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[Music] hello everyone this is the food Institute pocket series for over 90 years the food Institute has been the best single source for current timely and relevant information about the food industry my name is Bryan choy a managing partner and CEO today we have a special guest we have Patrick O'Reilly he's a principal and member of the firm's advisory services practice he covers all things related to technology business plan implementation financing succession planning and Taxation and the great thing is he's also has a specialty in food and beverage manufacturing and wholesale distribution so welcome Patrick thanks for your time today my pleasure thank you for having me so so you know today we're gonna talk about a number of different subjects but maybe we could start off talking about the economy currently how the coronavirus has impacted the food and beverage industry and you know the types of questions that you're you're being asked by by by your clients so you know if you can just comment on that and and and share what your experiences has been in over the past few months sure well I think everybody knows it's a pretty much a lock down on restaurant patronage and anybody who had the capacity or the ability to do takeout or delivery has been doing that I think that the food delivery services have really you know hit the jackpot as far as this just like the grocery stores have and the big-box retailers with shelves being emptied but the restaurant people generally speaking are really really hurting and probably hospitality in general when you look at hotel closures and entertainment and those types of things as well it really is just pretty much gone from you know 100% participation and activity to zero essentially right around st. Patrick's days when it all happened all right or the majority of the country so you look at massive layoffs and employers looking to figure out ways that they're going to be able to pay their rent or you know maybe even be able to reopen when this all turns around it's a harrowing times for anybody in the in the restaurant industry in hospitality in general right and and so you know what's what are the types of things you know as a business owner but even even as a advisory person who's been dealing with you know the these types of companies what what have you been advising them like currently and on on everything from employee management to liquidity to supply chain what are the main topics that you've been dealing with currently sure Markham LLP is an accounting firm nationwide and we have a very robust food and beverage advisory group or actually food and beverage group we do everything from assurance to tax to advisory and we have fielded questions from clients on all of these to various topics that you just mentioned but the biggest thing probably is cashflow they're just trying to figure out you know how how are they going to make ends meet what what types of costs they should make we're recommending people reach out to their landlords or to their lenders if they're they own their physical locations and ask for extension of terms landlords by by and large have been either deferring rent for three months or agreeing to have a portion of rent paid over six months or maybe even a year with a catch-up period after that some of them are requiring that the cam expenses are being paid so common area maintenance are being paid but the rent is something that they have some flexibility on in some cases a lot of lenders are giving three to six months of interest only launches to the loan terms and it's a simple form one-page form usually that the guarantor would have to sign that is a big nut for people I haven't had a lot of success with big utility companies I think that you know your natural gas your propane your electricity maybe even internet and music streaming services things like that are going to let you put a pause on your services maybe with partial payment and and some terms can be reached that way the other you know the obviously the two biggest expenses in a restaurant or our food costs that beverage costs and then labor so labor really when you don't have a restaurant that can be opened and you can you're doing limited service takeout or delivery you're really looking at just laying off massive amounts of people and cutting that payroll and having them file for unemployment the good thing about that is the government is kind of stepped in and guaranteed those unemployment benefits and they're not going to be counting against your experience rating as an employee as an employer in most states I believe maybe all states will probably pass that eventually I know that many states have done that already for a food distributor distributing companies you know that that that trickle probably hit them maybe two weeks maybe three weeks after it hit their retailers so you know distributors and and breweries and alcohol distributors really kind of probably had a little bit of time to adjust to the new norm and they are going to be facing the same types of decisions that that the people on the frontlines in retail are going to be have faced already in the past three or four weeks so I think you're going to start to see you know supply chains shifting from retails and chains to grocery stores and other outlets and hopefully they'll be able to keep product moving in an expeditious way so that there are any shortages or anything like that but you know it really comes down to liquidity if you have a restaurant that had you know a well-run restaurant has a what ten twelve percent margin by and large most restaurants or five percent range and when you take a hit like this it's gonna be very very difficult to recover from it particularly you know for you know like an Irish restaurant uh something like that that lost st. Patrick's Day that's usually a big huge part of your of your year and and that kicks you off a slow winter period and into the you know maybe the busy summer season and not having that is a big hit what do you think how do you think technology has impacted this so you know ecommerce has been a has seen a huge growth right since the quanto virus impacted the you know the economy have you seen that that online orders somewhat mitigate the the decline in revenue and do you see technology being you know after everything is settled the dust is settled do you think technology will be an increasingly more important factor in in let's say you know a restaurants success absolutely no question about that so if you had a you know an online presence you either with a website or through Facebook or some other way that our Google