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COVID-19 and The Hospitality Industry

About the Author:
Stephen Funtig CA, CPA, CTP, CIRP, CFE, LIT
Licensed Insolvency Trustee

A Windsor born resident, a Certified Public Accountant and a Licensed Insolvency Trustee since 1988 practicing in Toronto and Windsor. In addition he is a Certified Turnaround Professional. His practice focuses on personal and corporate turn around and insolvency related matters in the Southwestern Ontario area. Stephen has helped many individuals and businesses over the years.

Now that we have been self isolating for a number of months and the government has finally allowed areas to move to Stage 2 and reopen, a number of restaurants and bars are expressing a sigh of relief.  But this new and well worn expression, “The New Realty” is just starting to happen and we are all learning from it.

At S. Funtig & Associates, we are here to help. We want you to know that there are options both for you personally or for your business.  These options may range from lending an ear and providing business advice to assisting in filing a proposal to give you or your business time to recover while you or your business get back to work.

Here is the legal part, this blog is not designed, nor in the space available, can we set out all conditions, exceptions or possibilities.  Once you read this blog, you should contact one of our offices near you or contact a local trustee near you for greater analysis and review of your particular circumstances.  For ease of reading, we will try to create a series of short blogs written avoiding lots of legal jargon.

Here are some realities and lessons that can be taken away:

Cash is King
Revenues will be reduced due to the capacity restraints imposed.  Many establishments need the tables full and multiple seatings to survive.  Look for ways to conserve your cash including talking to your landlords and vendors regarding credit and payment terms.  Also now is the time to analyze your revenues and costs and where costs can be reduced.  Consider the benefits of having take-out only and reducing some of the front of house costs versus operating on a socially distanced approach and carrying the extra labour costs.

In some cases, talking to your suppliers about a “Covid moratorium” on old payables until the pandemic is over may save precious resources.  This may require payment on a COD basis or other modified terms but may provide enough breathing room to get through this difficult time.

Talk to your Lenders
While financing in the hospitality is difficult at the best of times, many establishments operate with less traditional sources of capital.  Discussion with your lenders and demonstrating to them that you have considered some of the implications and responses you are taking to address the challenges will provide a level of comfort to your lenders.  In some cases your lenders may ask for additional collateral or guarantees.  Prior to giving the guarantees you should make sure you consider all the implications to you personally.  If asked, now would be the time to have a discussion with your legal advisor on what the additional obligations mean to you.

Having the discussion with your lenders may provide the opportunity to discuss the future of the business.  Lenders may see the future viability in the business and understand the current challenges.  They may consider making adjustments to the current terms in place for loan repayments.

Be prepared
One of the most important steps when talking to your creditors is to be prepared.  Updating your cash flow forecast and having a plan can provide your lenders and creditors with a level of comfort.  This may also include a new or change in your marketing campaign to maintain your engagement with your customers.

Many times I have been in meetings with a client and they are essentially frozen and don’t know what to do next.  Providing information on what steps will be taken, costs cut, new products or services to provide additional revenue all instil confidence in your lenders.

Make sure you meet your government filings
Two things often come back to bite operators of businesses, not filing and remitting government taxes and personal guarantees.  Remember some government taxes have a director’s liability for the payment of the taxes due.  In a previous post I discussed those and the personal implications.  The second is many people forget which creditors they guaranteed.  Guarantees are a complex area and should be reviewed with your lawyer as your responsibility under the guarantee can change with time, amounts, co-guarantors.

There are a number of factors and implications to address when making decisions concerning a course of action regarding your business.  At S. Funtig & Associates we are here to help and can schedule a telephone or video conference call or arrange to meet with you respecting the need for social distancing.

Remember the people of Chatham and Windsor are strong, we will get through this together!

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