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“Hope for the best, but prepare your business for the worst”. It is the biggest lesson I have learned in over three decades in the hospitality industry. No matter in which of the industry sectors you operate, this thought should constantly be part of your forecasting.
The only thing that will protect your restaurant business from the next Crisis will be cash, no matter the nature of the problem, whether generated by economic, social, or natural events. A positive Cash Flow is the result of forecasting events well in advance and being proactive.
Despite what is going on these days because of the “Coronavirus” and the consequent shutdown of many activities in many countries all over the world, I strongly believe that we will win this “war” against this invisible enemy and return to our realities.
The days after
The thing is that for many, many businesses, things will be very difficult, if not disastrous. Nobody today (as I am writing it is middle march 2020) can say what will happen after this pandemic has stopped. Right now I just received a message on my phone that the Spanish government is offering an emergency (ICO -program) financing program at 1,5 %, including interests. Will it be enough to help small businesses?
This is the Cape Town “Air Mercy Service” Rescue Chopper.
So yes, governments will come up with help, but you cannot rely on the last minute helplines. You’ve got to be prepared. And then, of course, money at 1,5% is cheap money and will help, but what if they reject your application? Do you have any assets to offer to the banks as security? You need them because banks still have their guidelines. I think there should be a 0,0% interest charge in such an emergency, but this is another story.
In the middle of the conflict
The best part of writing this article is that I feel like a reporter filing my report from a conflict zone during one of the latest civil wars around the planet. It is absolutely surreal, and you think this cannot possibly be true, but then you wake up in the morning, and the news confirms it. We are living one of the worst moments since the second world war.
Nobody was prepared for such a disaster. For sure, no normal-sized business. Of course, there will be support and emergency programs from the governments of all countries in order to maintain economic and productive assets, but we will experience big differences from country to country and from business to business.
The ramification of this “crisis” will be like nothing before in our generation. In google these days, you can find dozens of articles, where all the big brains of the most significant economic institutions and magazines are trying to explain what will be next. But the consequences are unknown even to them.
Shutting down entire states, countries, stopping production and closing millions of people into their homes will have consequences that are are not predictable. Anyone with common sense can understand this. I can and you can. And there is just so little we can do. We can just really hope for the best.
Reacting immediately
If you owned a multimillion business and paid super brains to prepare forecasts and business plans to produce significant profits, you would, or better said “should” have a different reality. But, come on, even so, if I think back to 2008 I am not sure that all those well-paid geniuses knew really what to do.
Ok, with this said, the next question is, how will we survive this, and how can each of us protect our restaurant business and our family from this and from the next crisis?
Given the real situation, we are faced with these days, the immediate thing to do is to shut down all the engines. Stop all, and I mean ALL expenses you can. It is the first thing to do. Think of it like when a fire starts to burn a home, you immediately get your family, and yourself to safety and then you start extinguishing the fire.
Of course there are guidelines you will have to follow. Directives from the ministry of employment, the tax authorities, local authorities and so on, in order to avoid dismissing staff, and in order to avoid going bankrupt. These are national, local realities that each of us must now follow, and respect.
But there is all the rest. The rest of the numbers are in your business forecast. You are the one who knows them. You should! You have studied the costs and liabilities that the authorities will not be interested in. Think that this situation is such a traumatic event that they probably will have to decree the stoppage of rents, mortgages, and other outstanding liabilities.
But you have your own list, and you must cancel all the payments you can. Don’t waste a minute. Do it now!
If you own a restaurant business right now, while this pandemic is going around, then you will have already taken action, and I hope you gave priority to the right things. I hope you are at home, like me, with your family, waiting for everything to pass and conscious that you can survive this time to restart as soon as possible.
Learn from the past
But perhaps by the time you read this article, things are again ok and all this is just a bad memory. Maybe you are only in the pre-startup phase and designing what will become your lifestyle-restaurant business.
If so, then believe me that I am here in Spain right now (middle of March 2020) writing from the front and trying to stay focused on my projects, while out there, the worst is going on.
We are all confined in our homes and can just hope that all goes by as soon as possible. We have shut down our business and the staff will be supported by the government’s social security emergency programs. I stopped all extraordinary expenses, and have done my phone calls to professionals and banks.
All in all we should come out of this pseudo conflict and be ready to take off again within a few weeks. My established business, which has operated now for 15 years successfully, combined with other income streams, guarantees me the cash flow necessary to survive this moment.