for that matter that you could put a menu out and take orders you know if you had a POS system employee sale system that had scalability to be able to be put as a widget in your website or and whatever on my presence you have to kind of get the word out there not to mention just the actual capacity in the in the back of the house in the front of the house to be able to handle takeout doors did you have takeout containers did you have bags did you have you know the ability to do that can you do touchless transactions can you do you have a tablet that you can that you can have somebody you know touching that customer touching that you can wipe down without having to have money to change hands and just using cards or tech or having the payments be coming coming in online so if you had a POS that was robust and good and could handle those types of transactions and in a pretty you know quick if it those companies I think are doing pretty well you know if you had a if you had a door - account or one of the other you know Hoover eats or something like that account already established I think those companies just got absolutely crushed with new applications you know overnight basically the same the same timeframe that the do ELLs across the country the Department of Labor's across our country were getting you know inundated with unemployment claims all of these online delivery services are getting smashed at the same time so you know if you were able to be nimble and pivot in that way or you were already doing delivery or takeout in some form or fashion you just needed to scale it up that was a huge boon and those that online presence really makes you have a competitive advantage and not really a competitive advantage in that in that sense of the phrase but really an ability to possibly maintain operations and some some you know for small percentage of what your traditional business was looking like before covert hit right so previously would you say that the in generals like say for for retail you know online sales typically from what I've read you know ranged anywhere from you know 10 percent to maybe even 30 percent of overall sales is that is that fair is that are those figures off based on your experience well we have several clients who just weren't geared up for it and a lot of them have you know whether it was for safety concerns for their employees or for the you know they just wanted to not be open and have people be out and about where they shouldn't be out and about so a lot of people have just decided to just shut her and and waited ride it out the ones that had takeout capabilities are seeing something north of 10 percent I haven't seen anything close to 30 percent but that's certainly a possibility in a more urban setting I think maybe a metropolitan area would be able to do that I think if you were getting 10 percent of your sales when you weren't really doing any takeout or delivery before I think that's an achievement and I think that there's probably going to be a lot more interest in takeout and delivery even after this breaks and there's you know kind of a quote unquote return to normalcy which you know who knows what that's going to look like at this point in time but I think there's probably probably incentive for anybody who's going to be considering reopening and continuing operations which I would hope many of many restaurants do looking at that online presence and delivery option as a bigger piece of their future operations right yeah you know I I as someone who's followed the food industry in particular on the restaurant side you know it's my personal view that you know I think online is is gonna see explosive growth actually and just as we've been seeing you know the past couple of months but you know you know be interesting to see to see how how things play out now in the restaurant industry what's what does it look like in in in three three to six months in your view you know I would imagine that a lot of the restaurants they will they will fall under bankruptcy right just just given you know you mentioned just the liquidity needs we don't know how long this you know how long it takes for things to get back to normal but what what do you think it looks like you know how will the restaurant industry landscape change you know looking at looking at it from from a medium to even longer term in your view it would be really interesting to see you know a full disclosure my wife owns and operates a small restaurant here in the Portland Maine area and you know so this is pillow talk for me this is so you know it's you live it and breathe it and it's it's a little scary to think about that I think you're absolutely right about the is going to be explosive growth in online ordering and either delivery by a third party or pickup or delivery by employees of the restaurant and that is going to really kind of be driven by what what it looks like inside the restaurant so your traditional bricks-and-mortar place that has what you're in new york so you know I lived in New York for ten years and might NYU and I know very very intimately and which is an I you choose they weren't intimately with purpose how restaurants are laid out in New York you know it's it's almost always been community seating just because they had to squeeze so many tables in an in a tight space with the right cost etc so you know you have a small space with tables literally touching each other or or just a few inches apart what does that look like in three to six months you know our is that restaurant that had you know a small square footage and seating for four forty-five people gonna be able to survive with community seating in their you know community just a sing seating in there that is gonna give them a headcount of you know twenty or twenty five are they able to do enough turns to get the covers that they need to succeed in that in that environment I don't know I don't know if people are analyzing that and thinking about what this looks like on the back side you know you have a bigger space and you can and you can spread things out a little bit more or you're wide open or you're gonna go to you know fast casual with with limited seating and really emphasize more pickup or delivery options you know you may you may be able to survive I think it's gonna be really interesting to see how many restaurant groups are able to ride this storm out and you know really the big thing where I think you're gonna see a lot of a lot of bankruptcy filings and this is just not making it restaurants just not making it are going to be you know the single the one the onesie twosie operations that you know maybe we're teetering before this happened