I am grateful to have received PPP monies in the second round of funding. I am grateful that I have some positive news for my salaried team who have been working twice as much for less than half their pre-COVID salaries for months.
But PPP just isn’t enough.
At Farmers Restaurant Group, we have seven independent restaurants, and each received the properly calculated amount of PPP funds based on a 2.5 times multiple of our monthly payroll. We didn’t use even a penny of the money when we first received it, because the rules made it a deal with the devil. We were grateful when legislators amended the rules to allow for realistic use by restaurants.
Through May 31st (2.5 months of governmental restrictions), we lost $3M in cash flow for all seven restaurants combined. Merge that with pre-COVID accounts payable of $1.6M, and it means we’re staring at a total cash use/need of $4.6M. Sales tax deferrals + local taxes (including the baseball stadium tax, which has always been ridiculous, and now even more so) are also now due, requiring an average of $115K of additional cash from each of our seven restaurants.
When COVID hit, we bet on ourselves by staying open, pivoting to a Market & Grocery while still offering our restaurant menus and leaning into our additional debts and struggles. It was insanely risky, but it has kept our business running. Even without PPP, we have rehired several hundred people. We knew we were burning through our cash on hand, but we decided it was a less risky path to create a new business model with a grocery than it would be to shut down and try to wait it out.
Now, even as occupancy restrictions are being lifted with six-foot distancing remaining in place, we will only be able to accommodate between 35% to 40% of our usual seat count. Even as the restrictions lift, that doesn’t mean guests will be (or should be) rushing out to crowd into restaurants and bars. These restrictions and people’s continued social distancing lives will continue to severely affect our ability to generate profit indefinitely. Prior to COVID, restaurant margins were 10% or less with rent structures, wages rising, and taxes due.
The PPP funds are the current and necessary lifeline of our business, but not a long enough lifeline to pull us all the way to shore.
How are we using PPP?
PPP is allowing us to have at least some sort of short-term conversation with our landlords. We now have enough cash flow for a few months as we work to re-open the restaurants and adapt to all of the increased expenses, new protocols, and strangely low sales volumes that are the new normal of our COVID world.
Now that we have started to use the PPP funds, we’re raising salaries and (re-)creating jobs. This isn’t just a data point. This is about the day-to-day lives of individuals with bills to pay, families to support, and COVID world to navigate. If it was just about money, our team would’ve abandoned ship months ago, but it isn’t. It’s about heart, soul, mission, and community.
Our PPP funding amounts for each of our seven restaurants ranged from $700K to $2.2M. As a function of payroll and occupancy, we will spend this money, per the exact PPP use-of-funds rules, in about four months. Between now and then, we need to not only break-even with 100% of our operating expenses, we need to be building a cash reserve so that we can continue to make payments on the accounts payable mountain that the COVID shutdown created. The total of all the money that we owe to vendors and landlords averages $428,000 for each of our seven restaurants – a total of over $3M. We must be able to generate positive cash flow to pay down these old costs, stay current with new costs, and create a path forward.
As of today, our plan is working, albeit risky and wobbly. Each restaurant has made huge progress yet continues to lose between $8K and $27K per week. While that seems dire, it represents huge progress. Imagine that 10 weeks ago our sales were down 90% and our weekly cash loss was 10 times what we have cut it down to now.
Next Steps
Our top two goals are crystal clear:
1) Creating a safe environment for employees and customers
2) Getting each restaurant to break even or better
We MUST accomplish these goals, or our restaurants will close. Unless a business like ours is profitable, it ceases to exist. We don’t have access to public market funds or a myriad of other sources of capital. We can’t operate at a loss for any sustained amount of time.
So, while I’m grateful for PPP money, and I know every one of our employees who is receiving a paycheck and seeing their compensation increase towards pre-COVID levels is also grateful, it just isn’t enough funding. For a business to grow, let alone stabilize, it needs cash on hand to weather the storm, to fix the ovens, to pay for new uniforms, and to invest in training. For a business to grow in COVID world, it also needs money to cover PPE costs, new safety protocols, new jobs and roles including health screenings, along with substantially increased costs for paid sick leave.
Now is the time to take the next steps, to go beyond the short-term crisis funding of PPP and create a massive fund of long-term, low-interest loans that independent restaurants can access in order for us all to reimagine our P&L’s, to make our work environments permanently safer, and to give us a shot at creating viable businesses for the long-term. Restaurants that were profitable in 2019 should be able to qualify for these loans.
Why Do Independent Restaurants Matter?
Restaurants are job creators and career ladder builders. Restaurants support a complex ecosystem from farmers and fishermen to HVAC suppliers and valet attendants. Restaurants pump rent into the real estate system and huge sums of taxes via sales and payroll taxes. Restaurants donate millions of meals to their local communities on a continuous basis all across the country. During COVID, restaurants have been essential, responding quickly to public need and supporting the overtaxed food supply chain when grocery shelves were often bare.
Independent restaurants are a different species from corporately owned or publicly traded restaurants. We don’t have access to sophisticated funding sources and often, we operate with a different set of priorities. Independent restaurants are tied deeply to our communities and people. We represent thousands of unique threads in the diverse fabric of what creates America’s tastes, feelings, experiences, and economies. We are essential to the diversity and richness of our culture and the strength and resilience of our economy.