But it’s no coincidence, it’s because I did my homeworks. I have learned from the past and listened to more experienced people when they told me how to prepare for worst-case scenarios.
In these moments, Cash is King. Never underestimate this! If you run out of cash, then you are out of business. And the only way to prevent it is to prepare detailed financial forecasts. You must have a forecast in place – no excuses! And you have to update it, at least weekly.
Listen to the news and learn from the past! Be informed and ready for the worst. If something happens on the other side of the globe it’s gonna hit you sooner or later, no matter where you are. Indeed in these times, I think that if you want to know what tomorrow will bring, have a look at China today. Indeed if you live in China you live somehow in the future.
Major cause
Again, if you are reading this article somewhere in the future when all is past and just sounds like a bad story, then take it as a lesson from which you can learn something. The truth is that the next big crisis will come. As simple as this. You can google it but I can confirm that I have seen some of them over the last three decades.
They come up unexpectedly but regularly. You have heard about the seven-year cycle.
However, not all crises are equal. Many times crises affect a singular area and pressure only certain industries or businesses.
Some of them are caused by local phenomenons such as long-lasting, bad weather or even sudden storms, as we have seen often around the globe. Climatic disasters often are limited to a certain area, but the domino effects can go deep into the economic aspects of the entire region.
The bankruptcy of a determinate enterprise can be a cause too. We have seen this in the case of Thomas Cook, which was one of the leading European tour operators and which went bankrupt overnight, having disastrous consequences for many, many businesses, worldwide.
All these crises will be mitigated by the local or national authorities as they see fit, but as well as now, if you own a smaller business you will get in trouble if your cash flow is not designed and prepared to create a safety cushion of cash which will help you to stay in business.
Diversify
My family owns some land in northern Italy, where we used to produce wine, soybeans, corn, as well as wheat and other cereals. But, apart from the vineyards, the rest of the crops are different from field to field and at least every two years, even on the same field a different plant is planted in order to get all the different nutrients from the ground. Crop rotation is part of a healthy agricultural plan.
A diversified portfolio of products ensures that farmers don’t suffer complete ruin when the weather is unpredictable or other external factors come into play. I learned this lesson from my father quite early. If you want to ensure and fortify your incomes and guarantee a long life to your business or businesses, you should diversify your income stream.
In the case of a restaurant, you should consider what different product offers you can create for your customers with your menu, but as well in the form of different services such as home delivery, catering services, event services, gift cards, and maybe a merchandising collection.
You could think of creating your own, little brand of products and offer them, together with other more general products on your homepage. Any marketing agency will set up this for you within a few days.
To people just starting out I always recommend the same thing: focus on just a few things and go for it. But take into consideration from the very first moment what else you could offer in the future and add on later, as you become more confident with what you are doing.
Diversifying your offer means expanding your income stream and guaranteeing your cash flow over time.
The homemade – cash flow model
To run your restaurant business, you will need the support of a professional accountant who will elaborate your profit loss accounts, balance sheets, payroll, tax declarations, and so on. That is his or her job.
But despite the work your accountant is doing for you, you should also have your control system, to have an independent and easy way to see where you are, but more importantly where you are going.
This can be done very quickly with an excel sheet or even on your google drive. It is about listing the main parts of your business, such as income and costs, and then projecting it into the future. You want to study what will happen when things are growing positively, but it’s even more important to consider what will happen when things are not going so well.
Your accountant can give you a view and professional advice based on the numbers you provide. But he will have hundreds of clients and will not be in the position to predict your future based on your daily reality.
And even more important, you should never rely “only” on what the professionals are telling you. You should be able to read the numbers too and recognize if something is going wrong. Remember that if the accountant is wrong, you are the one that will have to survive. They always apologize, but you pay the bills.
So, with this said, I have the habit of looking at my numbers at least once a week. My own, personal forecast sheet. Well, to be honest, I do it every couple of days. Mr. S.A., one of my earlier business partners and a sagacious businessman taught me these lessons and put me under enormous pressure daily. Now, after many years I have to say thank you for that!
If you think you are not a number person, I tell you that you should become one. And don’t underestimate yourself. Many times your gut feeling and common sense are more valuable than the opinion of a professional adviser.
However, start doing your work. With just a little computer knowledge there are dozens of good tutorials on the web. Have a look at this one for example. It is exactly what you need to start and have a first picture. Then, as you become more comfortable with the process, you can elaborate it and become more precise.
The question you were searching for was probably something similar to the title of this article: “How can I Protect my restaurant from the next economic Crisis” and my prompt answer was that it would be the cash in your pocket or bank account.