like I said before you know there there's there's very slim margins in the restaurant business and if you don't have some economies of scale on some consistency where you can ride out a wave of a downturn in in one geographic area or one location with with a decent year in another location or geographic area and kind of you know cobble together a decent year for the umbrella organization that that's not easy to do when it's when it's one or two locations in the same area in general but this is everywhere right so this is right all over the whole country and everybody shutdown at the same time so my saving grace and all of this is that I hope that there's going to be a cabin fever effect at the end of this where people are you know obviously doing it in a smart and safe way are going to be able to come out and say okay we're ready to go back and support the local businesses you know we've been doing takeout or something once a week we bought gift cards and haven't been using our gift cards so we've been just buying that gift cards and holding them now we're gonna go back out and and maybe use those gift cards or maybe even support them with more in person business I really hope that that that silver lining that I that I would love to see happen comes to fruition right so in your wife's business and Annie and please feel free to talk about even some some of the clients that you that you're advising as it relates to the employee headcount so have most of the employees been been furloughed or or and and have have pretty much most of them applied for their unemployment benefits so how have you been thinking about that right other businesses I think that by and large anybody who is directly tipped employees so servers and bartenders maybe even hosts Roadrunners Buster's that type of thing people call it different things those those folks are pretty much been laid off and furloughed there's just there's there's no opportunity for them to get get tipped to any great degree you might keep one or two people on to help with the takeout and delivery services but there you know there's some barriers to that if you hadn't done delivery before then you know how are you ensuring these people are they using their own cars or these and company cars or what you know what I do you have a proper liability insurance in place to cover that type of activity so you know there's some barriers just some of that stuff happening by and large what I've seen is this the staff the hourly staff has been furloughed the you know the kitchen manager the front of the house manager the chef general managers assistant managers anybody who was on salary they've tried to keep as many of those people as they could and they're cobbling together whatever delivery or takeout service that they have right now with the lockdowns with those salaried people not to say that they're keeping all the salary people or they're not you know paying two-th
rds wage or something like that but by and large that's what that's what I have seen and I think that the people who have applied front and and most of that frontline staff has apply for unemployment the good thing about that is the unemployment takes into consideration tipped wages so so you your your gross your gross wages including the tips are kind of what the baseline is for your unemployment factor got it interesting and so for the district so the way I look at it so we have you know you have the retail that's pretty much like 90 percent has been or 100 percent shut down the the distributor's depending on which distributor they they have more of a diverse kind of revenue so they've been hit less right so you know call it maybe 50 percent you know up to 50 percent they've been hit less and so and then on the manufacturing side they're they're kind of on the further back you know on the chain on the supply the time line you know on the time line and they seem to be impacted the least out of out of those three categories is that is that there is that a fair statement I think that's probably fair and and the least is you know you know losing 25 percent your business is still a lot but that may be the least compared to somebody losing 80 or 90 percent of their business and somebody only losing 50 percent of their business so yeah I think that's probably a fair statement and then when you get back to the growers you know farmers and and and producers you know I think in the Northeast where we are you know they they haven't really ramped up for their season I think that they're still you know doing seedlings I think they're still you know cobbling together what they're gonna need for irrigation needs and all those other types of things that they typically would do in April in May and I think that they probably are gonna be able to continue on business as normal and when they get into their growing season in full force which which is happening essentially right now right they are kind of I hope hedging they're about thinking that there's going to be a market and a viable market for that for those for those products once we get into the summer months so I think that you know when you talk about liquor distributors beer distributors breweries I read an article so there's something you know between between liquor wine and beer they're all sales have shot up between 25 and 45 percent in the last month so I think that there have just different channels so they're not delivered you know half barrels and-and-and six six kegs two bars four tap they're packaging all of that goods and taking it to retailers that are still able to sell packaged goods so I think they just kind of may have had that maybe had to pivot a little bit and how they're producing and distributing their products but I think that they've actually had an uptick in sales sounds in dry areas interesting so one of the main topics that I wanted to kind of talk about with you and get your perspective is you know the we've heard and read a lot about the stimulus bill right and there's different categories of businesses that are eligible to apply right so I've seen everything from the economic disaster relief fund to be you know the SBA loans to the to the payroll protection can you can you kind of share with you know with our audience you know what the difference is between these various programs and what companies need to be doing now as they kind of think through the whether they should apply or not the success ratio some of the complications that that they might experience as they go through the application process sure I give you I give you an overview but I'll just give you a caveat that this is a very fluid situation the rules and regulations and all