Preserving Liquidity And Debt Relief Options During COVID-19
By: Carty Davis
Published: March 26th, 2020
The impact of COVID-19 has been devastating to communities and businesses throughout the world. Nowhere are its effects more acute than in franchising. Since the pandemic began, it has caused a strain on multi-unit franchisees who are scrambling to keep the doors of their businesses open, finding new ways to conduct business, and paying employees.
Carty Davis, a partner with C Squared Advisors, shared some thoughts on how multi-unit operators can preserve liquidity and find some debt relief. These tips are both timely and relevant and come from someone who not only has banking and investment experience, but who is also an area developer and multi-unit franchisee of Sport Clips.
- Cash is king in your ability to maintain your going concern value. If you haven't already, it's time to update your cash flow projections and determine your cash flow needs over the next 30, 60, 90 days and determine which expenses can be reduced during this time. Challenge discretionary costs without compromising operational excellence and cleanliness and put non-essential initiatives on hold until things stabilize and get back to normal.
- Closely monitor relief and assistance packages that are being discussed and provided for at all levels of government. Restaurant leaders have done a fantastic job communicating and explaining the most critical needs of our industry. Expect to see new bills, amendments, and aid programs announced over the coming days and weeks and make sure to assist your employees in applying for available and evolving benefits.
- Contact landlords and key vendors. It is important to over-communicate and to be transparent that you are evaluating liquidity forecasts and may need some help. Nobody likes surprises and most creditors and vendors are expecting these calls and requests.
- Speak with your lender about debt relief options. If you don't know how to approach your lender or need help leading those negotiations, get help. It is important to move quickly as almost every small business will be requesting relief, so you want to be at the front of the line.
- In most cases, lenders and other creditors will provide relief and while the easiest ask is for interest-only payments for a period of time, don't limit your ask if that is not enough. The federal government has encouraged and communicated with banks to work with borrowers. Other creditors will do the same.
- Insurance providers should be contacted to understand whether business interruption coverages may apply.
- Franchisors should be prepared to provide some short-term relief. Franchisor participation in restructurings provides a key catalyst for other creditors to follow and participate.
- If franchisors are inundated with requests for relief, they should consider contracting with an outside expert to assist their franchisees with restructuring obligations. This has been an effective tool in prior industry downturns.
- The goal is to preserve capital and maintain going concern value, so that you can live to fight another day. COVID-19 will end, and the operators best positioned with staffing and operations stand to benefit greatly when this dissipates.
- Above all, stay positive. The restaurant industry is full of strong, passionate individuals, and we know that franchisees and franchisors will find a way to work together during this challenging environment and in the process, bring about further innovation and ingenuity.
Related Stories