4 Steps to Navigate COVID-19 Debt

January 10, 2022

At a glance

  • Pandemic debt poses problems: Debt resolution remains a challenge for many restaurants, due to COVID-19-induced lockdowns and the current rise of the Omicron strain.
  • Impact on your business: Businesses should prioritize open, honest communication with their vendors, landlords and lenders to help renegotiate terms and ease financial burdens while repaying debt.
  • Next steps: Contact your Aprio advisor, who can help you navigate these issues and connect you to professionals who can address debt management challenges.

The full story:

Restaurants are among the many businesses navigating the road to financial recovery under the weight of the COVID-19 pandemic. Unfortunately, as cases continue to rise due to the highly contagious Omicron strain, pandemic-induced debt likely will continue to be a challenge for the industry going forward.

The silver lining is that you don’t have to face the challenge alone.

Recently, Aprio teamed up with Graham Stieglitz — debt resolution expert and Partner at Burr & Forman, a law firm with offices across the Southeastern United States — to host a webinar focused on helping restaurants ease debt burdens and better secure financial viability through the pandemic. Here are the top four tips we recommend following.

1. Revisit your current contracts and operations

Take a straightforward look at your contracts and business-forward segments. Analyze where you stand and where there may be room for adjustments. What are your obligations? Which of your vendor relationships are underperforming? What about your lease? Are there areas where you may need to cut back, or is there room for renegotiation?

2. State your goals

Write out your goals and timelines for overcoming debt and identify where you should be spending your effort to remediate challenges. What are the best- and worst-case scenarios? Which partners do you need to negotiate with to obtain better terms that will allow you to achieve your debt resolution goals?

3. Take stock of your relationships

Whether it’s your landlord, vendors, suppliers or investors, relationships matter in the restaurant business. If you’re going through a period of distress and need to adjust or renegotiate terms, it’s important to approach every relationship as a partnership and not as a battle. Communication is paramount, and you are much more likely to achieve favorable terms with your vendors or benefit from potential discounts if you are upfront about your struggles from day one.

4. Renegotiate as needed

Your business has three main sources of expenses: vendors, landlords and lenders.

Whether it’s the company that stocks your silverware or supplies your food inventory, renegotiating your terms with vendors can be the most beneficial way to shore up debts. Once you’ve been open with your vendor about your debt situation, ask if there is anything you can do to extend payment terms. Have you historically paid your invoices on time? Ask your vendor if they offer discounts for timely payments or for buying in bulk, or if you can defer payments based on future purchases. If you have maintained positive relationships with your vendors over the years, simply asking the right questions can open the door to more possibilities.

The same goes for your landlord. At the beginning of the pandemic, many businesses deferred rent on their properties to stay afloat. If you haven’t asked for a rent deferral yet, explore that avenue or ask for abatement until you’re able to get through rough patches. It’s also a smart idea to seek out joint resolutions to debt problems that align with your landlord’s common interests. For instance, can you develop a scaled rent repayment plan that is contingent upon increases in sales? Explore opportunities that will be helpful to your landlord while also making life easier for you.

The final expense you’re likely grappling with is lender payments. Sit down with your lender and ask if you can revisit the terms of your repayment. Talk about the modification of payment timelines or amounts and seek forbearance if you are behind. The current climate has inspired many banks to be more accommodating to their business clients, but if you don’t ask for their help, you won’t receive it.

The bottom line 

If renegotiation doesn’t work, then you may have to explore other debt-relief options, such as bankruptcy, contractual relief or potential litigation. We’ll cover these topics in the second part of this blog series.

Stay tuned for Part II to learn more about debt resolution avenues in the era of COVID-19. In the meantime, please reach out to your Aprio advisor if you are struggling with debt management and want to explore solutions with the help of a professional team, including an attorney.

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About the Author

Jessica Hussain

Jessica is a Partner in Retail, Franchise & Hospitality for Aprio. She has 15 years of experience in public accounting and works with clients in the real estate and retail, franchising and hospitality industries. In her role as senior manager, Jessica manages a team of five professionals, supervising their day-to-day activities, assigning work and reviewing all tax returns.