Restaurants under coronavirus lockdown should consider bankruptcy: consultant
New York canceled indoor dining again
New York Gov. Andrew Cuomo lowered the boom on Friday, again, by rolling back indoor dining.
Already nearly 100,000 restaurants, about 1 in 6, have had to close their doors due to the pandemic, according to the National Restaurant Association. With COVID-19 cases surging across the country, some experts say restaurant owners should consider several tactical courses of action for survival.
Gene Marks, CPA of the Marks Group and small-business consultant, said restaurant owners do have several strategic financial options for survival and recovery.
USE BANKRUPTCY TO SURVIVE
“File for bankruptcy,” Marks said. “Don't laugh. It's a very viable option and one that many local restaurant owners should seriously consider. In the past, filing for reorganization under the Chapter 11 bankruptcy code was an expensive, complex affair, especially for small firms. But just this year, that's all changed.”
The new Small Business Reorganization Act puts control solely in the hands of the small-business owner and it significantly reduces paperwork, fees and the time frame for filing and then emerging from a bankruptcy reorganization.
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SMALL BUSINESS REORGANIZATION ACT
“It provides more asset protections, particularly around personal assets, as long as they weren't previously pledged,” said Marks. “And any small business with less than $7,500,000 in outstanding debts (an amount temporarily increased from $2,725,625 thanks to the CARES Act from March) is eligible. Credit scores will be impacted. But we're in an unprecedented recession.”
He understands that restaurant owners are understandably exhausted from the economic whirlwinds of the pandemic but said that going bankrupt isn’t admitting defeat, it’s actually a strategy to succeed.
BANKRUPTCY WILL BUY TIME
“It gives the restaurant owner a very important weapon: time. Vaccines are rolling out shortly and tens of millions of people are expected to be vaccinated by the summer. Many economists predict that the economy will begin a stronger recovery by mid-2021. So we're talking about taking whatever steps necessary to survive until then. And once things turn around, and they will turn around, I believe restaurants choosing this strategy will be positioned for greater success going forward.”
New York's indoor dining ban goes into effect on Monday, Dec. 14, creating another hurdle for restaurant owners.
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“For nearly nine months, restaurants, our nation’s second-largest private-sector employer, have been in an economic free-fall as a result of mandated closures and capacity limits due to the coronavirus pandemic,” said Sean Kennedy, Executive Vice President of Public Affairs for the National Restaurant Association. “The restaurant industry was the first shutdown in the spring and will be the last to fully recover.”
Restaurant operators have never faced a challenge or disruption like this pandemic, but according to Kennedy, they are a “scrappy bunch who are dedicated to their American dream and the opportunities it brings to their communities.”
Kennedy agreed that the restaurant industry will undoubtedly recover, especially with job and income growth.
“As soon as people feel it’s safe, they’ll find a way back to our tables,” he said.