Forecasting and understanding the details of your business are fundamental to survive the next Crisis, or even just a bad season.
Every Crisis is an opportunity
Let’s assume that you have done an exellent job and have forecasted well, predicting any type of Crisis. You would now focus on acting as per your predicted milestones, and would have to cut expenses and terminate contracts to survive. For the business to survive!
This is one of the worst moments for any business owner. You have to dismiss part of your staff and cut other costs to get the business through the crisis period.
The milestones you have previously designed are the only way to prevent a disaster. If you would wait to cut costs when you are forced to it, then it is already too late. For this reason, it is crucial to act in time.
If the business survives the crisis and comes out fit to go on, you will be able to call back your members of staff. In the opposite hypothesis and worst case you wouldn’t have a business, which is definitely worse.
The fact that you have predicted a crisis coming up will save your business and while your competitors are surprised, and forced to contain the damage, you will be able to use your time and energy to adapt and think of new ways to expand once the storm is over.
What will be a hard time for most businesses or even their demise, could be an opportunity for you.
You may not have predicted the exact situation of the crisis but you were ready to face one. Now you can take the opportunity and adapt your business to be even more prepared for the next one because another one is around the corner. It is the reality of the world we live in today.
So, whatever crisis you have to face, take the opportunity to reorganize and adapt your business. Observe what is happening around you and to other businesses. Try to understand what they have done wrong and think of a solution.
If your model was a winning one, perhaps there is a new, unexpected business opportunity for you. Maybe you could sell your business model. Possibly you market it by yourself, and offer your services to others.
What next?
For many businesses, the first big Crisis comes within the first two or three years, and is caused by running out of cash. Yes! No virus, no economic disaster, no hurricane is destroying the city. Just running out of cash. There is no need for a crisis to come up due to external factors to see yourself in the middle of one.
Starting a restaurant business from scratch can be a tough job, and you will need to create a regular, forecastable stream of income. You will need to create your flow of clients, and you will need to give them the right offer.
You must build a solid and flexible business to adapt to the market-driven variations of your customers. You must create your own SUPERFANS AND UNDERSTAND how to maximise your profits.
The most significant and most important rule when you run a restaurant business is that you have liabilities with many people such as your staff, providers, and suppliers, and you have a responsibility to your clients. And of course with your own family.
All the work and effort that I have put, and will put in the future into this project of creating a blog for those dreaming of creating their own business, has started more as a hobby.
But now it has become a full-time job.
When entrepreneurs in the industry call me and ask for help to identify problems they face in their restaurant, bar, cafeteria, or hotel business, I see again and again the same type of failures, and most of them can be corrected very easily.
Those problems many times, if not identified and addressed on time, will lead to bigger problems, and they will sooner or later affect the business’s cash flow. This as we have seen is the first problem you must avoid to prevent all types of crises
However, the best way is to take those future risk factors into account from the very first beginning. And this is presisely the purpose of this work. If you are still in the beginning phase or even only collecting information in order to get a clear picture, then feel welcome to explore all the posts we are creating for you.
For those of you looking for something more specific, that guides you through the whole process, from the dream until the opening day, I have created a complete scenario, where you will see what you have to be aware of. Even if you are still at your home and only thinking about it.
You can subscribe to my FREE REPORT and have a first deeper impression. I will send you three emails in which I will put things together, and you will see that the dream of owning your own restaurant business can come true. However, you will have to be honest with yourself to understand where to start from and how to proceed.
What are your skills? What are the realities you are facing now and those you can put on the table? All in all, an eciting brainstorm to get a bit closer to your dream.
If you wish to, you can subscribe to my paid-course, which is a text-based tutorial in which I walk you through the whole process of opening a Restaurant Business from scratch in any location you want to.
It is the culmination of my own experience hard-earned over the last three decades in the hospitality industry – a summary of good and bad experiences from which I have been forced to learn and to adapt.
Experiences that gave me the instruments and the knowledge in order to survive economic crises as well as variations in the market and continually adapt my business plan and my forecasts, and succeed.
This is your opportunity to get informed about what will come, even before spending a penny or losing a minute of your time.
“Cash is King” is the biggest lesson I have learned, as I told you earlier. And the consequences of misunderstanding the market, mismanaging your business or underestimating the competition, all this will have consequences on your cash flow.
From the very first moment, you’ve got to understand the importance of your cash flow.
However, you decide to proceed from here, and now I wish you all the best. May your dream come true and good luck!
