Even for those of us that were sounding economic alarm bells over the past couple of years, no one expected anything quite like the devastation from the COVID-19 global pandemic. Just sit and absorb for a second, the scope and ferocious speed in which this invisible packet of RNA tore through millions of people’s lives and virtually destroyed much of the world economy.
So, as I try to absorb the carnage, I ask myself… where do I begin to write this financial disaster recovery article? How do I offer some help and advice to the good people in the restaurant and hospitality industries that have suffered a disproportionate hit in this sh*tstorm? Unlike a number of other columns, I am not going to list all the government bail-out programs for everyone. I am sure most of you have ascertained what you are and are not eligible for. I don’t need to tell you that (as expected) the government screwed up royally in getting the money into the hands of the people who really needed it.
I’m also fairly sure that you are sitting there worrying about your future and simple survival. Unemployment claims reached well over 26 MILLION people. And you’re shaking your head wondering how hundreds of millions in relief dollars were gone in less than 4 days! While you are waiting for an answer from your bank, cash had already landed in the accounts of large, well-capitalized companies like Ruth’s Chris Steakhouse. How did a publicly traded cashed up company like them get $20 million from the small business loan program?
Despite having more than 5,000 employees and $468 million in revenue last year, Ruth’s beat the average owner to the pot of gold. I watch my friends struggling every day to keep their doors opened and employees on payroll. Yet the Washington Mensa members gave hundreds of millions of dollars to companies that didn’t need it. It was only Danny Meyer and the team at Shake Shack that stepped up immediately to give the money back. Now Ruth’s Chris buckled after tons of bad press to return the money. WTF just happened?? The reality is that the clowns in DC continue to play partisan politics. When they could be doing the right thing and helping devastated people stay afloat until the world gets back on its feet.
Restaurants represent less than 9% of the PPP loans. But as of last month, we represent the majority of the 26 million layoffs nationwide. To add insult to injury regions that were lightly affected by the pandemic were given disproportionate chunks of the money! It doesn’t take a deep thinker to figure that out.
Any reasonable person would ask: why did businesses in Texas get more PPP money than any other state, even though Texas had the tenth highest COVID case load? A mere fraction of what New York and New Jersey had to deal with. New York was #4 in receiving aid even though it was hardest hit by the infection. Luckily, phase II of the PPP has just been approved so you can get another shot at funding but the $320 billion won’t last long, so get the applications filed. Reports are that many banks will not be participating in this phase and funds will dry up quickly.
To make matters worse, we are finding out that the PPP was designed with a serious flaw. Despite the good intentions of adding a $600 sweetener to the weekly unemployment benefits – it has caused some serious problems. Benefits vary by state but the average weekly benefit nationwide is approximately $370. The $600 sweetener kicks that number to $970 which is nearly DOUBLE the $500 average weekly pay within the foodservice industry. So why would employees remain at work when they can sit home safe from the virus and get paid better?? Then comes the Catch 22 in the PPP for the employers – the loans will only be forgiven if 75% of the money goes into retaining these employees… if they don’t work and go on unemployment, owners will have to pay back the money they received. Brilliant!
We have all been absorbing this as quickly as we can, but the real important question is what lies ahead. Here we are in a brave new world and we have learned very quickly how to adapt to the threat and current conditions. However the uncertainty makes it impossible to plan. How long will we need to stay isolated? Will the warm weather cause the virus to go dormant? When will a second wave hit? Will they find a drug to treat the virus anytime soon? Will they develop a vaccine before next Fall?? If you are a restaurant employee – do you wait and see if your place reopens or do you find a job working for UPS or Amazon?
Before you can make reasonable business decisions, the science and psychological condition of the country needs to stabilize. Yet that doesn’t mean you shouldn’t consider your options. You need to start asking yourself many times over – “what if…?” What if the recovery from this is not only dependent on how the virus behaves, but also on the behavior of our fellow man? Or what if our customers don’t feel comfortable coming back to our restaurants? What if they are uncomfortable with sanitizing hands or social distancing in our dining rooms? Servers wearing masks and gloves? What if your sales volume is 50% of what it was before the pandemic and not showing signs of coming back anytime soon? What if your landlord will not renegotiate your rent? Can you re-invent yourself??
If I were going to advise you, I would tell you to put together three disaster recovery plans. Visualize how you might have to operate in recovery; or how to get out of this with as little damage as possible. In finance we typically do a Best Case / Worst Case / Most Likely Case analysis. In the Best Case, imagine the federal relief funds are plentiful and arrive quickly. The virus subsides dramatically in the next 4 to 6 weeks, doors open and customers flock back and fill the seats. Worst case is the exact opposite. While you realize that even if you can get the doors open again, your losses and mounting debt have effectively killed your business.
Your revenues will not sustain operations and your only hope is to drain your finances and add to your debt. In all cases, you need to figure out as accurately as possible how long you can sustain yourself before you need to do something drastic. One of the biggest mistakes that owners in distress make is they hang in there too long. They end up burning all their resources and assets, putting themselves in crushing debt and tax jeopardy. This is far worse that losing your business if done right.
My general financial disaster recovery recommendations to all are:
1. Apply for CARE Funds ASAP. Don’t delay and apply for everything – PPP, EIDL
2. If you don’t have one – apply for an SBA 7(a) or 504 loan. They are approving them quicker than the PPP or EIDL because they must be paid back. However they are very low interest rates. The SBA announced they will be making all P&I payments for borrowers on these loans that are already funded, or new loans made before June 30th. If you close a 7(a) or 504 loan, you will receive 6 months of payments of principal and interest from the government plus in some cases a 3-month forbearance because of the COVID pandemic.
3. Because no one knows when this will be over or when business will return to former levels, I recommend you accept every dollar offered from any stimulus program. I know many owners who do not want to take on this debt. But remember if recovery comes sooner rather than later, you can always return the money. It probably will not be available in the future.
4. You should try to conserve as much cash as possible because healthier businesses will thrive as we emerge, and the cash starved ones will close their door permanently. Don’t be one of them.
5. Stay in communications with your landlord and other creditors to let them know your payments will be minimal if at all, even if you have the ability to pay right now – conserve cash. To say it again – we don’t know what is going to happen, so only pay what is critical.
6. If possible, even if you are in extreme straights, save enough cash to retain a lawyer in the event that you need to file Bankruptcy. Seeking the protection of the court to save your business and your personal finances is of critical importance. It will not help you if you cannot afford to pay a lawyer to file and manage the process.
This is uncharted territory. Just as we are all taking measures to protect our health, we need to take drastic measures to protect your business and personal finances. Make plans. Stay safe and healthy. Good luck. If you’d like to ask questions please email me at
dsederholt@ragnarpartners.com
