Should I Close My Restaurant?

Should I Close My Restaurant?

If you own a restaurant and are still trying to survive, you will not regret asking yourself this question one more time: “Should I close my restaurant?” 

You are probably the gritty, never give up type of person who has been able to survive in an incredibly competitive and low profit margin industry so it never crossed your mind to close.  As the stay at home orders were implemented, you adapted your operations to minimize the damage.  You shifted to provide more take-out.  You pulled off a minor miracle to last this long without running out of funds. There may be other options that you have not considered.

The Covid 19 pandemic has been devastating to the restaurant industry.  In an industry that has razor thin margins, many struggling restaurants had no choice other than permanently close their doors when the stay at home orders began.  The National Restaurant Association reports that 4 out of 10 restaurants have been forced out of business for good.  Of the restaurants remaining, some mom and pop operations have managed to keep their dreams alive by pillaging their personal savings, delaying the payment of rent and tapping into government assistance, but these funds will not last long.  As the country re-opens, most landlords will not continue to provide concessions and evictions will rise. 

How well do you know your landlord?  Are you sure that they will have your back for the next 6 months?

The restaurant chains will survive and certain restaurant formats have been able to adapt to the social distancing guidelines.  The chains are ready to take your location as soon as the landlords will allow it.  For example, Brian Niccol, the CEO of Chipotle Mexican Grill, believes that landlords are going to want to have a strong tenant for prime locations and he is ready to get back to the Chipotle growth strategy. 

I hope all restaurant owners will spend the time to truly examine all of their options as states allow them to resume operations.  Pride and emotions need to be put aside for this analysis.  A harsh, realistic look at what will happen over the next 6 to 9 months is worth the time.  It makes sense to evaluate the situation one more time before blindly trying to keep a head above water and continuing to bleed out life savings.  Any misstep in cash flow management could force a restaurant out of its space and leave the restaurateur with nothing. 

You may be thinking, “If I can just endure the next 6 months, things will get back to normal and I will be fine”.  That might be true, but are you willing to take that chance?  Have you thought about re-locating?

For most restaurateurs re-locating will not be the answer, but it is worth the time to investigate the possibility.  It may not have crossed your mind but just as many landlords will be ready to evict upon one misstep, you may be able to get out of your lease due to the crisis without penalty.  Ideally, you would never need to make this decision but what are the harsh realities of what you are facing for the next 6 months?

It will take 6 months to get your new location up and running so the timing will enable you to pick up without having to endure 6 months of losses.  Additionally, the change of venue will allow you to tweak your business plan in order to start fresh with renewed energy.  Your long-time customers will be relieved to know that you will be there for them if they can just be patient as you re-tool.  In fact, the thought of losing you could provide an incentive for long time customers to invest in the new location in order to keep their favorite restaurant in their lives.  On top of that, your new landlord might provide you with some incentives in order to fill a location that has already lost a tenant due to the pandemic.  Many restaurateurs can’t imagine moving to another location, but remember that one misstep might leave you with nothing.

This alternative is not just me throwing an idea out there.  I have seen this technique successfully used by a veteran restaurateur.  He opened a restaurant but within 6 months realized that the restaurant was not going to perform as expected.  At the time, I was surprised that he pulled the plug without giving the restaurant time to build a following.  However, once I thought about all of the restaurants that I have worked with, 6 months is usually plenty of time to know if you have a hit or a miss.  In my 20-year career as a restaurant CPA, I saw dozens of restaurant owners hold on too long and lose everything rather than cut their losses in order to try again another day.  This veteran restaurateur was not going to let this one restaurant pull him down.  It was a tough decision to absorb the losses but if he had let emotions take over his decisions, he would have lost a whole lot more.  Due to his shrewd decision, he was able to open another concept at a different location 6 months later. 

In times like this, business owners need to look at every alternative and option despite initial emotional responses to those alternatives.  It is important to realize where you stand with a harsh look at the facts in front of you.  Remove yourself emotionally from the decision and take a realistic and honest look at the stark reality that you are facing.  Sometimes it is time to cut losses in order to fight another day.

If you would like some help in exploring additional options for your future, or if you would like some guidance to put your new business plan on paper, please send me a message in LinkedIn or contact me at jay@jayvarcoe.com.

Thanks!