Question :
Hi, I am a cafe owner in Hamilton. I bought the business 18 months ago by taking a loan on my house. I worked incredibly hard and have managed to pay back the loan in January 2020. However because I put all my profits into paying back the loan, I didnt have much additional capital spare when COVID hit. Plus a put in some new gear in January e.g. new coffee machine. During COVID I have had to pay rent, lease on EFTPOS machine, lease on coffee machine plus ensure I was paying staff enough to get to the 80% salary level for each staff member to get the Wage Subsidy. I have talked to my landlord and other suppliers to get holidays/reduction on my fixed monthly costs. All of them have said no. Therefore during Lockdown I had zero revenue and used up all my excess capital on the costs mentioned above. We have re-opened but business is only a fraction of pre-COVID. I am now getting close to the decision of closing my business. The bank wont loan money on my house as the business cant service it. I dont want to take the government small business loan as if I am honest the fundamentals of my business are not going to get back to a sustainable level. I plan to close the business. Does anybody have any ideas or comments. Thanks in advance.

Question submitted 20/05/20 @ 01:19pm
Industry: COVID-19 Funding & Support
  • Hi there – I am sorry for this situation. Some ideas – if your revenue lines are materially lower than before, your only option is to focus on your cost lines which you have been doing. Do your suppliers, landlord and employees know that one outcome is that you will close? Have you communicated this to them?

    On your employees, the obligation on the 80% level is to ‘do your best’ to pay them at 80% of their normal wages. However, that is not ‘written in law’ if you cannot afford it, then you can sit down with them and explain that you may actually be only able to pay them a lower % – and as long as this new level is higher or the same as the wage subsidy then that is ok under the wage subsidy scheme. Will that save some more money? Of course, the team members may say they can’t survive on that and may resign to find another role.

    Sorry that I don’t have any good ideas – the cost base is the one to get back as low as you can to survive for as long as you can while revenue hopefully recovers.

    Hi, everything Andy said, and also wondering if you are able to speak to the right people at other banks. Your diligence in repayment of the initial with your existing bank has clearly not be recognised. That said the government’s Small Business Cashflow loan may offer better than any bank will, but if you don’t wish to pursue this avenue, a bank won’t be the right alternative. The wage subsidy extension will also be available from 10 June, so while still nearly 3 weeks away, this might provide some headroom if you can get to that point. Regards.

    Hey there,

    I just wanted to say that it sounds like you’re looking at things from all angles.

    My sense is that it sounds like regardless of the source of funding (bank, finance company, govt etc) you are looking at closing the business as you don’t have confidence that revenue levels will return to pre covid levels.

    If this is the case then I’d recommend trying to trade out to a nil position so that the financial impact is as low and as short term as possible for you personally.

    Like Andy said take a look at the P&L from all angles (and actually look at the assets and whether you need them and if they have resale)

    Have you reduced the staff levels down as the demand has reduced? As Andy said you only need to pay if you can afford it- others have made the (very hard) decision to make their staff redundant during this time or negotiated with staff on the rem level they are able to get.

    If you are 50/50 on whether to close or not or trade out then on the negotiations on rent I would also consider disclosing this to the landlord (or having a frank conversation with them if you have an existing relationship) as he may be more amiable to negotiate (him getting some rent rather than none in this market would probably suit him better). This would also of course be influenced by the terms of your lease etc.

    Final comment is could the premises be used by anyone else so that you could share the load? I know a cafe that is operated by one set of people in the day and is transformed at night with a different menu for example…. could you use the premises differently, how could you entice people back in? market as co-working space for people? Community coffee groups? What incentives have you tried or could try to see if you can boost that revenue line? You could ask your customers and your team for some ideas- bring them in on the conversation and they might have something magic!

    Very best of luck.

    Hey, did your landlord come to the table with any reduction? The Government announced yesterday some new legislation where you can potentially force arbitration to get this resolved.

    Also , rather than close it , have you considered offering it a a realistic price to staff initially , and Trade Me and the like ? Somewhere above the value of the assets , but reflects that the books don’t look great ( or ‘have loads of potential’ if you prefer haha ! ) . It is one path I am considering with my own project .

    My business is worth nothing if it closes , so I am even prepared to offer partial finance — If I get say $5k upfront and say $10k at $5k a year , I’m getting something , and even if the new owner only lasts a year , I’m still better than straight out closing .

    I hope you’ve followed up the rent arbitration scheme too , if your landlord is playing hardball , it doesn’t bode well if you close up altogether .

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