Those in hospitality have faced previously unknown challenges. Between lockdown and subsequent reopening with new COVID-19 restrictions in place, restaurants, cafes, and bars have had to rethink how they do business. While some have found new opportunities in the current environment — from providing delivery services to take away pints — for most, there are significant business and financial challenges ahead.
Being able to act fast and pivot hard by implementing contingency planning and scenario analysis, and communicating with key stakeholders has helped many businesses ride out the pandemic. However, risks remain as business owners recuperate following prolonged closures and the slow return to a 'new normal'.
Understanding your business' cash flow is vital to effective financial management, especially in times of uncertainty. Having a financial safety net can help you survive financial losses in the short-term.
Cash flow is the increase or decrease of money in your business – it's the net amount of cash and cash equivalents flowing in and out over a defined period. Positive cash flow indicates that your liquid assets are increasing, giving you the ability to settle debts, pay expenses, reinvest in your business, and provide a safety net in future financial challenges. Negative cash flow means your business spends more than you make over a specific period.
Create a cash flow forecast. A cash flow forecast helps predict how your business will perform over time. Given the uncertainty within hospitality, we advise forecasting to the end of 2020 and beyond.
First, consider revenue. The reality is many in the hospitality sector are generating less revenue than usual — the result of a drop in high street footfall, cautious patrons, and remote working. To build an accurate forecast with realistic revenue predictions, consider customer behavior over the last few weeks, factoring any additional online services you offer.
You'll also need to scrutinize your expected expenses. Review historical data, keep COVID in mind and detail your overheads in line with expected demand and operational changes. Difficult questions may arise, for example, if sales dip, will you be able to pay your current staff?
Ensure that you review and update your cash flow forecast. You can use cash flow apps and services to help you evaluate your situation. There are plenty of options out there that can provide an accurate picture of your past, current, and future cash position – helping you prepare for the unknown.
Define payment terms. To give you some breathing space, and ensure you're not blind-sided by unexpected invoices, define your payment terms. Open an honest dialogue with your suppliers to determine any opportunities to negotiate better terms and set realistic payment dates based on your current and future position. Feed this into your cash flow forecast for accuracy despite uncertainty.
Remember, your relationship with suppliers goes both ways, so ensure that your suppliers are committed to meeting their obligations too. They will be facing similar challenges.
Review and reduce overheads. Is there room to cut or streamline costs? Review your financial commitments — wages, tax obligations, and operating costs such as rent, insurance, utilities, and inventory. Could you better manage these costs?
You may be short on time, but is there the potential to review contracts and suppliers? Check online to compare energy or internet providers. Consider locally sourced produce as a viable, cost-effective alternative. Is establishing a buying cooperative with local businesses a possibility? There's power in numbers, and procuring in bulk can lead to significant discounts.
Governments and banks have stepped up to the plate, in many cases working together to support small business owners. Take your time and research the support available.
Speak to your bank regularly, and don't be afraid to ask for advice — it's in your bank's interest to help you. Discuss your current banking facilities and financial position to see if there are more suitable options available to you, such as better interest rates, reduced fees, more flexible payment methods, or credit facilities.
Some banks are enhancing their digital offerings to meet their small business clients' needs, and many have been incentivized to unlock funding for businesses struggling.
Don't be afraid to seek professional help from an advisor or an accountant. The upfront cost might seem heavy but discussing the financial options available to you is invaluable.
We're not suggesting that you reinvent the wheel, but small businesses have a capacity for operational flexibility. Research your market and take the time to plan around the challenges faced by the hospitality industry and how it will impact your business in the short and longer-term.
Even in these challenging times, there's room for opportunity. Think outside the proverbial box, are their innovative strategies that can facilitate new business for you? Investigate what companies like yours are doing. For example, some bars have launched delicious cocktail delivery kits for home-mixing to meet a new market need and generate additional revenue. Consider opportunities to collaborate with local businesses or event organizers — it's a nifty way of bringing new customers to you!
If you have an online presence (why wouldn't you?), then explore ways to use it to expand your reach. If you don't already have an online ordering system, then perhaps it's time to implement one. If you're a café owner, can you enhance your customers' experience by enabling them to pre-order coffee? Reconsider your marketing strategies and recalibrate them to engage with your customers and meet their changing needs.
Worldwide, we've shared this previously unimaginable experience; people understand that times are difficult. Post-COVID lockdown, we've noticed strong customer support for local businesses. It's crucial you communicate clearly with customers — regular patrons and the wider community.
Don't assume people know you're open for business – let them know. Keep customers updated and informed about the plans, changes, and precautions you have diligently put in place.
If you've changed your opening hours or menu, added delivery services, or changed your operations — tell them. Use your social media channels. If you have a subscriber list, contact customers by email and ensure that your website is updated.
These might be some of the most challenging times you’ll experience as a business owner. While it’s not a remedy, with the right financial and operational management, support from your extended community, and a pivot in approach, small businesses are battling through uncertainty.
As people begin to emerge from their lockdown-induced hibernation, we’ll hopefully see our cherished food and beverage industry recuperate and thrive.
In a highly competitive market, how do small to medium businesses ensure that their voice is heard alongside – or above – the industry big shots?
While we don't know the impact of COVID-19 on business, we know that it's vital that you manage your cash flow.