Expert Survival Tips for Restaurants during Coronavirus Crisis

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Industry

During these uncertain times, we as a company that serves the restaurant industry are focused on ways we can continue to help.

The following advice was shared by one of the leading hospitality accountants in New York City:

Our general business guidance, followed by details on same:

  1. Don’t close, unless specific circumstances warrant (more below)
  2. Review operating hours
  3. Double down on take-out
  4. Reduce labor cost
  5. Take care of your Employees
  6. Understand how unemployment insurance works
  7. Negotiate rent
  8. Cut or negotiate other costs
  9. Reduce menu size
  10. Freeze purchasing where you can
  11. Forecast sales and cash flow
  12. Prepare to raise capital, get loans
  13. Use social media, etc to inform and communicate with your guests
  14. Stay Informed

Closure

  • If your restaurant has been struggling for a long time, this might be a good time to bow out gracefully
  • If you are highly dependent on business dining, very high end and have very deep pockets, you might consider closing
  • If you firmly believe that the ethical, moral choice is to do everything you can to stop the spread of this virus, regardless of the economic affect on yourself, your employees, your investors, your vendors and everyone else “downstream”, you may want to close
  • If you don’t fall into any or the camps above, we believe you should stay the course and adjust your business appropriately
  • Finally, as pandemic develops decision to close or not may become moot, may be taken out of your hands

Operating Hours

  • Are there meal periods that have never been busy or are no longer busy? If so, consider closing them or running take-out only
  • Are there particular hours in the day that are not busy? Consider closing for those periods
  • Do things really not get going until 6pm or die down after 9pm? Adjust and cut out those 30-60 minute periods where you only serve a few guests.
  • Normally we rarely want to flex operating hours. This is the perfect time as guests will completely understand, just be sure to communicate with email and social media

Take Out & Gift Cards

  • What more can you do to promote take-out?
  • Any new dishes particularly well suited to put on the menu? Family kits, etc?
  • If you are a Resy client, look for email from Resy support with this link to promote/facilitate take-out on Resy, while saving on fees that Caviar, others charge
  • Promote on social, obviously
  • Great time to sell and promote gift cards

Labor Cost – Hourly

  • Cut hourly labor immediately and deeply
  • First, don’t schedule anyone that doesn’t want to work, doesn’t need to work or is not feeling well. Beyond that the easiest quickest way to decide who gets fewer hours seniority-based. Cutting based on performance / getting rid of the weaker players is more time-consuming and harder. This may not be the best time for that.
  • Know that you do not need to lay anyone off. Giving someone zero hours, no shifts is not the equivalent to letting them go. You may simply not have enough work for everyone.
  • Workers comp note below

Labor Cost – Salaried

  • While at least in NY, managers cannot collect tips, they can certainly take tables. Now is the time for managers to be picking up shifts, further justifying fixed labor and reducing hourly
  • Consider an across the board salary reduction, somewhere between 10 and 20% or whatever is feasible. If you need to and can afford to, eliminate salaries.
  • We do not encourage you to make this accrued salary. In other words, manager should not expect that you will pay this back later. The idea here is that everyone suffers here for the good of the business.
  • Owner and corporate salaries: if you’re asking line level managers to take salary cuts, you should do the same for yourself and your corporate team
  • If you’re an owner and are not already in the restaurants, now would be the time to pick up shifts. Are there corporate employees who might do the same?

Eliminating Positions

  • We don’t think anyone knows how long this will last but if you believe less, rather than more time, you will want to keep your team, not lose them
  • If you believe longer, and/or simply can’t afford to you may need to eliminate salaries

Caring for Employees

  • Do what you always do in terms of treating people as your most important asset and…
  • If you don’t have a good employment lawyer or HR consultant we recommend Empowered for the latter.

Unemployment Insurance

  • You have already been paying unemployment insurance for your employees. Anyone laid off can collect unemployment. With new mandates they can collect faster than they could before. See link for employees here unemployment
  • Anyone who’s pay is reduced beyond a certain threshold can collect unemployment insurance. They do not have to be laid off.
  • You will not owe anything in terms of unemployment insurance if you reduce ours to a bare minimum or lay people off. However if you do, and employees collect unemployment, your unemployment rate may increase next year.
  • You should speak with your insurance broker to understand further.  People Systems is a good company to help manage unemployment and fight or review increases.

