Throughout the pandemic, operators have been forced to make the heartbreaking decision to lay off team members, many of whom were like family. They’ve lost tens of thousands of dollars and their restaurants look like a shell of their former selves, all while wondering how long their PPP money will last.
Owners and operators are bruised and beaten up, but by no means counted out. Creativity and tenacity got many operators into this business and that’s what it’s taking to get them through this crisis.
They also need to determine facts versus fiction.
Fiction: “National chains are filing for bankruptcy; if they can’t make it there’s no way an independent can either.”
This statement is ridiculous. When it’s known that a group is filing for bankruptcy, operators need to ask themselves what strategy was being executed. Most bankruptcies made by corporate restaurants are done by design in order to renegotiate leases and corporate contracts. The clause for renegotiation of contracts is usually buried somewhere deep in the terms and conditions and it’s a very effective way of getting all parties to the table at one time.
Fiction: “Ghost kitchens and delivery services are going to be the only way to order food in the future.”
Seriously?! That’s also ridiculous. RSI’s data from the last financial crisis clearly demonstrated that independent restaurants thrived during periods of crises. Guests are far more sparing with their money, and they feel more connected to their communities when they spend it at local neighborhood restaurants. This speaks directly to the pandemic.
Fact: “The only experience that any restaurants have similar to a pandemic is when they were opening for the first time.”
It’s the last time where the operator had no sales and cost history, no brand awareness, and no consumer base. Restaurant operators need to believe that their past experiences and obstacles within the industry have prepared them to overcome what the pandemic has and will throw at them.
Fact: “Many restaurant owners had limited cash or were severely undercapitalized when they first opened.”
It wasn’t magic that they became successful operators, they were forced into their success by their fear of failure. All operators should accept their fear, fully embrace it, and plough forward.
Fact: “Operators don’t take percentages to the bank, they take dollars, and if they don’t have a handle on their dollars, they’ll have 0% chance of success.”
Now that it’s apparent what’s fact versus fiction, restaurateurs can capitalize on success by focusing on the facts, and a few strategies that clearly position a business for survival as well as a successful comeback (don’t call it a comeback).
Circling back to the million-dollar question “how long can an operator’s PPP money last?” There’s only one way of making PPP money last and that’s strategy #1: Understanding revenue generated per seat, not by square foot, as it’s traditionally done.
Because restaurants have a 50 per cent seating or 50 guest restriction, it’s important to understand the top line revenue potential using these limitations. The minimum achievable costs (break-even) can be determined by an accurate revenue model.
This brings us to our strategy #2: Unleash the Creativity. Understanding potential revenue and related costs will allow operators to just that.
Hint (and strategy #3): Every HGTV remodel show starts with five minutes of determining the budget. If it’s good for them, it’s essential for a restaurant owner. Here’s why:
1. Operators will have the freedom to determine whether closing their dining room and moving to an online model will be successful. They’ll know if the costs associated with modifying their business is worth the expense.
2. Operators will know exactly how much revenue they’ll need from a delivery service in the event they attempt a blended approach.
3. Operators will know whether their business needs to have its menu paired down in order to achieve costs that ensure profitability.
4. Operators will know how many and at what cost they can bring back their team members. Many operations have increased wages for team members they’ve been able to bring back.
5. Operators will know which expenses need to be negotiated. Hint: It’s not always the big, non-recurring ticket items. Many times, operators can find giant savings by calling their vendor partners and asking them for ways to temporarily or permanently reduce costs and fees. Vendors know better than the operator what’s available. Leave it to them to do the work and ultimately use their knowledge of what others have done.
This is the time where it’s essential that operators are honest with themselves and their abilities. If an operator isn’t a numbers person or if they don’t like to negotiate, remember the business, team members and community who depend on it. If an operator doesn’t know how to, or can’t do it; find someone who can.
Hint: Many hospitality-focused companies have the resources available that enable them to provide restaurateurs with specific guidance dedicated to survival and success.
1. PPP loan management: There are constant changes in the forgiveness rules, the reporting and the payback. Also, they will have banking and lending relationships that can prioritize small businesses in the event that a second wave of relief is available.
2. Tax and Social Security deferral strategies.
3. Lease negotiation strategies: It takes more than calling a landlord and asking for free rent. Working with someone who knows restaurants can make all the difference in a landlord’s belief in a restaurant’s success.
A fourth-generation restaurateur who has operated and sold three restaurants, Matt Vannini is president and CEO of Restaurant Solutions Inc., one of North America’s most respected restaurant consulting and accounting firms. RSI is more than just back-of-house software and management tools; the company embraces the belief that training and education must be incorporated into the system for effective integration to occur.