Covid-19 and Restaurants: How to Leverage Your Accountants and Lawyers
Obviously, these are tough times for the restaurant industry. It behooves restaurant owners to effectively use their advisors, particularly their accountants and your lawyers. Your goal is twofold: Communicate most effectively with all the constituencies you have to deal with and be in the best position possible coming out of this crisis.
First let’s discuss your accountants. There are three areas I'd focus on: effective communication with your financial backers, dealing with cash flow issues and finding new opportunities for financing. First, as it relates to your existing financial structure— your lender, landlords and suppliers—all require appropriate and adequate financial information. Reports must include the 2019 results, prior month information, current sales trends and restaurant closures. Additionally, it’s important to provide explanations with the financial statements, particularly if there are any interparty transactions, or things that might give your financial suppliers pause. Everything must be explained and your accountants are obviously the best ones to help you with this.
Second, you must focus onminimizing the cash burn rate.You must determine who you’re going to keep paying, and how are you going to deal with your payables. Your banks and landlords will want to see an effective cash flow analysis to understand the burn rate and how you can survive throughout the downturn.
The third item is securing funding to reopen. Your accountant is a key resource. First, your existing financial backers will need to know what the plan is going forward. You’ll need strong pro forma statements based on, I would hope, a conservative ramp up to reopening. Second, if you’re going to apply for any kind of distress loan, such as those offered by the SBA , your accountant’s help is key. And finally, all of your large suppliers must be provided with your plan.
Now, let’s focus on the attorneys, which is something I know a little about. From what I’ve seen from clients in the past, the most effective process is to put down all of your questions, no matter how simple or complex, so the lawyer can respond. Most likely, these questions will be divided in three areas. First are employee matters. These involve termination and potential re-hiring issues, as well as employee benefits. If you’re going to keep your employees working, what will be their adjusted compensation and are there written contracts that need to be addressed. Also, your employee handbook must be reviewed. Some employers are adjusting their 401(k) and other benefit plans to make it easier for employee withdrawals.
The second area of importance is your real estate. The lawyer must review your leases to see if there are any clauses that benefit you, such as a suspension of rent under a force majeure clause.There may be other clauses in the lease that need to be addressed, such as “go dark” provisions, or what constitutes a default. There may be issues where you have tied multiple properties together in a sale-leaseback or master lease, and only certain stores must be closed. As for negotiating with the landlord, the client should be the point person. I believe it sets a better tone for negotiations and may result in a more sympathetic response.
Finally, the financial institutions, whether leasing companies or banks, must be consulted. The starting point for any meeting is a review of the loan agreements to see what the covenants actually are and what constitutes a default. This review will set the stage for negotiations and possibly asking for an interest only outcome, or principal payment deferrals, extensions or even increases in credit.
Your suppliers may also be supplying supplying you credit, and you may have postponed payments to them, particularly your broad line vendors. Having your lawyer review your supplier contracts will help you determine your negotiating status.
Your accountant and your lawyer can play a significant role in the workout process. I know from personal experience helping companies in times of distress, that your professionals are there to help you through these tough times and can be a great asset.
Dennis Monroe is chair of Monroe Moxness Berg, a law firm which focuses on M&A, taxation and other business matters for multi-unit restaurant businesses. You can reach him at firstname.lastname@example.org.