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Should hospitality businesses stay closed or reopen?

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In the past few months, the hospitality sector has been no stranger to real time contingency planning and agile decision making. With restaurants, pubs and cafes being allowed to reopen from the 4th July, some have been faced with another high-risk financial decision – should they stay closed or reopen?

what options do you have?

origami question

Widely considered as one of the hardest hit sectors from this pandemic, knowing the key areas to consider, alongside effective financial forecasting, is essential. This should assist the owner managers to weigh up the costs involved in both scenarios and make then right choice for the business going forward.

What does Covid-secure mean?

In order to welcome customers back through their doors, hospitality and leisure businesses must ensure that they are “Covid-secure” by complying with new Government guidance. While developing effective hygiene procedures, they must also find ways to limit the number of customers on their premises., while also creating procedures that low customers to social distance effectively. As you can only provide table service, the most effective routes around the venue should be planned, also the use of online menus should be used where possible

Forecast your costs before making the decison to reopen

When deciding whether reopening makes sense from a financial perspective, owner managers should weigh up additional costs around implementing coronavirus safety measures, against predicted revenues.

Chains have an advantage of trial runs

Restaurants, cafes, and bars belonging to a chain have a decision-making advantage: the ability to conduct a reopening ‘trial run’. For example, opening one or two premises at a time could allow them to identify any potential problems, such as excess or insufficient staff, and make the required changes before more locations are opened across the country. The size of the restaurant or bar should also be taken into account as this will determine whether social distancing measures will be possible.

Could you take advantage of the Flexible furlough scheme?

Owner managers should consider making use of the Government’s new ‘flexible furlough’ scheme, which provides businesses with the opportunity to bring staff back to work part time. However, it is important to bear in mind that as the months progress, the scheme reduces in benefit. In order to make the most of it, owner managers should put staff plans and return to work plans in place through to October.

Three-way forecasting is a decision makers best friend

Three-way forecasting can help businesses to weigh up the risks and rewards involved in reopening, providing a valuable decision-making tool. By integrating a company’s forecast profit and loss, balance sheet, and cash-flow, this technique allows businesses to understand the full impact that certain decisions may have on their business, rather than purely focusing on the cash-flow aspect.

If it doesn’t make sense to open, how could you increase revenue?

Where it doesn’t make financial sense to reopen immediately and/or to maximise profits, restaurants and bars should consider alternative activities that could help them to prop up revenue, such as sales from takeaways, home delivery services or food boxes. Seeking specialist advice may be wise, for example, in building robust financial forecasts to enable businesses to make informed decisions, and from HR specialists when it comes to staffing levels.

Over the last few years, the hospitality sector has been forced to rapidly react to changes in consumer behaviour and it’s likely that the coronavirus pandemic will further accelerate this transformation. By taking advantage of three-way forecasting and considering their options carefully, restaurants and bars can determine when the time is right to reopen and make the most of the summer trade, protecting their financial position.

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Posted in Blog, Hospitality & leisure

Dave Gosling - FCCA

Partner

Dave Gosling is a Menzies Partner specialising in audit & compliances advisory, business outsourcing services and also leads the Hospitality & Leisure team.