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How to... deal with a drop in revenue caused by coronavirus

17 March 2020 by
How to... deal with a drop in revenue caused by coronavirus

How will you pay staff without customers? First, don't panic, be truthful with your staff, and get your landlord on-side, says Catherine Gannon

Last week, UK trade body UKHospitality called on the government to support the hospitality industry as it deals with the ongoing and widespread threat of the coronavirus.

Latest figures released by the trade body state that eating and drinking out has declined by 7%, while forward bookings across hotels, restaurants, pubs and bars have fallen by up to 50%.

Silence is not an option

Easier said than done, but above all, don't panic. The worst thing operators can do is stick their heads in the sand. They must help themselves.

This is the time to do as much as feasibly possible to keep your business afloat to ride the crisis. Silence is simply not an option.

Make the call to your landlord

Firstly, operators need to make the call to their landlords and then speak with employees. From our experience, landlords are more likely to be open to a conversation on deferring rent for an agreed period of time if an operator is open and honest from the outset. The key is to have that conversation sooner rather than later and before falling into arrears or defaulting.

And, it may sound obvious, but ask nicely.

Most agreement clauses don't have a force majeure in place, which would prevent a business from fulfilling a contract in unforeseeable circumstances, such as the coronavirus.

However, that's not the case with leases. So, the only option open to operators is to enter into negotiations with their landlord.

See the situation through the eyes of a landlord Landlords know this is a worldwide crisis. Most importantly, they don't want an operator to default on rent payments. Remember, the majority of landlords would prefer agreed rent arrears than defaults. Why? Because, if they force rent payments during this crisis, the likelihood is that an operator will go out of business, leaving them with rent arrears they can't recover. Shrewd landlords are therefore looking to mitigate their risk of losing everything.

What if my landlord says ‘no'?

If a landlord declines to defer rent payments, an operator is left with a debt by way of the rent. In the worst-case scenario, a landlord can call in bailiffs and instigate court proceedings for rent arrears. We've heard cases where bailiffs, either sent by a landlord or through the local council (depending on whom the debt is owed), have physically removed fixtures, fittings, supplies and indeed the operator from the premises during service. Hence why it is important to have the conversation early.

How can HMRC help?

The best advice in dealing with HMRC is to call them to agree a payment plan prior to getting into difficulties. This is essential for operators experiencing problems, because if they don't, the penalty clauses for monthly missed payments can be crippling.

Be honest with staff

The biggest cost to any business after rent is staff. Therefore, it is vital for operators during this crisis to immediately reduce their operating costs and review cashflow management. Communication is key and it is imperative to do it properly. This calls for an open conversation.

Operators need to inform staff that due to the ongoing spread of the virus the business is facing uncertainty. Importantly, operators need to advise employees of the steps they are taking to keep the business afloat and to safeguard their jobs. Be honest with your employees, because the worst-case scenario at this time is redundancies. The likelihood is employees will already be aware of this, due to the decline in revenue and footfall, so don't treat them as idiots.

Move to reduced or part-time hours

The introduction of reduced or part-time working hours until the threat of the virus passes is the most logical step. It's important for operators to say it as it is: "I can't afford to pay you on a full-time salary at this time."

Those who openly explain the problem are the ones most likely to gain the consent of employees.

The key here is to introduce a thorough, documented consultation process with each employee, clearly outlining the reasons for the change in their contract, while also including what will happen once the crisis is averted.

By introducing a documented consultation process, operators won't find themselves in breach of any employment law regulations.

Employee disputes

But what if employees won't consent to reduced or part-time hours? Firstly, operators need to take a view as to whether those employees are behaving unreasonably. The question then is do they want to retain those people following the crisis. If employees won't go onto reduced or part-time hours, then the only option is redundancy which, once again, has to be supported by a detailed, documented consultation process. Remember, no one wants to lose their job, so having that open and honest conversation from the outset is crucial.

Catherine Gannon is founder of Gannons Solicitorswww.gannons.co.uk

Photo by: Shutterstock

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