When the coronavirus crisis forced the country into a nationwide lockdown during Spring 2020, business all but ground to a halt for many within the hospitality industry. Restaurants were ordered to close their doors almost immediately, with no clear indication of when they would realistically be allowed to reopen.
Some were able to pivot their operations to offering a take-out or delivery service, for others, however, their business model did not make this step either practical or profitable. Even for those dining establishments who were able to keep some revenue flowing into the business through delivering food directly to customers, many soon discovered this simply could not compare to a bustling restaurant over a busy weekend.
While the Coronavirus Job Retention Scheme (CJRS) allowed restaurants to temporarily furlough employees, protecting employment for wait staff, chefs, as well as those working front of house, bills still needed to be paid and overheads continued to accrue. Restaurants saw their cash flow decimated as takings plummeted to unprecedented lows, stock was spoiled, and uncertainty as to when meaningful business could resume prevailed.
Restrictions were eased at the start of July, with restaurants across the majority of the UK once again able to open their doors and resume trading. This is not to say a return to trade has been easy for restaurants. Staff have had to be given extensive amounts of retraining in order to make venues COVID-secure, more regular and intensive cleaning coupled with the requirement for adequate PPE for customer-facing roles has seen operating costs rise, while adherence to social distancing regulations has led to many restaurants losing covers as tables have been removed from the premises.
Restaurants are also battling trepidation from customers who may not yet feel confident returning to spaces where they will be sitting with others in close proximity. Bookings are now dictated by locality, with some limited to house-hold only groups, while others limited by party size. Uncertainty surrounding future local lockdowns, and the challenges these may present to restaurants is leading to planned gatherings being postponed or cancelled altogether until a time when complete families and groups of friends can visit together.
If you are concerned as to what the future holds for your restaurant, taking expert advice ahead of time can put you in the best position possible, allowing you to make an informed decision as to your next steps.
This may include a rescue and recovery plan which may allow you to continue trading while restructuring your restaurant’s finances, or alternatively a formal closure process known as a Creditors’ Voluntary Liquidation – or CVL, if the current situation has taken the restaurant beyond the point of rescue and it has become insolvent.
Whether your restaurant can be saved, or whether it needs to close its doors for good, depends on a host of factors including its financial health prior to the pandemic, the local restrictions it has been under or is likely to fall under, as well as its ability to successfully and profitably shift operations to a delivery or collection service.
A licensed insolvency practitioner will be able to talk you through your options, and if it is decided that your restaurant needs to enter liquidation, they will explain what this means for your business, your creditors, and your staff.
A CVL is a formal insolvency process which means it can only be entered into with a licensed insolvency practitioner. They will be responsible for identifying all company assets, distributing proceeds to your company’s outstanding creditors, before ensuring your restaurant is wound down in an orderly manner.
Once your restaurant has been liquidated by way of a CVL, any remaining company debt will be written off, and unless you have provided a personal guarantee for this borrowing, you will not be expected to make up the shortfall.
In an effort to shield companies from the full force of business disruptions caused by the COVID pandemic, the government introduced a range of short-term measures to help businesses weather the storm during the national lockdown.
Some of these, such as the CJRS which allowed employers to furlough staff when there was insufficient work available, were open to companies from all sectors and provided a level of reassurance to employers and employees alike during a time of great uncertainty.
Other initiatives, however, were focused squarely on those within the hospitality industry, to provide some relief to the particularly acute challenges many within this sector were experiencing.
Those restaurants with a rateable value of over £51,000, however, were excluded from the RLHG scheme and were not eligible for this a grant to help ease the financial pressure during this period of enforced closure.
All companies, including restaurants, could apply for a government-backed loan, either through the Bounce Back Loan scheme or the Coronavirus Business Interruption Loan Scheme (CBILS). Both of these funding channels provided companies with a cash boost at extremely favorable rates. A later addition to the loan scheme by way of the Pay As You Grow amendment, gave companies a greater level of flexibility when it comes to repaying the money taken out.
Sourcing outside funding such as through a company loan, could be a great way of giving your restaurant the cash boost it needs to recover from the months of business disruption during the lockdown period. However, if your restaurant is already heavily indebted, or you have concerns as to the future viability of your restaurant going forward, taking out yet more borrowing at this time is only likely to make the situation worse or simply delay the inevitable.
As the COVID situation continues to develop, it is looking increasingly likely that restaurants will lose the all-important Christmas trade, as offices cancel Christmas parties, and social gatherings look set to remain subject to restriction well into 2021.
For many restaurants, the level of support currently on offer is simply not enough to retain staff and allow their outgoings to be paid on time. If you are concerned what the future holds for your restaurant, taking advice from a licensed insolvency practitioner can help you understand your options and obtain an independent and objective view as to the likely viability of your business as restrictions and uncertainty continue to hinder restaurants up and down the country.
When COVID-19 forced Mark’s restaurant to close, business ground to a complete standstill.
Operating from a large and prominent high street location, the restaurant’s main source of income was from large group bookings such as birthdays, family celebrations, office functions, and wedding receptions. Although the restaurant did begin to offer delivery services at the start of the lockdown period, it quickly became apparent that their business model of catering for events and gatherings did not translate well to couples ordering in food at home. Profits were down, yet costs were continuing to accrue; the restaurant made the decision to temporarily close down and cease their delivery arm.
All staff were furloughed as part of the Coronavirus Job Retention Scheme, yet the company still had overheads to pay such as rent, insurance, and utility bills. They had also suffered thousands of pounds in spoiled stock which had been ordered prior to the lockdown measures being announced.