of this are changing so I highly encourage people to speak to their tax adviser their banker and at the end that will give some contact information if you if you haven't been getting good information or timely information from from the folks that you have to work with be happy to to help you here at Markham or get you to somebody here at Markham that can help you and you're in your geographic area so essentially there are really kind of three main programs that I wanted to mention today two of them I'll just mention briefly just to give an overview and then I want to talk about the PPP SBA loans the paycheck protection on loans so the first one is the credit for employers payroll taxes so this is a program where you can get a credit against employment taxes for each calendar quarter equal to what 50% of you qualified wages so this is kind of one that's gonna be a not timely not cash in your pocket right now but is something that is that people should definitely look at on the long term and that it will help you save on some payroll taxes later in the year as you as you get through the quarters of 2020 the other one which is a little bit more interesting than that is the economic injury disaster loan or eid al these are eligible this this loan program is eligible to any small business private and sole proprietor or actually nonprofit organizations also it's up to a two million dollar loan the interest rates are 3.75 for for-profit entities and 2.75 for nonprofit organizations it's up to a 30 year term based on the borrower's application for months of payments are deferred there's a checkbox on this form where you can get a ten thousand dollar emergency funding although I haven't had any clients actually I've seen clients that get confirmation numbers but I haven't seen any clients actually get that $10,000 yet so I'm not sure how the funding of that is actually going to come through this loan has you know a little bit more flexibility on how you can spend the money but it has a little bit more in a red tape on on how you get the money and what who qualifies and what you have to put up a collateral so you can use it to pay anything stets you have payroll accounts payables basically any bills in the operation of the business that you wouldn't be able to pay because of the disaster collateral is required for loans over $25,000 and there is a personal guarantee we talk requirement for loans over $200,000 so that that program is not the one that everybody's kind of thinking about the one that everybody's really thinking about is the the paycheck protection program with a PPP loan this is administered by the Small Business Administration the SBA any business with fewer than 500 employees is eligible 501 C 3 and nonprofit with you or the firemen employees also be eligible that includes on the portrait side include sole proprietors includes independent contractors includes some employed individuals tribal businesses the business had to be in operation before February 15th of 2020 so you had to have a going concern prior to the Cova 19 epidemic hitting so you're basically are it's basically a program that is geared towards helping existing businesses continue to operate right loans can be up to two and a half times the borrower's average monthly payroll costs not to exceed ten million dollars so that payroll costs include salaries wages Commission's tips very very important thing in the restaurant area the tips are included in that calculation any payments that you would have made or are making for vacation rental family medical sick leave anything like that group health insurance benefits the insurance premiums that you pay for that so the employer cost of those premiums name it of any retirement benefits if you have a 3% you know safe harbor contribution that you make on a simple IRA or a 401k or something along those lines that that cost is also included in that calculation and then payment of any state or local assessed tax on on compensation to the employees so that typically would be state unemployment contributions that you would make which are usually a you know a small percentage of your payroll that goes into that fund it does not include any with the state with the state or local withholding taxes and not not income taxes are not part of the calculation but the what the unemployment contributions would be terminal loans two years the interest rate is 1% the are there are no personal guarantees required for the loan there's no collateral on the loan there's no prepayment penalty so it's a very very attractive loan program I think that without exception any of my employers in the food service industry and includes breweries have applied for this and had several applications already be approved and actually yesterday morning I had my very first I get funded so they received $225,000 directly into their bank account I can tell you that it seems to me that the easiest path to getting funded is using a if you have a relationship with the bank already if that Bank already was an approved SBA lender and then the feather in the cap is if you had already gone through an SBA loan process with that lender at that bank that seems to be the path of least resistance to getting something in the door and to getting something in your bank account as quickly as possible now this loan program I think is being rolled out to many many banks who are not traditional SBA lenders including credit unions so it's just a matter of you know if it takes you a little bit of time to set up a bank account obviously they have to have a bank account there because they have to have a place to put the money and be able to track it track your usage of it if you have a relationship with that lender that helps if you have a relationship with the bank already that helps if you have a relationship with the SBA program in your state that helps so any of those types of things should kind of help people we'd help lead them to a bank that is going to be amenable to you know doing this doing this loan as expeditiously as possible one question that I have that trick is there's a lot of question about the loan forgiveness part of the of the of these programs can you share a little bit about the likelihood you know what needs them what needs to happen for there to be loan loan forgiveness what percentage of the loan is eligible for loan forgiveness are the details clear at this point so yes and no the the real kicker I think is that the SBA has come out and said that they are gonna have more detail in commissioners to try to find a memo that I got across my desk yesterday yeah this is from memo issued on Wednesday actually last no actually sorry yes last