Managing the hospitality restart through financing

By Andy Reiser  

With more than a year of the pandemic behind us, things are finally looking up with the economy. Consumer confidence is at an all-time high since March 2020, buoyed by a rapid national vaccine rollout. With the current administration officially extending the Paycheck Protection Program (PPP) deadline to May, business owners and employees alike are confident in their payroll and paychecks, too.

Americans are gearing up to get out and get spending in a more public way than the past 12 months have allowed. This shift means it’s time for the hospitality industry to gear up for the impending business uptick with a two-step process: assessment and financing. Doing both will help your business restart smart and sustain growth through the surge ahead.

Restart smart: Why now is the time to assess your business
For hospitality, the cost of doing business is high and high-margin revenue streams have been stymied through health-centric business closures. Thus, while you might be looking forward to a fuller reopening, you still need to take stock of any line item costing your business money.

Here are the areas I feel are in most need of assessment for hospitality. These areas tend to have the most room for adjustment and can offer ways for your business to make room for the growth ahead.

  • Staffing. Many small businesses haven’t taken the time to think through their staffing model. Consider how many people you truly need and at what times so your staffing doesn’t compromise profitability.
  • Real estate. To help save on facility costs, consider working with your landlord to negotiate a lower-cost lease for a longer-term. Landlords are concerned with cash flow, too and a smart deal can benefit you both.
  • Pricing. Consider whether your pre-pandemic pricing is appropriate to today’s environment. If you’ve found that you have new costs (especially sanitation and PPE), consider if there are ways to pass on some of those costs. You could also find that you’re able to raise prices to cover those costs as well.
  • Customer service. With your clientele so used to a digital order environment, double-check your customer service policies and practices. You need to ensure that you consistently make your customers feel better off (and appreciated for) visiting your establishment.

By assessing the above elements in your business now, you can make informed adjustments and identify areas where you might find financing beneficial to keep up with the gradual growth stemming from this long-awaited economic reopening.

Sustain growth: How financing can help
While the PPP and Economic Industry Disaster Loan (EIDL) programs were designed to simply get your business back to even, there are several different ways you can leverage other financing to bring your business back up to full operational capacity and profitability.

Here are four of the easiest places for hospitality businesses to find the resources needed to finance growth:

  • Creditors. Extending terms on invoices is an often overlooked financing option for hospitality businesses that rely on vendors. It’s interest-free money and can free up significant cash to help you grow, simply by extending terms from net 30 to net 60.
  • Traditional banks. Reasonably, your bank will often be your first call for financing, but there’s always a question of what a bank will finance. As most loans and credit lines are secured, you may find you lack the collateral to get the cash you need.
  • Community banks. With a mandate to invest locally, community banks and credit unions could also be a source for financing. While deals are traditionally smaller than national banks, there are still stringent lending terms.
  • Online lenders. These companies focus on ease of process and speed of funding without stringent collateral requirements. For hospitality, online lenders can be a considerable strength, especially since many offer favorable repayment terms that can fluctuate with revenue.

The key to any financing decision is making sure your cash flow leads your decision-making. It’s an art to strike the right balance between your revenue and your debt service. Your best bet is to crunch the numbers and be conservative with any debt you take on. By doing so, you’ll have the financial room to breathe when any curveballs come your way. You’ll also avoid the pitfall of putting your business at risk because you were too ambitious with the debt you chose to take on to finance growth.

By assessing your business operations while you still have the luxury, you can put yourself ahead of others in hospitality and create a strategic plan for growth. Whatever your growth plans entail, there will be a financing option to help you achieve your growth goals as consumer confidence continues to rise and we see a return to “normal.”

Andy Reiser is the CEO of Kapitus, which provides growth capital to small businesses and has provided more than $3 billion to over 50,000 small businesses since 2006. Kapitus has also helped hundreds of small businesses obtain PPP loans over the past year.

This is a contributed piece to Hotel Business, authored by an industry professional. The thoughts expressed are the perspective of the bylined individual.

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