Earlier this year, our country and our economy found itself in an unprecedented and challenging time. With the novel Coronavirus, known as COVID-19, instilling the unknown in many Americans across the country, business owners were coming face-to-face with the reality of having to close their doors for an unforeseen amount of time. One of the first groups of businesses to shutter was the food, restaurant and hospitality industry – an industry that relies on daily revenue from its patrons, those of which were now being mandated to quarantine and reside in their homes.
Immediately, many restaurants pivoted their business model to adapt to this change. Restaurants that previously never offered take-out options were adapting their menu to provide pick-up and delivery services for those in quarantine. We even saw restaurants offering to-go alcohol packages to help drive revenue. Unfortunately, not all restaurants and bars were able to pivot and adapt to the new normal and for many, those doors have closed indefinitely.
Many restaurants are looking at their 2020 budget and wondering – what now?
However, as restaurants nationwide begin to enter the phase of reopening after months of either being closed or having a take-out only model, the future is now. It is time to adjust your 2020 budget, evaluate labor and food costs, update bank reconciliations and take an overall holistic look at your business model and strategy. As an experienced financial specialist with a focus on accounting solutions for the restaurant and hospitality industry, I am counseling my clients on financial strategies that will identify their immediate needs for reopening as well as creating a roadmap for long-term financial stability.
I bet many restaurants are looking at their 2020 budget and wondering – what now? After being closed or having a limited incoming revenue stream, my recommendation to all my clients is this: create a new budget at 50 percent of the original 2020 budget. Restaurants and bars are opening with capacity restrictions and new guidelines. Consumer behavior has also changed; some consumers are eager to get out and go back to their normal restaurant routine while others continue to remain cautious. This, along with other variables, will cause an overall decrease in sales. With this in mind, it is time to reduce spending and forecast daily sales in comparison to last year’s numbers in order to adjust accordingly.
On the other hand, there is labor cost. Rehiring employees is essential to run your business, unfortunately, rehiring your entire staff is not financially responsible as labor can be one of your biggest expenses. You also want to avoid the expense that comes with training new employees. Focus on the same prerequisites and qualifications for your potential candidates that were important prior to the pandemic. Also, having a well-organized system to record tips will make a difference in customer service and a satisfactory front-of-house experience for the consumer.
Food cost is also critical when reopening. It is imperative to have a solid understanding of your food cost and yield. Create inventory pars that will allow you to track necessary inventory items when running low. This will help in creating a runway that will allow restaurants to stay afloat until sales return to a new normal.
While this may seem simple, I encourage all my clients to ensure that bank reconciliations are up to date to account for cash flow. Additionally, discuss COVID-19 tax breaks with an accountant to check that you are fully taking advantage of all available credits. A reputable accounting firm will also help businesses navigate the CARES Act to ensure restaurants are properly tracking how funds from available loan relief options are being utilized while also complying with loan forgiveness guidelines.
Working with a reputable accounting firm that specializes in bars and restaurants and has a pulse on the hospitality industry is crucial as our economy continues to navigate these unchartered waters. One thing is for certain, and that is being able and open to adapt your business model that reflects the current financial state of the industry. It will take time and patience is key. Working with an accounting firm that has clear, open lines of communication and someone dedicated to you will greatly assist in how your business takes shape during this time. That is why I always say, the future is now. Capitalize and take advantage of what you can, control the controllable and adapt to protect the future of your business and your long-term business goals.