April, it’s been written, is the cruelest month. That certainly feels like the case for the tens of thousands of restaurants struggling to make ends meet during the COVID-19 pandemic. But April may also be the month where those restaurants finally, if faintly, see the light at the end of this wrenching tunnel.

Much has already been written about the problems facing restaurants—the ominous rent payments coming due, payroll, insurance, and other expenses weighed against a precipitous drop in revenue—and all in an industry already operating on razor-thin margins. But this article will not focus on the things we cannot control. 

Instead, here are the five things every restaurant that is able should be doing right now to survive in the short term and, most importantly, to thrive when customers come back:

1. Help Is Out ThereTake It!

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides an avenue of relief to restaurants impacted by the pandemic. The CARES Act offers broad economic incentives, including checks to certain Americans, augmented unemployment insurance, and $349 billion to the Small Business Administration (SBA) to aid small businesses and their employees.

Restaurants, including those with more than one physical location but no more than 500 employees collectively, may be eligible for a largely forgivable loan under the CARES Act. Generally speaking, and subject to exceptions, the maximum loan amount available to each participant is the lesser of 2.5 times the average total monthly payroll costs or $10 million.

CARES Act loans may be used for payroll costs, payments of interest on mortgage obligations, rent/lease agreement payments, utilities, and interest (but not principal) on any other debt obligations incurred before the covered period. The loans may not be used for individual employee compensation above $100,000 per year, certain federal taxes, compensation to employees whose principal place of residence is outside of the U.S., or sick and family leave wages for which credit is allowed under the Families First Act.

In addition to being access points to capital, the CARES Act loans will be attractive to many restaurants for two important reasons. First, there are no collateral or personal guarantee requirements under this program, except where the eligible business has used the loan proceeds for a non-allowable purpose. Second, and subject to certain exceptions, the loan is forgiven as long as the loan is used for allowable uses.

Employees of restaurants will also personally benefit from the CARES Act. All U.S. residents earning up to $75,000 ($150,000 for married couples), who are not a dependent upon another taxpayer and have a work eligible Social Security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. They may also defer student loan payments, principal, and interest for six months, through September 30, 2020, without penalty to the borrower, for all federally owned loans.

Restaurants may also be eligible for SBA disaster loans or any number of local loan programs and grants. While you should take advantage of all opportunities that work for your business, please consult a financial or legal professional to make sure you understand what you’re signing up for.

2. Comply with the New Employment Rules

In addition to providing access to unprecedented capital, the federal government has also provided employees with unprecedented protection.

Under the Families First Coronavirus Response Act (FFCRA), employers with fewer than 500 employees must provide 10 days of paid sick leave to full-time employees under specific circumstances related to the pandemic. This is in addition to paid sick time available under an employer’s existing policies. In return, employers will receive tax credits for paid sick leave wages provided under this new policy. Importantly, restaurants with less than 50 employees can apply for a hardship waiver so that they do not have to comply with certain aspects of this new law.

Many businesses will find it very difficult to maintain normal staffing levels and be forced to make the difficult decision to lay off employees. Many states now allow some workers affected by the pandemic to file for unemployment benefits. And, for the time being, employees who have lost work due to the coronavirus are entitled to an additional $600 a week in unemployment benefits from the federal government.

Because of the extensive media coverage and anxiety created by this pandemic, some employees may be afraid to come to work. Nonsupervisory employees may be able to refuse to work in situations where it is unsafe to do so. Restaurants should therefore make sure to follow the CDC, OSHA, and other governmental guidance on maintaining a safe work environment. Businesses should also make sure employees are aware of and following this guidance.

Note, however, that the coronavirus is not an excuse to get out of work without appropriate grounds for doing so. Work with your employees who are sick, are taking care of family members who are sick, or are handling childcare duties because schools and daycares are closed. If, however, you have work to be done, employees who are not sick and do not qualify for paid leave, either under the FFCRA or company policy, should be at work. If they aren’t, work with them the best you can but you might have to find someone who can get the work done.

3. Take Advantage of Relaxed Rules Regarding Curbside and Alcohol Sales

Restaurants exist, at their core, to serve people, and the most immediate problem faced by restaurants is the inability to fulfill this core mission. Because many state and local governments have severely limited or banned onsite food and drink service (and many customers do not want to be out in public), restaurants must get creative to continue serving their customers. The good news is that most state and local governments that have made such restrictions are still allowing curbside, take-out, or delivery options. Restaurants that may not have previously utilized curbside or delivery should consider doing so. If the logistics for delivery are not feasible for your restaurant, there are many third-party delivery services available that can do it for you. And many states­some for the first-time everare also allowing curbside alcohol sales. Take advantage of this high-margin option however you can!

Make sure your customers know you’re offering take-out, curbside, or delivery. These are extraordinary days for creative social media posts and viral content (ask the makers of “Tiger King”). Update your website, and utilize social media and email to keep people connected with what your business is doing to serve them during the pandemic. Consider offering free or discounted delivery to encourage customers who might not otherwise use that service to do so. Marketing campaigns should also make clear where customers can find your menu. Finally, reassure your customers about the additional steps you’re taking regarding sanitation and other health and safety measures you’re taking to stop the spread of the coronavirus.

A note of caution: Make sure you understand the law. In many states, you can’t, for example, serve a cocktail to-go no matter how artfully crafted it may be; purchases must remain inside a sealed container while being transported. 

