Determining Restaurants’ Risk during COVID-19: A Checklist for the Restaurant Industry

On March 11, the World Health Organization (WHO) declared the novel coronavirus (COVID-19) outbreak a pandemic, with numerous countries announcing travel restrictions and social distancing measures.
Beyond the immense impact to public health, the pandemic has caused significant disruption to the restaurant industry. With massive quarantines and restrictions on the size of gatherings, restaurants began voluntarily closing and subsequently have been ordered by a rising number of state and local governments to either close or restrict operations to take out and delivery service.
Responding to multiple risks from a number of variables is daunting, especially when the situation is changing daily. Swift and tactical execution will be necessary to minimize financial implications. The following checklist is designed to enable you to make informed operational and strategic decisions while balancing the risks inherent to an infectious disease pandemic.

Here are key questions restaurant leaders need to ask to evaluate their risk profile and the corresponding action items to navigate the ongoing outbreak:

1. How prepared is my restaurant? What does “prepared” look like to our business?

  • Conduct a business continuity risk assessment to identify potential internal operational, financial and market risks; determine direct and indirect impacts; and generate an action plan. Third-party vulnerabilities should be incorporated into action plans.

  • Identify a response team to lead ongoing crisis management efforts, coordinating with appropriate federal, state and local authorities. These efforts should include regular communication to internal and external stakeholders.

  • Communicate with internal and external stakeholders—as well as your surrounding communities—about what the novel coronavirus is and key protective measures people should employ, including social distancing. Leveraging information from WHO’s dedicated public advice page is a good place to start.

2. What are our organization’s capabilities, strengths and weaknesses, including across the supply chain? Which third-party risks do we have, and where are they concentrated?

  • Build scenario models to determine ways to mitigate any additional risks to your supply chain, working closely with your suppliers.

  • Insulate your supply chain from disruption. Identify ways to diversify your supply chain, if possible.

3. Have we clearly communicated with our customers the steps we are taking?

  • Communicate via social media and your website. For restaurants that are still open, whether offering in-person dining, takeout, or delivery, be sure you are broadcasting to customers via social media and your website your efforts to comply with state- or city-mandated protocols, as well as to maintain, if not surpass, WHO/NRN-recommended hygiene standards.

    • Restaurants that are closing or closed still need to keep their customer base informed—people with a favorite restaurant want to know when that restaurant will reopen. We recommend regularly timed status updates that communicate your plans, whether to remain closed or, when the time comes, to reopen.

4. Have we clearly communicated to our workforce what steps we are taking, what steps they should take and how they should respond to different scenarios identified?

  • Keep your workforce informed. Food service employees naturally worry whether their jobs are at stake during business closures or an economic slowdown. Do your best to communicate with your employees, reassuring them to the extent that you can, or being forthright and honest if layoffs must occur so they can begin making any necessary preparations as soon as possible.

  • Review remote working policies and guidelines. Restaurant business depends on person-to-person interactions, which makes remote work moot for most restaurant business functions. However, for corporate back office employees, remote work may be an option. These employees should use only their work computers, not their personal computers, and managers should be trained on how to be virtual leaders by setting clear expectations and emphasizing regular communication.

  • Ensure your policies for paid time off, sick leave and short-term disability comply with the Families First Coronavirus Response Act. Employees should be reassured that they will not be penalized for taking sick leave, and they should be told not come into the workplace while sick because they are worried about losing out on income. Policies for payment if the workplace is temporarily closed or employees are furloughed will also need to be reviewed and clarified.

5. What are our organization’s legal resources and insurance coverage, and do we have funds to support this crisis? Do we have coverage for an insurance claim?

  • Reach out to your attorneys. Discuss with your counsel what your force majeure clause language is in your contracts and whether it may cover the COVID-19 pandemic.

  • Evaluate your insurance coverage. Identify the impact from government-imposed shutdown/civil authority, service interruption, mandated closures, supply chain interruptions, loss mitigation, event cancellation, and extra expenses like increased logistics and redistribution costs, higher costs related to workforce disruption as well as shifting productions to potentially higher-cost locations, and others. If submitting a claim to insurance, make sure to have your attorneys draft it.

  • Establish milestones for claim recovery. Resources are likely going to be stretched thin for the foreseeable future. It is important to create milestones and hold all members accountable for achieving those goals.

6. How can this threat unfold and evolve, and what scenarios do we need to consider for our business?

  • Regularly monitor announcements from the WHO and the Centers for Disease Control and Prevention to determine other potential impacts that could be coming down the pike for your organization. Implement operational measures as necessary in response.

  • Establish various versions of your enterprise risk plan that can be adapted to help mitigate risk should other waves of the outbreak take place, taking into consideration where they might unfold.

  • Consider accounting implications and total tax liability changes. For example, COVID-19 will complicate how businesses evaluate asset impairment, equity method investment impairment, goodwill and intangible asset impairment, going concern, debt covenant compliance, and financial statement disclosures. Total tax liability, meanwhile, could be impacted in several ways depending on individual circumstances and the actions taken by national, state and local governments. Also consider income tax withholding when an employee lives and works in two different states. Employers should closely monitor federal, state and local policies as they relate to payroll tax changes in connection with COVID-19. These policies may include tax filing extensions, tax cuts, withholding exemptions, tax credits and special unemployment insurance provisions for displaced workers.

Following this checklist can better enable you to make informed operational and strategic decisions while balancing the risks inherent to an infectious disease pandemic. Beyond that, you can use the intel gained from your self-evaluation to evolve your capabilities as the effects of the outbreak continue to unfurl and support the business case for future investments in resiliency.
To discuss your organization’s response to the coronavirus, reach out to a BDO Professional.