Excerpted from the article in Restaurant Finance Monitor. See full article here.
Obviously, these are tough times for the restaurant industry. It behooves restaurant owners to effectively use their advisors, particularly their accountants and lawyers. Your goal is twofold: communicate most effectively with all the constituencies you have to deal with and be in the best position possible coming out of this crisis.
Let’s focus on the attorneys, which is something I know a little about. From what I’ve seen from clients in the past, the most effective process is to put down all of your questions, no matter how simple or complex, so the lawyer can respond. Most likely, these questions will be divided in three areas. First are employee matters. These involve termination and potential re-hiring issues, as well as employee benefits. If you’re going to keep your employees working, what will be their adjusted compensation, and are there written contracts that need to be addressed? Also, your employee handbook must be reviewed. Some employers are adjusting their 401(k) and other benefit plans to make it easier for employee withdrawals.
The second area of importance is your real estate. The lawyer must review your leases to see if there are any clauses that benefit you, such as a suspension of rent under a force majeure clause. There may be other clauses in the lease that need to be addressed, such as “go dark” provisions, or what constitutes a default. There may be issues where you have tied multiple properties together in a sale-leaseback or master lease, and only certain stores must be closed. As for negotiating with the landlord, the client should be the point person. I believe it sets a better tone for negotiations and may result in a more sympathetic response.
Finally, the financial institutions, whether leasing companies or banks, must be consulted. The starting point for any meeting is a review of the loan agreements to see what the covenants actually are and what constitutes a default. This review will set the stage for negotiations and possibly asking for an interest-only outcome, or principal payment deferrals, extensions or even increases in credit.
Your suppliers may also be supplying you credit, and you may have postponed payments to them, particularly to your broad line vendors. Having your lawyer review your supplier contracts will help you determine your negotiating status.
Your accountant and your lawyer can play a significant role in the workout process. I know from personal experience in helping companies in times of distress that your professionals are there to help you through these tough times and can be a great asset.