Getting through Covid-19 and re-opening profitably afterwards

Yes, I know that I have made a point about opening PROFITABLY. That was very deliberate.

There is a huge amount of advice and discussion elsewhere about the health and hygiene aspects of re-opening after Covid-19 and with particular emphasis on social distancing.

BUT, unless there is at least a tangible sign of being able to trade PROFITABLY, you might well ask yourself ‘’WHAT IS THE POINT?’’. Fair Question.

You are not there just to provide a service to the community. You are there to make enough of a profit to enable you to pay all your bills and live reasonably.We all know that no-one in Food service is going to get rich quickly after Covid-19, and we accept that, but there has to be a positive indication that you will be able to be profitable after a reasonable period of adjustment so that you can see a future for you and your business.

I would like to touch briefly on a number of aspects, and I just need to say that these are my opinions, and I am probably generalising a lot too, as there is no other way to write this article.

GIVING IT SOME TIME

Do not expect to bounce back into Profitability straight away. The considered opinion is that it will take months or even years to get back to where you were before the Covid-19 outbreak.

GRANTS

Any Grants you can get, from Local or Central Government, will be good for you, as these will not need paying back.

The Government’s sponsoring of Wages through the Furlough Scheme has been excellent, and hopefully that will continue in some way.It is understandable however, with the outcome predictable – that the Government will be very keen to move quickly towards a situation where people are back at work and earning their wages from work.

There have also been Council Grants made available. They will not need repaying either.

COMMERCIAL RATES

There has been a lot of help as regards relief from Commercial Rates bills. That will not need repaying. So far so good.

LOANS

Yes, it is quite easy to get a Government-backed Bank Loan to help you.No, there is no interest to pay initially, and when interest does kick in, that is at a reasonable rate.HOWEVER, lets us be under no illusion. These are loans, and any monies borrowed do need to be paid back.

That means that in your financial planning you will have to make allowance for that INTEREST outgoing when that starts – and you will have to put the capital repayment into your cash flow forecasts.

Ouch! That is starting to hurt a bit …

GROSS PROFIT MARGINS

We have yet to see how Gross Profit Margins (“GP%”) will be affected by the virus outbreak.

I would like to think that we could resume the GP%s that we had before the outbreak – BUT – be warned – we might well be under such huge price pressures that might just drive our selling prices – and hence our GP%s lower.

This could be driven by public expectation, or by increased competitiveness … or both.

It is very unlikely that our cost prices will be any lower, so the selling price will still be very important.

In my opinion, there will NOT be an opportunity to take a HIGHER GP% to try perhaps to recoup some of those lost profits.

Again – just in my opinion, the competition will be fierce, and increasing prices will lose us market share to our competitors.

LABOUR COSTS

There are going to be some very difficult decisions to be made.

Whenever you do re-open, it will be on reduced trade – partly down to there being less business out there, but also partly down to social distancing obligations.

I believe that you will almost certainly need to reduce your staffing levels, and almost certainly that may involve some Redundancies.The Government has already signalled the end to their wage subsidy through furloughing, and there will be a lower requirement for hours worked.That means that manpower will have to be reduced, and that, very sadly, means redundancies will be needed – almost everywhere.

EMPLOYEES

Of the employees that DO get back to work with you, there will be notable nervousness … mainly about their jobs and whether they will be able to keep them.

This is a time for reality … but also,for compassion.

People do not work at their best when they feel ‘’under threat’’ … and this applies especially with ‘’customer-facing’’ staff, as their nervousness may be apparent to your customers.Managers will need to show understanding, and be encouraging, to keep getting the best from remaining employees.

RENTS

There is no ‘’right’’ formula here, and no Government guidance in place.Private Landlords will behave differently, and city landlords can be notorious for their inflexibility.This is the time for talking and negotiating to your landlords and asking them to help us out with rent-free or reduced-rent periods. Should you need help with this aspect, please reach out to me.

Whatever you do, do not just store up problems for later, so be very cautious about thinking that you can simply make up any shortfalls later in the year, or even over the next year or two.This is just like borrowing money … it must be paid back at some stage.

UTILITIES

When the business is not operating, the utilities will be reduced but all that refrigeration takes a lot of power to run … and some lighting will always be needed.In the colder months you will HAVE to heat the building, or it will suffer and need more maintenance expenditure later on.Turning all the refrigeration off sounds logical, but only if you can put the stock somewhere, and keep the refrigeration safe and secure, preventing the growth of moulds and mildew.

We have been monitoring weekly the utilities readings at a hotel that we work with, and it is frightening how high the usage is – even when the hotel is effectively closed for business.

When you reopen, there will likely be a spike in utilities usage, but that will settle back to previous consumption levels.There will also be a cost to having all the equipment checked over to make sure that it is all working fine.My personal experience is that equipment does not really like being turned off for a long period and you can expect some operational hiccups when you turn it all on again.

SUMMARY

In summary, when we have taken all of the above into consideration, we (you) can decide when to reopen, how to reopen, and what changes you may need to make to the business, to be able to reopen and become a Profitable business again.

Several food service businesses have already declared changes in their operating styles … to fit in with health fears.It is NOT going to be easy. It will be VERY challenging, and you will need to be confident, very positive, and VERY STRONG to make it work.

The planning that you do NOW will play a huge part in the outcome … whether it is going to work or not.

If you want to talk through any aspects of this article or discuss how it affects you and your business, just call me, David Hunter, on 07831 407984.You can call me any time, but preferably 09.00am – 09.00pm and on all days, weekends included.Or just send me a message to call you.