With the announcement from Prime Minister Scott Morrison that all indoor gatherings of more than 100 people would be banned effective immediately, the pub sector is in uncharted waters when it comes to venue operations. Morgan Kelly, restructuring partner at KPMG with a focus on the hospitality sector, discussed with Australian Hotelier what operators should be doing right now to shore up their business.
With the announcement of the ban, the global pandemic of COVID-19 has had its first concrete impact on the hospitality sector, and on the pub market in particular. As the entire industry moves into the unknown, Kelly is bracing for a tough few months, but urging operators and owners to be proactive now, to minimise the damage to their businesses.
“It’s really clear that it’s not going to be business as usual for at least the next few months. The events of the last few days are an unprecedented level of change, which has dramatically impacted the hospitality sector, particularly with gatherings of more than 100 people not being able to proceed.
“Hospitality operators really need to take control and be proactive because the situation is changing so rapidly.”
Kelly suggests that operators should be looking to focus on three things right now: cash flow, communication with stakeholders, and taking advantage of government support.
Cash flow
It is going to be imperative in the next few months to get the right balance of cash flow. With trade expected to drop off significantly, cash flow will indeed decrease, but Kelly warns not to tighten the belt so dramatically that you cannot respond rapidly when the coronavirus crisis passes.
“When this is over and everything is back to normal, there will be a significant uplift in demand. So you don’t want to get rid of all of your staff and your supplier relationships, and then when the right environment is restored you don’t have the supply to support that. So you’ve got to balance that off with the right sizing, because this is going to be a time when you need to steer through the next couple of really difficult months.”
To do so, operators are urged to reassess their cash flow immediately, and stress-test what that will look like over the coming months, and then have plans in play at various intervals to keep their business afloat.
Communication
Frank and honest discussions with stakeholders from the outset are also going to be critical in navigating the way through this crisis — particularly with financiers, landlords and suppliers.
“It’s critical to engage your financiers. Start discussing with them now what support you might need,” urges Kelly.
Having honest discussions with landlords and suppliers about what this scenario might look like for your business will also help you potentially negotiate things like rent holidays or reductions, or delayed payment instalments for accounts that are stretched thin.
It’s also critical to keep an up-to-date dialogue happening with your employees, who are understandably anxious about their own situations.
“Making sure employees have some sort of update or guidance from management will help to alleviate their levels of anxiety and aid communications with key customers.”
Government assistance
Businesses should start looking to the various ways they can gain assistance from both Federal and state governments, through tax assistance and stimulus packages, by discussing your statutory obligations with the Australian Tax Office (ATO).
“There are a number of things that businesses can do there, like considering varying their tax instalments, and the government stimulus package which is available for business to access at both Federal and State level, with payroll tax exemptions.”
For operators who think their businesses are at risk of insolvency due to limited trade, it is time to start looking into the ‘safe harbour’ provisions that were recently brought in with the latest amendments to the Corporations Act 2001. In this instance there are certain conditions to be met, such as up-to-date tax obligations and employee entitlements, so it’s important to seek professional in that scenario.
“If any operator is thinking along those lines, they should seek advice immediately.”
A resilient sector
While the industry is undoubtedly going to be dealt a severe blow in the next quarter at least, Kelly remains optimistic that the industry will bounce back if it starts preparing now.
“This sector is really resilient. We’ve seen through smoking bans and the GFC, so we’ve been through some pretty bad times , but it’s going to need to be agile to respond to this crisis.
“It’s difficult to predict what’s it’s going to look like on the other side, but the operators who take control of the situation will have the best chances of surviving.”