We are trying to extend our help in the following areas to all of our clients with the rising uncertainty surrounding COVID-19:
• Cash flow planning
• Breakeven point analysis
• Assisting with cost cutting strategies
• Support with applying for loans when they become available
• Helping out however we can (including helping manage employees working remotely)
Ideas to implement during the COVID-19 closures;
1. Don’t close, unless specific circumstances warrant it
2. Review operating hours
3. Find opportunities to keep selling or providing services
4. Reduce labor costs
5. Take care of your employees
6. Understand how unemployment insurance works
7. Negotiate rent
8. Cut or negotiate other costs
9. Reduce services or products
10. Freeze purchasing where you can
11. Forecast sales and cash flows
12. Cash flows
13. Prepare to raise capital, apply for loans
14. Use social media, etc. to inform and communicate with your guests
15. Stay Informed and up to date
1. Closure vs. Revamping
• If your business has been struggling previously, this might be a good time to permanently close.
• 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 impact on yourself, your employees, your investors, your vendors and everyone else “downstream,” you may want to close temporarily, but don’t just quit, get creative.
• Be super creative before deciding to close completely. Consider new products that can be delivered. You can even change to a takeout concept that will fill the gap until things are back to normal. Curbside delivery turns every parking spot into a potential table, so consider that as a possibility.
2. Operating Hours
• Just because you have always been open during certain times, that doesn’t mean that you have to operate during these hours under the circumstances. You can consider various options such as working remotely, delivery, and changing products/services. If you are focusing on delivery, think door-step service so it is ready at the optimal time.
3. 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 and quickest way to decide who gets fewer hours can be seniority-based.
Cutting based on performance or getting rid of the weaker players is more time-consuming and more difficult. This may not be the best time for that.
• Know that you do not need to lay anyone off. Giving someone zero hours and no shifts is not the equivalent to letting them go. You may simply not have enough work for everyone.
• Consider an across-the-board salary reduction, somewhere between 20-50%, or whatever is feasible.
• We do not encourage you to make this a deferred salary. In other words, managers should not expect that you will pay this back later. The idea here is that everyone suffers for the good of the business.
• Owner and corporate salaries: if you are asking line level managers to take salary cuts, you should do the same for yourself and your corporate team.
• No-one knows how long this will last, but if you believe it won’t last very long, you will want to keep your team, not lose them.
• If you believe this could last a while and/or simply can’t afford to keep everyone, you will need to make some difficult but necessary decisions.
4. Caring for Employees
• While we all believe that our employees are our most valuable asset, right now your business is your most valuable asset. You need to be thinking of how you come out of this. It will be better to have let your employees go too soon rather than too late. Remember, your employees will have opportunities that you will not have as a business owner. They will have unemployment and government assistance that you as a business owner will not.
• 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.
• Anyone whose 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 hours to a bare minimum or lay people off. However, if you do and employees collect unemployment, your unemployment rate may increase next year.
5. Rent or Mortgage Relief
• It’s a 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.
• It can’t hurt to ask. Ask first for reduced rent. Ask second for deferred rent. For example, ask for a
50% reduction in rent for three months 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 dispose of? If yes, get rid of this extra cost.
• If you own your building and have a mortgage, talk to your mortgage holder about what they can do to help. Maybe consider interest only payments for a while or deferred payments.
6. Cutting Costs
• Are there other fixed costs in your profit and loss that you can eliminate or reduce for the next 3-5 months?
• Look at every line item. Ask everyone to pitch in.
• Look at every software or subscription you can do without.
• None of this will be as impactful as boosting sales, controlling labor, and managing inventory, but as soon as you have time, go through your detailed Profit and Loss. Or, we can provide you a copy of your actual general ledger and look for anything you might eliminate.
7. Services and Products
• Eliminate items that aren’t bringing in as much gross profit. This will save on labor and waste.
• 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.
• 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. It is better to run out than to over prep and waste produce.
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.
• Come up with best case, reasonable case, and worst-case scenarios. Look at them every day and make adjustments as necessary.
• Next, reset managers’ compensation expectations (keep that flexible so you can adjust for drop in revenue)
• What other items never seem to change? Utilities don’t change much. Linen maybe a little.
• What else is a fully variable cost? Credit cards fees are probably the best thing to consider.
• We are here to help, so we can provide a simple excel model.
• You want to get to a weekly burn rate or breakeven. We are here to help you figure this out.
12. Cash Flow
Keep in mind your profit and loss statement doesn’t reflect cash flow.
• For example, many of you have a monthly or quarterly sales tax payment due today. Don’t forget about this when you are forecasting.
• Though you might have included rent, it’s not paid every week, ant it’s a large expense. It is only 10 days away, unless you have already talked to your landlord.
• An accurate cash flow statement takes time, but with historical info this can be done.
• Bottom line: you need to know what your runway is, and we are here to help.
13. Capital and Loans
• Do you have cash reserves 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?
14. Social Media
• Be transparent, be communicative.
• Double down on social media.
• Keep the advertising going.
• Keep your brand out.
• Communicate operating hours.
15. Stay Informed
Follow and share updates from reputable groups:
• National updates tracked on the SBA COVID-19 release: SBA.gov