Due to the current pandemic we are all experiencing, many businesses have been forced to shut down and many others have had significant decreases in revenue. In response, Analytix is launching a program to help our clients and other business owners gain a better understanding of their financial models to ensure that they’re able to respond appropriately in order to survive these challenges.
The majority of restaurants around the globe are facing undue hardship due to the current COVID-19 crisis. Restaurants have been forced to minimize or shut down operations altogether to help contain the spread of the coronavirus. During this unprecedented business disruption, Analytix Solutions has created this COVID-19 Restaurant Recovery Guide. Our goal is to help our valued restaurant clients navigate and endure current business and market turmoil.
The full impact of this pandemic on your restaurant operations and supply chains is still unknown. The most optimistic forecasts predict business normalcy to return in the US by the end of Q2. Regardless of predictions, one thing remains certain – few industries are struggling more than restaurants. But with this bad news comes a slice of good news. Data strongly suggests restaurants that have a documented disaster recovery plan are more likely to pull through a crisis. Such planning guides are designed to help you consider options, mitigate risks, and weather out this nasty storm.
14 Restaurant Recovery Considerations
Here are some risk-mitigating best practices that may help your restaurant survive in the weeks to come and hopefully thrive in the years ahead.
1. Manage Cash Flow – Many SMBs are working through the financial and operational impact that a slowdown has on business. Top-performing businesses, at a minimum, should prepare a weekly cash flow forecast to better gauge how sudden downturns impact vendor payments and debt paydown. This is extremely important for businesses like restaurants, supermarkets, and construction, where cash flow is very tight. With a cash flow forecast at the ready, you’ll be able to quickly determine payment priorities.
2. Review Capital Expenditures – If your business had plans in 2020 to invest in capital equipment, it’s time to reconsider. Even if your capital expenditures are justifiable for carrying out daily business operations, consult other avenues. For example, your suppliers also value cash and may be open to price negotiation. If not, consider leasing. A third option has also recently become available via the government by providing incentives to invest in capital equipment, which will further reduce the net investment amount.
3. Assess Financing Options – Just as fast as the government is presenting new capital incentives, your banks may be removing any incentive to finance with them. Don’t assume otherwise or rely on old financing relationships. It’s best to pick up the phone and call your old contacts to re-establish terms. Also, consider factoring your receivables or other funding options into the mix.
4. Take Advantage of Federal Relief – Even though COVID-19 is taking a toll on the people, businesses, and economies around the world, know that small business relief is coming. As of this time, the government is drafting a relief act that includes the following:
● Low-interest federal disaster loans backed by the Small Business Administration
● Employer tax credit
● Federal income tax deferment
● Economic injury disaster loan, which covers things like payroll, expenses, accounts payable, and fixed debts
● April 15 income tax deferment extension without penalties for 90 days
5. Improve Cash Collections – If you were ever considering rewarding for early payments or incentivizing those slow to repay you, now may be the time to act. Consider offering discounts for prepayments. You can also improve cash flow by expediting invoice processing or try some other low-cost, high-value A/R process improvement.
6. Cut Overhead Costs – Top-performing businesses have a solid grasp of their break-even point based on different financial and operational scenarios. Figuring this out helps determine how much cash is required to run the business. The remaining costs are considered overhead and can be reduced in times of crisis. Overhead costs can be broken down into categories and prioritized based on your unique business factors, but, typically, they are broken down as follows:
- Payroll – Here’s a list of ways to cut payroll overhead:
- Pick up shifts if you are a manager or corporate employee
- Reduce owner and corporate employee salaries
- Change the frequency of staff wages
- Lay off employees with pay
- Stagger hourly employee shifts
- Implement salary reduction across the board
- Encourage vacation time usage
- Reduce hourly labor
- Eliminate unproductive labor
- Payroll Taxes – Be aware of and act upon all payroll tax breaks made available to small businesses during the crisis.
- Contract Payments – Consider reducing contracting work and redistributing work to existing employees.
- Inventory Management – Businesses that carry inventory should consider if a drop-shipment or real-time inventory management system can improve efficiency.
- Rents – Although a landlord may not reduce or forego rent, landlords also realize the cash crunch and want to avoid the costly experience of re-renting space in a down market.
- Professional Fees – If a vendor is providing PR & Marketing, Human Resources, or any other consulting, consider off-loading to your internal team.
- Events & Travel – Hold team meetings virtually rather than travel and skip any conferences or other planned business travel.
- Other Expenses – Take an inventory of miscellaneous expenses like off-site storage, an old landline phone system, or cable TV that goes unused in the office.
- Vendor Management – If you have yet to do so, contact vendors and seek to reduce the balance due and/or seek payment extensions. Also, review vendor contracts, and look for better deals as other vendors may be willing to provide better pricing and terms.
7. Adjust Operating Hours – When is your business typically busy? Consider closing up shop for those other periods, and then communicate with signage, email, and/or social media if you decide to go this route.
8. Assess Employee and Unemployment Insurance – Since you already pay unemployment insurance, you recognize that anyone laid off can collect on that insurance, and new collection mandates mean faster collection time for your laid off staff. Remember that they do not have to be laid off, either. If an employee’s salary is below a certain threshold, they can collect it.
9. Understand Business Interruption Insurance – If you were fortunate enough to have such a policy, this insurance generally covers losses arising from disruptions to a business’s customers or suppliers. However, the range of coverage can vary significantly by insurer policy, industry sector, and geography. Call your agent to find out your exact coverage.
10. Implement a Remote Work Option – Check out the free tools business owners are using to enable their teams to work remotely without losing too much productivity. If such a scenario meets your business model, it’s worth the effort to assess and possibly implement it. Keep in mind remote workers will need the guidance and oversight to optimize productivity, so remote work training and policies are highly recommended. If this happens, it’s likely minimal investments in modern technology to fund remote work efforts would be worthwhile.
11. Allow Employee Flexibility – Do your best to be understanding of the current climate and the impact on your workforce and their families. An illness or a family emergency will likely arise unexpectedly. Prepare a contingency plan in case you suddenly become short-staffed.
12. Adjust Your Menu – Eliminate menu items to reduce the menu size. This will save on labor and waste. Make sure menu items cross-utilize at least some ingredients. Try to keep expensive items off the menu. Items that have a high gross profit in dollar terms and low labor cost are best of all. Keep in mind, low food cost is always good, but not if a lot of labor is required in the dish. Finally use up your inventory.
13. Freeze purchasing – Use up your wine and liquor inventory and don’t purchase excess inventory in the next 30 days. Other purchases such as china, glass or silverware should be put on pause. That also goes for unused software and subscriptions. Finally, go through your detailed Profit and Loss or General Ledger and look for anything you might eliminate.
14. Close Operations – If walk-in customers are what drives your restaurant and you’ve been hoping this is the year to turn things around, reconsider. This actually may be a good time to close up shop, save on capital, get government assistance, and look for other business opportunities that are just now appearing on the horizon due to this crisis. Hold out if you can but know that closure is an option.
That’s all for now. As you consider all the options presented above, know that we’re here to help! We encourage you to forward to any business owners or colleagues who need help and can also benefit from this program.
Finally, here’s to the ongoing health of your workers, the recovery of your revenue, and the boost in your restaurant’s resiliency in the coming months.