The coronavirus crisis has prompted mass layoffs and business closures. Just last week, the number of Americans claiming unemployment benefits rocketed, an indication of how severely the real economy has been impacted.
In response to the increased claims number, Goldman Sachs economic forecasters suggested that nearly two million Americans would be added to the next release, pointing to the largest weekly increase in initial claims on record.
President Donald Trump asked states to hold off on releasing numbers due to the anticipated decline in consumer spending at hotels, restaurants, and sports and entertainment venues.
Jeremy Sasson has experienced the coronavirus shutdown firsthand. Sasson is the founder and owner of Heirloom Hospitality, a holding group that controls and operates Michigan restaurants such as the upscale Townhouse restaurants, steakhouse Prime + Proper, and the Cash Only bar.
The slowdown began weeks before Michigan’s statewide stay-at-home order, he told Benzinga.
“We found ourselves in a position where, two weeks prior to these transitions, we were already seeing sales compression,” he said.
His team reduced schedules and spending.
“We had to lay off hundreds of team members and furlough many others.”
Carryout Business Won’t Pay the Bills
“Right now, the state order provides that carryout, delivery, and drive-through options are considered essential.”
Despite the order allowing for carryout and food delivery, Sasson said he elected to keep his venues closed. The income generated does not justify exposing team members to added health risks, he said.
“Our projects in Detroit rely heavily on office traffic, and there is no office traffic. We felt it was best suited that we just operate under the same modus operandi across all of our projects,” Sasson said.
Cash Flow Realities Look Bleak
The restaurant business is a low-margin, cash flow-based business. Typically, restaurants have enough money to operate on a rolling seven-to-10-day period, Sasson said.
“January, February, and March are the slowest periods of the year already, so cash is extraordinarily tight. There’s no auto show this year. No sports,” Sasson said. “If you shut off the cash flow and bills remain, a lot of restaurants are quickly in the red.”
Restaurants are a business with a low barrier to entry, he said. With sliver-like margins and not enough resources to sustain a prolonged closure, the future looks grim, he said.
“It’s inevitable that we don’t come out of this in the same way we came into it,” Sasson said. “In the end, it comes down to liquidity in people’s pockets. Do they have the money to spend in restaurants?”
Hedging Risks, Staying Flexible
Pressures from debt and investors will require pragmatism, the Heirloom Hospitality founder said.
He advises businesses to do take the following steps:
- Communicate with stakeholders. “Nobody wins if everybody doesn’t work together. That’s the real reality when you have an extraordinary market correction like this.”
- Understand your liquidity. “Manage your cash and work closely with programs that let you get the end result you’re aspiring to accomplish,” Sasson recommended gaining a thorough understanding of legislation on state funding and Small Business Administration loan programs.
- Make adjustments to team members and services provided. “Prioritize the most important things and understand what those priorities are to reopen.”
Restaurants are entering a new world, Sasson said.
“Whether you’re selling a fine dining meal or a casual meal, some of the things that you offer may not be what the market is going to need, and you have to be prepared for those changes also.”
This story originally appeared on Benzinga.
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.