At Carl Marks Advisors, we help family-owned, private and public companies navigate through a number of economic cycles. The current crisis however, caused by the Covid-19 virus, is unlike anything we or the markets have seen before.
While every industry has faced challenges, the pandemic has had a devastating impact on restaurant businesses and restaurant franchise owners as non-essential businesses have been forced to close across the country and the vast majority of states have issued some sort of shelter-in-place order. The National Restaurant Association estimates that over a three-month period, industry sales will decline by $225 billion and job losses will be 5-7 million.
In this difficult environment, many restaurants have already made difficult adjustments to preserve some revenue, including delivery and take-out options with social distancing. Here are six things we are recommending to restaurant businesses and franchisees in the current environment:
Over-communicate with Key Stakeholders
Consistent and transparent levels of communications with all key stakeholders is of the utmost importance. Now is not the time to limit discussions, including potentially painful or isolating topics. Updates to employees, vendors, landlords, franchisees, customers and others should be provided on a timely basis, and in a transparent and thoughtful manner.
One audience that should not be forgotten is furloughed or even laid off employees. Finding ways to maintain contact and provide updates to this population is critical to making sure the post-crisis transition goes smoothly, and the heavy costs and burdens associated with re-training staff can be avoided.
Don’t waste precious time trying to craft the perfect communication. Instead, focus on being responsive, thoughtful and empathetic to audiences and maintaining consistency as messages are being delivered and tailored to different audiences.
Assess your Loan Options
Pay attention to your lenders. Maintain open lines of communication, and talk to them now about your situation and potential options. In order to reduce payment amounts, can you extend their maturities and amortization schedule? How can you adjust your cash pick up services so that you are not needlessly being charged for services you might not need now?
The government is continuing to make adjustments to SBA loan programs as the crisis unfolds. These relief programs will allow for missed payments and additional credit availability, along with incredibly low interest rates. Lenders will have key insights in how to apply for these relief programs as well as if you qualify.
Pivot to New Channels
To manage through this crisis, restaurant owners and franchisees are embracing delivery, take-out and drive thru locations, which are key for short term survival if staffed appropriately. You must cut down the menu in order to optimize it for delivery – not everything travels well and will arrive to the consumer in the manner or quality you would like. To further reduce costs, consider a centralized location for managing all catering and delivery, and shut down those locations where you cannot make money. Third-party partnerships such as Door Dash, Grubhub, and UberEats will increase visibility, and many are offering temporary sign-on discounts and promotional offers.
Extend Terms with Vendors and Utilities
Vendors in your supply chain understand what is going on, as many, if not all, of their customers are facing the exact same issues. Get in touch with them as soon as possible to work out a plan to extend credit until revenues return to some sustainable level for your business.
Utilities are another area where you should extend credit. In fact, utilities are positioned to bear the brunt of extended payments, and many municipalities and states have put in place prohibitions against service terminations during the crisis. Think first about extending regulated industry services like gas, water and electricity bills. Telecommunication services, especially internet and cable, often have their own regulations to follow so these services may be less inclined to delay terminations.
Bring Solutions to Landlords
Just as vendors are acutely aware of the issues restaurants and franchisees are facing, so are landlords. Landlords are in leveraged positions, dealing with many struggling tenants and those asking for abatements are going to the bottom of the pile. That’s why it may be best not to immediately ask for rent abatement and/or forgiveness.
Before talking to landlords, owners should have a plan to put forward. Given the volume of requests landlords are likely to be dealing with, those coming to the table with a plan are much more likely to achieve negotiated terms. For instance, one solution may be to get agreement on a forbearance for a couple of months with a plan to pay back the rents over time.
Understand When to Pay Taxes
It never benefits a company to delay payment of any type of sales or payroll taxes. While it may seem counterintuitive, just because some states are allowing companies to delay payment of sales taxes for a couple of months does not mean you should. The timing for a gradual end of this health crisis and a return to more “normal” times is uncertain, and if you do delay payments on these taxes, you may have difficulty finding the cash to pay them later.
For business taxes, restaurant owners should await more guidance from the IRS. Tax filing dates have been extended, which means any preparation or planning exercises can be put on hold. Restaurant owners and franchisees should delay preparing filings, but stay vigilant about new policies and regulations as they are likely to evolve and change rapidly.
Carl Marks Advisors is well-equipped to guide restaurant and franchise owners with a wide variety of needs through their financial options during this unprecedented crisis. If you need a partner, our team of professionals has extensive restaurant, food and grocery industry experience to offer.