The restaurant reopened as soon as restrictions were lifted in July, and while loyal customers did return, lucrative group bookings were still down.
After arranging a meeting with one of our licensed insolvency practitioners, it was agreed that the restaurant was viable in the long-term, however, the current restrictions on group bookings and social distancing was going to impact cash flow in the short-term.
Following an exploration of a variety of options, a CVA proposal was drawn up and presented to creditors which was subsequently accepted. The restaurant can continue to trade and its monthly outgoings have now been reduced to a level which can be sustained with less covers and fewer group bookings.
Although selling your restaurant may seem like the ideal way of ridding yourself of your company and the current challenges it is facing, while giving your employees the chance to retain their roles, putting this into practice can be tricky. If you are looking to sell your restaurant, you need to know what your potential buyers are looking for and how best to market your restaurant to these investors.
The simple fact is that not all restaurants will be able to be sold, particularly in the current climate; however, there are still buyers out there looking for good opportunities to purchase existing hospitality businesses.
Whether your restaurant can be sold will depend on a number of factors including its assets, its current and past financial performance, as well as its reputation and existing customer base. Even if your company is current struggling financially, there may be someone who sees it as an attractive prospect and is keen to turn around its fortunes.
Selling a restaurant can be a difficult and lengthy process, however, employing the services of a corporate finance expert can not only greatly increase the chance of you securing a successful sale, but can also ensure you negotiate the best price possible.
Our first step will be to ascertain whether selling your restaurant is a possibility, and if it is, our team of corporate finance experts can help you through the entire process of selling your restaurant, from valuation, through to marketing the business for sale, negotiating a mutually agreeable price, and ensuring meticulous levels of due diligence throughout.
With an unrivalled network of investor contacts, we not only know who is looking to acquire a restaurant like yours, but we also know how to present the opportunity to them in an attractive way, cutting down the time it takes to find a proceedable buyer, while expertly negotiating a price you are happy with.
If we do not believe your restaurant to be saleable, we will tell you so, and you can continue working with your licensed insolvency practitioner to determine the next steps for your restaurant.
If your restaurant is currently experiencing financial difficulties, including squeezed cash flow and falling income, all is not necessarily lost. While some restaurants will inevitably be forced to close for good as a result of the challenges posed by COVID-19, many more will be able to be saved if an appropriate plan is put into place in time.
Turning around a struggling restaurant can come in many forms, depending on both the source and the scale of the challenges being faced.
If your restaurant’s financial problems have been caused purely by the lack of trade during the COVID-19 lockdown period, your business may need an injection of capital in order to boost cash flow and allow you to continue meeting your outgoings as and when they fall due. Our in-house team of commercial finance experts can work alongside you to assess the level of funding required to make a difference, as well as your restaurant’s ability to repay this borrowing. We can scour the whole market to find you a channel of funding which is affordable to your company both now and in the future, allowing you to kickstart your operations on a solid financial footing.
If your current problems have caused you to fall behind with creditors – whether these are trade creditors, your bank, HMRC, or a combination of all three – embarking on a negotiation process can not only ease strained relations, but also free up cash flow and provide a level of certainty going forwards.
Depending on the scale of your current debts, negotiation may take place through informal channels, or through a formal agreement such as a Time to Pay Arrangement with HMRC, or a Company Voluntary Arrangement (CVA), which is a formal insolvency process.
A CVA allows an indebted company the chance to restructure its borrowings with a variety of creditors, by effectively using future earnings to repay existing debt. Due to this, in order for a CVA to be possible, you must be able to demonstrate to your creditors that your business is financially viable over the long-term and will therefore be in a position to see out the term of the CVA which typically lasts between 3-5 years.
Your appointed insolvency practitioner will draw up a proposal detailing the financial position of your restaurant and a proposed repayment amount, and creditors will be invited to vote on these plans. At least 75% (by value) need to give their consent; if this happens the agreement becomes legally-binding on all parties.
For smaller companies an accelerated version of the CVA method, known as a Fast-Track CVA may be more suitable. The Fast-Track CVA process is a more streamlined version of a standard CVA and requires significantly less input from an insolvency practitioner. This cuts both time and costs, and is particularly suitable for those restaurants who, prior to COVID-19, had been performing well.
Alternatively, placing the company into administration may be a better option, particularly if your restaurant is on the receiving end of growing creditor pressure and escalating debt. When a company is facing the prospect of litigation, including the possibility of creditors issuing a winding up petition, time is very much of the essence. If you do not move quickly, your restaurant could be forced into compulsory liquidation; however, acting too quickly can lead to rash decisions being made that may not be in the best interests of your restaurant or your creditors.
If your restaurant enters administration, it is immediately given legal protection by way of a moratorium. This acts as a sort of ring-fence which not only stops creditors from commencing legal proceedings, but also halts any ongoing legal action while the company is in administration.
Administration is not a state your restaurant can remain in; however, it gives your insolvency practitioner the time and space needed in order to devise a plan for the future which may involve getting the company back on its feet, or alternatively, it may be decided the company needs to be liquidated.
As the owner and limited company director of a restaurant, you may be aware that in the event of your restaurant becoming insolvent and entering liquidation, your employees will be entitled to claim redundancy.
What you may not know, however, is that as director, it is very likely that you too will have a legitimate right to claim redundancy. If you have worked for your restaurant for at least two years and have been paying yourself a salary through PAYE (even if this is topped up by dividends), you may be classed as an employee and therefore eligible for redundancy if your restaurant enters a formal liquidation process such as a CVL.
As part of the liquidation process, your appointed insolvency practitioner will be able to refer you to a fully regulated claims management firm who can help you discuss your director redundancy claim further.
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