Wednesday's issues last Wednesday and it basically says quote the SBA will issue additional guidance guidance on loan forgiveness but I can give you what we know right now and well as I said at the onset that this is a very fluid situation so you can use the proceeds to pay interest on a mortgage obligation rent on a lease and utility payments so that includes quote electricity gas water transportation telephone or Internet 25% of the of the of the expenditures that you make can be used on those other things seventy-five percent of the expenditures have to be used on payroll and that's not just payroll it's all those things related to payroll that we talked to it before so you know typical placement health insurance retirement benefits those types of things so that all in payroll cost has to has to comprise 75% of your expenditure of loan proceeds that you receive now that number is reduced if you don't hit some certain benchmarks and this is where I think that there's going to be a lot of work for you to to contact your tax advisor or your you know whatever professional you're working with advising you on the on this program it's there's an eight week period that starts on the time you close your loan the loan or origination date so from that day forward a moving 8 weeks in the future you need to come in and have basically you have to get people back on payroll and sometimes that might be simply replacing their unemployment benefit because if you're a restaurant and you can't open you're obviously not going to hire back you can't hire back everybody and put them to work in the restaurant right so you're gonna be you're gonna be paying that you're gonna call those people back to work you're gonna you're gonna pay them the payroll which is then gonna replace whatever unemployment composition they were getting and then as you get them back to work you'll be as you get open and you'll be able to you know either rotate employees in or get them certain get them some shifts so that they can get back into into the work environment you're gonna have a credit of those people coming back on to payroll and the whole point of the program is to get people back to work and to and to get the number of employees that you had whatever the whatever the application that you you the borrower application you put in you have to say you know this is my average on average payroll this is two and a half times my average payroll this is what my loan should be and this is how many employees that I'm protecting with this PPP loan proceed so you you you need to get a certain number of employees back and it and it's the number that I've seen so far as you can't reduce your total number of employees by more than 25 percent so you have to basically get 75 percent of your workforce back in place to to avoid having that loan amount reduced they have to forgive an amount reduced got it got it have you have you based on based on your interaction with your clients have you mentioned the one that actually got funded yesterday how many have been able to apply successfully or have the run into the website shutting down because of you know too many people fighting at the same time like what what's been what's been your experience in dealing you know with your clients in this matter so I'll tell you Wednesday and there's a loan program if everybody knows that it opened up at roughly nine o'clock in the morning last Friday the what is that the third Friday the third so Wednesday and Thursday was absolutely insane with with people trying to trying to figure out what what they needed for documentation how they had to support it which bank they should use getting in contact with they're not getting the application together filling it all out and by the way the application changed twice in those two days so so that was a little crazy so all the people that I have heard about here in the northeast of the Boston North who applied and right at the Bell have gotten approvals already 100% of them have gotten approval loan approvals back by now oh great just a small and a small number of them have been funded but but everybody who got the replication in let's say by the end of the post that business on Friday had got approvals either over the weekend or early this week people who have you know kind of stumbled and had their application rejected or pushed back by the lender for one reason or another you know different criteria they didn't they didn't agree with the numbers they didn't have the support the proper payroll documentation to support the calculation that they did etc those people kind of are still waiting to get those approvals in so they really got a they got a they got a good handle here on the ones that got through early and on Friday and I think that they've just been inundated since then and it hasn't been hasn't been able to get through very usually I haven't heard outside of and I know Wells Fargo stopped taking applications I think Chase Bank has done some you know throttling down of it but you know that the program stays open until the funds are gone so you know not very much has been funded so I think if you even if you haven't applied yet I think you should absolutely you know get your information together and apply there's a lot of money on the table and not a whole lot of it has been distributed anywhere in the country so far so it's not too late to get on this and to submit the application great that's great that's excellent information so you know we're we're coming up to the close so Patrick if you can share a little bit about your your contact information if any of our listeners want to reach you and you know want some resources about about learning about the stimulus bill and and the various types of loans work how can they reach you or your firm sure I I know you're gon
a post some information along with the podcast but my contact information here at Markham is Patrick O'Reilly and my last name is Oh Ari I lly at Markham M AR see um LLP comm and I'll even get my phone number it's two o seven three five two seven seven two zero I'd be happy to answer any any questions people had or point them in the right direction or connect them with somebody here at Markham who could help them were directly great and we'll have those links available up up on our website and a youtube channel as well so you know with that Thank You Patrick for your time very informative and great to hear from someone who's actually in the in the restaurant business to give a first-hand account of what what you've been experiencing so thank you very much for your time and look forward to connecting with you again soon sounds good my pleasure take care [Music]
