3 Things Food and Beverage Businesses Impacted by COVID-19 Should Do Now
With shelter in place and statewide lockdowns starting in full effect across the country due to COVID-19, one of the industries impacted the most is the food and beverage industry. Many state and local governments have mandated closures, forcing these businesses into full-on survival mode.
Our firm specializes in working with clients in the food and beverage industry, particularly with craft beverage companies. We have seen throughout our clients the need to close up their restaurants or taprooms overnight and change how they do business for the foreseeable future.
This unexpected circumstance has required these businesses to make significant changes and decisions on how they operate and what they do next.
Here are three best practices for food and beverage companies to consider as they decide what to do next.
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1. Understand your cash flow needs.
For any food and beverage business, knowing your cash flow is important no matter what is going on in the world—but it’s more crucial now than ever.
Before you start making major decisions, you first need to identify where your business stands financially today and what that means for the next three months. If you don’t have any sense of where you’re at right now, you’ll be making decisions without crucial data.
Crunch the numbers
Start by looking at your balance sheet. If you have your records in order, your balance sheet will answer key questions about your available cash sources and liabilities:
- How much cash do you have on hand today? This is your starting point when forecasting your cash flow needs. If you have tips or sales tax that you haven’t paid out yet, separate that out from the cash that’s available for operating expenses.
- What financing sources do you have access to today? You’ll want to know what your available credit is—i.e., credit cards or lines of credit—in case you need to utilize it. You may also have financing available through your point of sale software or merchant processor services. Check by logging into their portals and seeing if they are offering any financing based on your past merchant services activity.
- What bills do you need to pay? Make sure you’re clear on the liabilities you have today as you’ll need to commit cash to pay those bills in the future.
Trim the fat
Once you have a grasp on your cash sources and liabilities, look at your fixed and variable expenses to identify areas where you can cut, reduce, or extend payment terms.
When looking to cut expenses, you need to identify what expenses are critical to your operations—and which are not. While not paying an insurance bill might save you some cash now, that may lead to that coverage being canceled, which can cause defaults with your lease agreement.
You also want to make sure to pay sales or excise tax payments as those could cause regulatory agencies to pull brewery or liquor licenses (unless those agencies have given specific guidance on deferral of payments).
Also look for areas where you have financial flexibility. This would be a good time to see if your landlord can give you extra time to pay rent, or to get extended payment terms from some of your suppliers.
Build your forecast
The next step in the process is to create a cash flow forecast. This forecast should look forward three to six months during this period of uncertainty.
The purpose of building this cash flow forecast is to identify how much runway you have until you run out of cash. That runway might be three weeks or three months, but knowing how much time you have will help you identify the next steps you need to take, like obtaining additional financing or making further cuts to expenses.
If you need to obtain additional financing, this forecast will let you know how much cash you need to get to keep the business solvent. Once you create your forecast, update it regularly as any major changes may have a profound effect on your cash needs.
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2. Find creative revenue opportunities.
Just because you can no longer have customers inside your restaurant or bar does not mean you can’t make any money. Now is the time to think creatively about how you can continue to serve customers, particularly if your customers are looking to support your business at this time. Here are just a few ideas to get you started:
The first thing you should do is make gift cards available and easily purchasable. Think of these as your customers giving you microloans to keep you afloat. Your customers should be able to purchase these online with any amount they want. Your point of sale software may have modules in place to allow you to do this easily.
Next, look into boosting your to-go and delivery orders. States that have shelter-in-place restrictions are allowing bars to sell cocktails to go and taprooms to sell beer to-go via curbside pickup or delivery.
Restaurants have long made to-go orders available, but now is the time to make sure your customers know they can purchase food to-go or have it delivered. Get creative in how you market this.
One brewery started selling “pub to-go” boxes that included a growler of beer, glasses, merchandise, and some other goodies. Each day they have offered this, they have sold out! These creative to-go options give your customers more opportunities to support your business.
Another creative source of revenue is to sell experiences at your restaurant, bar, or taproom. Your customers can pay you now to get a cooking lesson from one of your chefs, or help brew a beer with your brewmaster, or create a cocktail that you will serve in your bar once you reopen. These fun experiences not only help bring in revenue now but also give your customers something to look forward to when things return to normal.
3. Identify your best plan for your employees.
With the main operations of your restaurant, bar, or taproom on hold for a period of time, the question becomes what’s next for your team. It may seem like the only option is to furlough or lay off your employees, but before that is done, there are some other options you may want to consider here.
Emergency paid leave
The first option is utilizing the emergency paid sick leave and family medical leave provisions recently passed in the Families First Coronavirus Response Act. These provisions allow you to pay qualifying employees while receiving payroll tax credits to offset some or all of that pay. This might be a good option particularly if your staff is tending to kids who are at home due to their school closing or taking care of other loved ones who are sick.
Pivot toward to-go orders and deliveries
Another option is to have your employees work in other areas of the business. Your wait staff can work on fielding and packaging to-go orders, or your bar staff can work on running deliveries for your taproom. This allows them to continue to work for your company during this period of time.
One thing to note is that you can’t pay them a tipped minimum wage during this time; you would need to at least pay the minimum wage in your location as they won’t be getting their compensation through tips.
As a last resort…
If you do need to lay off employees, make sure they know to file for unemployment and, if you are providing health benefits, to continue those through COBRA. If your intention is to rehire these employees once you are open again, make sure to keep in contact with them and give them updates as to your status and plans.
While the next few weeks and months will be hard for food and beverage companies, taking time to consider these three best practices will help in making better decisions now to ensure your business will be around once the economy opens up again.