategic investment into a cash business. By cash business, I mean something where you interact with your customers directly and collect a cash payment on a daily basis: it could be a bakery, an ice-cream shop, a pizzeria, coffee shop or services like barber shops, home, computer or apparel repairs, etc.

Ice cream and coffee

No matter how bad things might get, parents will always spare a bit of money to buy their children a scoop of ice cream. While Croatia was at war in the early 1990s and our economy was in a depression, the cafes were still full: people need to socialize and even if they can afford one small coffee a day, they won't deprive themselves of that socializing.

Now, it is true that there's no shortage of such businesses in most parts of the developed world, but one thing where the supply is almost pervasively short, and which invariably makes the key difference, is quality. Over the years (YouTube is chock-full of videos about this), I've seen that when such businesses differentiate themselves in terms of quality, they are invariably saturated with business. Last week I watched a documentary report about a Pizzeria "Bosiljak" in Belgrade: the owners made a decent-size investment in it and brought a young man who spent four years in the south of Italy learning about making pizzas.

That may seem like an overkill - making pizzas is not complicated, right? Yes, that is, if you're content with mediocre pizzas. But this young man learned the craft from people who developed a whole science about pizza dough: beyond selecting the best wheat, the process of preparing the dough takes 3 or 4 days before pizzas go in the oven. Long story short, this pizzeria is today booked solid every day of the week during breakfast, lunch and dinner and sell between 450 and 750 pizzas a day: it's a money factory.

Quality matters

In a crisis, the chances are that the last pizzeria that'll stay in business will be the one that built the reputation for making the best pizza in town. Importantly, the business will generate sufficient cash to provide the owners a livelihood, critical maneuvering space, enhanced social networking in your community and a way to at least partly function outside the banking system.

Such an investment could involve a substantial commitment of time and resources, but so does uprooting yourself and moving elsewhere. And there are always less capital intensive alternatives that could make all the difference to your family's ability to weather the crisis intact. If building such a business is not an option, partnering in one, or encouraging your family members to find employment in it could still have the advantage of being there where physical cash flows. It’s still better than depending on government handouts.

Societies weather crises and always bounce back. Our societies today are proof of that: whatever their condition, they recovered from disastrous episodes like World War I, 1930s depressions, World War II, inflations, hyperinflations, and multiple recessions. By staying intact and preserving some purchasing power, when the current crisis unravels, entrepreneurial investors and their families will be able to acquire choice assets, probably at bargain prices. I believe that, for anyone who can, this approach is worth considering. Beyond the question of generating income, it could serve to instill a certain entrepreneurial spirit, a work ethic and a critically important know-how in business management in younger generations.

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Trading signals for Key Markets, 4 March 2025

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