Preparing To Reopen Your Business After COVID-19: A Restaurant Case Study

Use this case study to learn how to prepare your business for recovering from an emergency.

It is easy to feel overwhelmed and out of control during a crisis. It is wise to step back, take time to assess your situation, and create a plan of action for moving forward.

Here is a walkthrough of how a small business owner prepares for recovering from an unexpected disruption to operations.

Good Earth Restaurant

Background: Good Earth Restaurant is a small restaurant offering sit-down and take out services, with a focus on selling nutritional entrées, They cater to both local residents and seasonal tourists.  The owner, Jordan, has operated the business since it opened three years ago. He takes a modest salary and employs two individuals full-time. During the summer months, Good Earth Restaurant takes on one part-time employee.

What’s Happening: Business had been growing. Traffic and sales began declining at the end of March due to  the stay-at-home mandate in response to the recent COVID-19 virus outbreak. The restaurant was forced to close its dine-in service on March 23rd.

To help address cash flow needs, Jordan applied for and received a $10,000 loan. The funds will be received in May. The loan is at 4% interest rate with a 36-month (3-year) repayment term. For the first 6 months, he will be able to make interest-only payments.

Jordan hopes to reopen in May.  In preparation for what’s next, he is evaluating how to get his business back on track.

Here are some assumptions:

• Good Food Restaurant’s previous sales averaged $40,000/month
• Their cost of goods sold are 39% of sales.
• Employee costs equated to 23% of 2019 sales.
• Their full-time employee worked 25% less than normal in March before being laid off, beginning April 1, when sales were limited to pick up food sales from loyal customers.
• Jordan will decrease his owner’s draw from March to September.
• The business will defer rent payments to its landlord for May and June. The owner then pays back the deferred rent from August to December.

Here’s how Jordan took action:

• Step #1: Conducted a review of revenue and expenses for the next 12 months
• Step #2: Organized his operating expenses from largest to smallest (In his case, this was salaries > rent > loan payment > utilities > taxes > phone service > maintenance > supplies > other)
• Step #3: Created two new 12-month break-even analyses – one highlighting a worst-case scenario and another highlighting a best-case scenario
• Step #4: Created a new 12-month cash flow budget
• Step #5: Connected with vendors to check on the availability and pricing of essential goods

Decision: After reviewing his numbers and determining that the restaurant is still viable, Jordan decided to determine what new opportunities may be available to generate additional revenue during this time and beyond. He also decided to utilize this time to create a sanitation and operations plan for when their dining room reopens.

For now, Jordan and his employees will be offering virtual cooking classes and demonstrations for a fee, family-style carryout meals, and delivery within a 5-mile radius to boost engagement, income, and customer retention. Looking ahead, Good Earth Restaurant hopes to continue offering these additional services to customers.

How You Can Apply This Information

• Step #1: Evaluate your projected finances. It will be easier to make decisions once you have an understanding of your financial position, both from a best- and worst-case perspective. Tip: If your business took on additional debt during this time, be sure to account for repayments in your projections.
• Step #2: Be proactive. Reach out to vendors to check in on changes to your supply chain. Also, keep customers informed of changes in hours and offerings.
• Step #3: Be creative. There may be opportunities to create new revenue streams, engage with new customer segments, or respond to competitor’s changes.  Keep an open mind and be willing to pivot.

Note: CEF’s advisors provide helpful suggestions of an educational nature that are not intended to mandate or supersede the business practices or decisions of your Company, its owners, or managers. The information provided in this guide does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available herein are for general informational purposes only. You should contact your attorney to understand your rights and for legal advice about your specific situation.

This information was created in partnership with  Northern Initiatives and participating entities through Initiate Prosperity. Check out the full library of small business resources on the Initiate Prosperity: Powered by CEF site.