I was approached by a small restaurant company operating in the Dublin area. The company has been in existence for approximately 25 years and during that time had built sales up to €1.3m and had a relatively strong balance sheet with healthy reserves.
As a result of lockdown the company’s customers, tourists, office workers, shoppers and students disappeared over night. The company directors, a husband and wife team, requested a financial review and some assistance with a Business Plan, in an effort to plot a way out of Covid in March 2020. The company employs 10 full-time and 10 part-time employees.
The initial issues identified were:
1. Continued viability post COVID.
2. Rent arrears and landlord relationship.
3. The management of tax arrears and trade creditors.
To address these issues it was agreed that I would prepare a Cash Flow Forecast covering a two-year period from June 2020. This would incorporate the payment of the arrears of tax warehoused due to COVID, which was due to commence in September 2021. It also looked at revenue scenarios based around different opening assumptions and social distancing measures.
It also provided a framework to pay down rent and trade creditor arrears within current banking facilities.
As part of this exercise, I conducted a review of the cost base, particularly in relation to labour costs, which I pointed out had increased significantly in recent years. The directors agreed that they had “taken the eye off the ball” and
agreed to operate at a new lower level of labour cost.
At the same time, a draft Business Plan was completed highlighting the company strengths and weaknesses and identifying the opportunities and threats posed in post COVID environment.
As a result of these initiatives, the arrears of rent were pushed out six months, trade creditors by four to six months and payment of tax arrears arising from the lockdown deferred to a commencement date in September 2021. The directors also committed to bringing labour costs more under control. It was also agreed that a separate exercise would be completed on food input costs when everything settles back to “normal”.
“This experience has been terrific, and I look forward to speaking with Tom again about purchases when we get the ship upright.”
EFM Ireland Expert: Tom Brennan