Rent

  • It’s the rare landlord that will simply reduce or forgo rent. That said, it is also the rare landlord that wants to go through all the expense of re-renting their space.
  • But why not ask? Ask first for reduced rent. Ask second for deferred rent. For example a 50% reduction in rent for three months. Then take that 1.5 months’ worth of rent deferred and pay it back over the following 12 months.
  • Do you have off-site storage holding old records you don’t need or equipment you should really sell or ditch?

Other Costs

  • Are there other fixed costs in your P&L that you can eliminate or reduce permanently or for the next 3-5 months?
  • PR & Marketing, Accounting, Human Resources, Other Consultants or Professional Fees. Ask everyone to pitch in.

Menu
Look at your menu. Any of the following will help:

  • 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 items that drop big dollars to the bottom line. Items that have a high gross profit in dollar terms and low labor cost are best of all. Low food cost is always good but not if a lot of labor is required in the dish.
  • Use up your inventory – what dry goods have been sitting around waiting for an opportunity?!
  • Don’t be afraid to run out of items more often than you typically would. Better to run out than over prep and waste product

Freeze purchasing

  • How’s your wine and liquor inventory? If ever there was a time now’s the time to deplete it. You’ll reap the benefits in 30 days when those bills would come due
  • China, glass, silver? Any expensive amenities? Software, subscriptions you can do without?
  • None of this will be as impactful as boosting sales, controlling labor and managing food and wine purchases but as soon as you have time, go through your detailed Profit and Loss or General Ledger and look for anything you might eliminate.

Forecasting
This is not easy but forecast as accurately as possible what’s coming up
If you can’t do it by day, do it by week. 

  • What was last week like, how far down do you expect to be this week?
  • Layer in COGS percentage
  • Next fixed managers (keep that flexible so you can adjust for the 10-20% cut if that’s something you’re considering
  • Might as well drop rent in as that’s a big one, but same thing, what if you can reduce it by 50% for a while?
  • What other items never seem to change? Utilities don’t change much. Linen maybe a little
  • What else if fully variable? Credit cards fees is probably the best thing to consider there?
  • Find someone to help with a simple Excel model
  • You want or get to a weekly burn rate or breakeven.
  • But that was just your P&L and doesn’t reflect cash flow.
  • For example many of you have a monthly or quarterly sales tax payment due this Friday
  • Though you might have included rent, it’s not paid every week but when it is it’s a whopper
  • An accurate cash flow statement is much harder but with good historicals it just takes time
  • Bottom line is you need to know what your run-way is

Capital & Loans

  • Do you have a war chest to ride this out? If not start thinking about funding sources.
  • Does your operating agreement allow you to go back to investors for a capital call?
  • Do you have investors that are in the position to make a loan to you?
  • See attached second section for list of resources

Social Media & Communication

  • Be transparent, be communicative
  • Double down on social media to:
  1. Keep the glossy food photos coming
  2. Keep your brand out
  3. Communicate operating hours
  4. Communicate your care and concern for employees and customers alike

Stay informed.

Follow and Share Updates from Reputable Groups:

  1. National updates tracked on the SBA COVID-19 release
  2. NYC has The NYC Alliance
  3. SF has The Office of Small Business Updates
  4. Boston has the SMB Development Center
  • sba.gov
  • Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19) Health and government officials are working together to maintain the safety, security, and health of the American people. Small businesses are encouraged to do their part to keep their employees, customers, and themselves healthy.
  • thenycalliance.org Serving the New York City hospitality community for restaurants, bars, lounges, destination hotels, and major industry suppliers
  • oewd.org Assistance & Guidance for Businesses and Workers Impacted by COVID-19 | Office of Economic and Workforce Development
  • Boston.gov Small Business Development The Small Business Unit has the people and tools to help you build your small business in Boston. Through our online resources and in-person services, we connect you with the right people or appropriate city agencies to provide assistance with permitting, licensing and other business challenges you might have.

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