RESTAURANT APOCALYPSE – BUT SURVIVAL IS POSSIBLE – CONSTRUCTIVE SUGGESTIONS!!
The challenge in these times is to remain constructive, productive, and flexible, and healthy, of course.
Our friend, John Hamburger, proprietor over the Restaurant Finance Monitor and Franchise TImes (the publications and the conferences) published the following article. We are reprinting here, with his permission.
REPRINTED FROM THE RESTAURANT FINANCE MONITOR WEBSITE (www.restfinance.com)
The challenges for restaurants from the Covid-19 virus are formidable. Already, some state and local governments have ordered restaurant interiors to either be closed or capacity constrained. Expect those requirements to be a national mandate soon. Fortunately, carryout, delivery and drive-thru operations are spared. Things are bleaker for sit-down restaurants that don’t have carryout or delivery capability.
The focus of this article is survival and what you can do to stay in business and protect the long-term viability of your restaurant operation. Two things are paramount, and we’ll discuss them both in more detail, below: First, keep your employees informed and try to keep them working as much as possible. Second: Restaurants are notorious for running with negative working capital. As sales slow, cash must be hoarded at all costs. Curtail all non-food, non-labor cash outflow immediately.
Here are some ideas to ensure the viability of your business at least until the all-clear signal is given.
- Communicate, Communicate, Communicate. Now is not the time to crawl into a hole. Keep your employees informed and working as much as possible. They know the situation with the virus and the community need for social distancing, but what they don’t know is how it will impact them. Set up a communications and scheduling team just to deal with employees. You will need your employees to return to work. Employers who do not take care of their employees, as best they can, face a difficult recovery. Also, make sure to keep the safety of your employees and customers front of mind. They must know that you’re concerned for their safety. You will need a designated point person for communicating with customers, vendors and landlords. As for the bank, get a phone meeting ASAP to share your plan.
- New Store Development and Remodeling. Stop all new development and image enhancement projects immediately. It makes no sense to build new restaurants or remodel others right now. Forget about your franchise development agreement. You need to preserve cash for your operation and that means stopping the cash going toward new locations and remodels.
- If you are a franchisee, defer the payment of royalties and ad fees immediately. Let’s get one thing clear: You will eventually be required to pay these royalties and ad fees back, however the asset-light franchisors understand they need you to stay in business to support their valuations and they don’t want to spook their bank or Wall Street any more than they have are already.
- You’ve paid March rent, but if your store is temporarily closed, call your landlord and let them know you can’t pay the April rent right now due to something completely out of your control. Tell them you need to get through this crisis first, and that you will eventually pay them, or restructure the lease—workouts happen all the time in real estate. As a precaution, remember to disable any auto-pay rent features on your bank account.
- Off-Premise. This is where the game will be played in the next few months. Focus all of your efforts on delivery and takeout.
Staff only those employees needed to run that aspect of the business.
- Municipal utility companies are not going to turn off power and light during a crisis. Use them for credit as long as they will let you.
- Bank Loan Agreements. Start a discussion immediately with your banker. Ask them to suspend any principal payments due for the next 90 days, with a right to extend for another 90, if circumstances dictate.
- Real Estate Taxes. There may be penalties for non-payment, but the county is not going to kick you out.
- Marketing and Advertising. Focus your spend on your loyal customers. Curtail all unnecessary media, unless it is used to drive delivery, take-out and drive-thru orders. Radio advertising is worthless now as no one will be driving cars to and from work.
- Store Rationalization. You may be forced to close restaurants located near sports venues and airports. Make sure you have security around them. As people get bored with staying home, vandalism and looting could occur.
I’m not a medical doctor but one can only hope the Covid-19 will start to dissipate by mid-to-late April. People will be anxious to get out of the house and start attending sporting events and visiting your restaurants again. There may be some disaster assistance available to restaurant owners via the Small Business Administration but it will probably come after the fact. The important point here is to use any means necessary to stay in business so you can serve guests once again when this pandemic is over.
Reprinted by: Roger Lipton