4. Get Insurance Money Where Available

Another way to gain access to much-needed capital, albeit a road potentially paved with frustration at times, is to look for available insurance proceeds. This is money that you have paid for every month, and you should strongly consider every reasonable effort to get it. A few tips:

First, know what insurance products you have in place. Identify and review all insurance policies applicable to your business, and work with an insurance professional if needed to ensure you understand the coverages and exclusions. Examples of the types of insurance coverage that potentially apply include:

Business Interruption CoverageCommercial property policies typically provide coverage for business income losses due to an interruption in operations and extra expenses to keep the business running during the disruption. Most such policies require “direct physical loss or damage” to covered property, but this element might be satisfied, for example, if some portion of the restaurant (or even the restaurant’s staff) is deemed contaminated. Coverage turns on fact-specific determinations unique to each claim and the specific policy wording. 

Contingent Business Interruption CoverageContingent BI coverage is a common coverage extension in commercial property policies that responds to losses from supply chain disruptions. Such disruptions could be caused by vendors, suppliers, business partners, or customers. For example, if your restaurant relies on equipment or ingredients from a supplier’s overseas facility and that facility is closed because of contamination, coverage may be available.

Event Cancellation or Travel InsuranceSpecialized policies offer tailored coverage that may respond directly to losses from event and travel disruptions related to the coronavirus. Most restaurants do not have this coverage but read your policies.

Liability Insurance (such as CGL, D&O, and E&O) PoliciesIn addition to the direct risks of loss discussed above, companies may face future liability from third parties alleging that some action or inaction of the company led to their own illness or some other type of loss. For example, D&O claims may arise from shareholder allegations that company leadership did not respond appropriately to the coronavirus risk. 

Second, companies should closely monitor potential impacts and track any potential losses. Accurate records of potential impacts will be needed to prove a loss. Proof of a business interruption loss may also require a detailed analysis by forensic accountants familiar with your industry. 

Third, if you identify a claim or even a potential claim, providing notice to the insurer in compliance with the policy is critical. Some policies may require a notice of circumstances that could lead to a claim or loss even before the claim arises or loss occurs. Work with your insurance professional to timely submit the claim and diligently pursue the insurer’s response. The insurance industry may be overwhelmed with coronavirus claims in the coming months. 

Finally, do not accept a denial letter without careful consideration. Unfortunately, covered claims are often denied in the first instance due to a misunderstanding of the underlying facts or an unduly rigid interpretation of the policy wording. In many states, wording that is open to more than one reasonable interpretation is construed in favor of coverage, and insurers bear the burden to prove that an exclusion from coverage applies.

5. Do Not Forget Best Practices for Food Safety

It is challenging enough to operate a restaurant in this time of quarantines, curbside and delivery-only options. Maybe the absolute last thing any restaurant wants to focus on are food safety regulations such as the Food Safety Modernization Act (FSMA).

On that front, there is a whisper of good news. As of March 18, 2020, the Food and Drug Administration (FDA) has suspended onsite audit requirements associated with the FSMA due to the COVID-19 (coronavirus) pandemic. So you don’t have to worry about regulators showing up to conduct an onsite office visit for the foreseeable future. But that is no reason to stop running your restaurant in compliance with the FSMA, even during periods of limited service such as delivery and curbside pickup. In fact, now more than ever may be the time to put into place and follow FSMA-compliance procedures. Even though the Centers for Disease Control and Prevention (CDC) states that, “[c]urrently there is no evidence to support transmission of COVID-19 associated with food,” compliance with FSMA is a good “first-line” defense in preventing the spread of the coronavirus.

If you do not currently have a written food safety plan in place, or if your plan needs to be updated, use this time to do so. The FDA has a useful tool to help build out your own food safety plan. The plan is typically written by someone who has undergone food-safety training and will likely end up being the restaurant’s “czar” of all documentation dealing with the FSMA. If you do have a written plan, review it and make sure that all team members, and the operations of the restaurant, are following the plan.

FSMA audits are on hold for now, but when the crowds return so will the audits. Use this time to prepare your staff for audits. You can also have video conference mock “interviews” with employees at home or send an email questionnaire to make sure that they are aware of and prepared for any inspections in the future. Here are some sample questions:

  • What allergens are in the restaurant?
  • What would you do if you saw a rodent?
  • What are a few examples of personal hygiene?

If your facility is still open during this time, make sure that you have written and communicated protocol if an employee tests positive. Allow for, and diligently insist upon, additional cleaning and disinfecting time throughout the day. Implement procedures so that employees and customers can be kept at a safe distance from one another.

There is no sugarcoating the extent of the harm the coronavirus and its global impacts are causing your business. But there is hope, and that hope comes from sources as varied as government stimulus packages to the loyalty of customers that made your restaurant thrive before anyone heard of this virus. We’ll get through this together, and you’ll be better positioned to weather this storm and emerge even stronger if you’ll consider the suggestions above. And a toast: May the best of the past be the worst of the future.

Whitt Steineker is a partner and leader of the Food, Beverage and Hospitality team at Bradley Arant Boult Cummings LLP in Birmingham, Ala. He represents clients in the food and beverage industry, from restaurants and breweries to distributors and wholesalers. He can be reached at wsteineker@bradley.com.

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