Hunkering down

Businesses stretch their funds during the pandemic

Martin Daks//June 8, 2020

Hunkering down

Businesses stretch their funds during the pandemic

Martin Daks//June 8, 2020

The COVID-19 pandemic has swept across the U.S., upending millions of lives and leaving illness and death in its wake. Government-mandated business shutdowns are aimed at limiting the spread of the deadly disease, but there’s a side effect: a slew of bankruptcies across a swath of industries, including fitness center Gold’s Gym, automobile rental firm Hertz, and luxury retailer Neiman Marcus.

Experts say, though, that some businesses can stay afloat during the crisis if they take prudent steps to trim expenses and are flexible about their operating model. Reacting in a nimble manner has enabled Gene DeMarco to keep DeMarco’s Catering & Gourmet Deli running, without any layoffs, despite the challenges.

Located in Aberdeen, the 4,000-square-foot shop opened in December 1975, and is currently run by DeMarco, his brother Robert, and dad, Louis. “Our revenues are basically steady, although the mix has changed,” he said. “Pre-pandemic, catering accounted for about 40 percent of our business, and the deli generated about 60 percent,” he said. “Now, catering accounts for only about 15 percent of revenue and the rest is basically from the deli. I applied for and received a PPP [Paycheck Protection Program] loan, which we expect will be converted to a grant, and I haven’t had to lay off any of our 17 mostly full-time employees.”

DeMarco’s Catering & Gourmet Deli.
DeMarco’s Catering & Gourmet Deli. – DEMARCO’S CATERING & GOURMET DELI

But he also had to adapt to a “new normal” of in-store operations. “People used to enjoy spending time inside our store, browsing products and speaking with us,” said DeMarco. “But now many customers call in their order and either pick it up curbside, or quickly enter the store—as long as they’re wearing a mask—get their order and then exit.”

DeMarco also tweaked his store’s website—which offers some online ordering— to reflect the changing environment. “Among other services, we supply restaurants with bread, and we saw that the size of their home-delivery orders were getting smaller. So ahead of Easter I changed our own ‘family style take-out’ website menu—instead of highlighting holiday packages for 17 to 20 people we focused on smaller offerings, like trays that will serve three to five people apiece. We’ve also remained competitive by reducing prices on some items. We realize that many people are feeling an economic pinch, and we want to accommodate them.”

Adapting to survive

Carmine Visone has also adapted. In addition to being chairman of the Aberdeen Economic Business Council, Visone has a franchised business, Honey Baked Ham and Café of Middletown, which is operated by his son, Keith. The older Visone and his wife, Phyllis, also own Home Away From Home Academy in Aberdeen, which normally provides infant care, preschool through kindergarten, and other services but is currently shuttered under COVID-19 regulations.

Carmine Visone’s Honey Baked Ham store.
Carmine Visone’s Honey Baked Ham store.

Opened around 2004, Honey Baked Ham and Café has seating for 40 but for now is operating with curbside-only pickup. The seven-person staff was trimmed to three, Visone added. “We got a small amount from the PPP program, which covers the remaining employees, and our rent and utilities,” he said. “I have trouble sleeping at night. You worry about people who are ill, or who lost their job, and you worry about entrepreneurs who worked their entire life to build a successful business and now they’re impacted by something beyond their control. And unlike a natural disaster, there’s no insurance coverage.”

Carmine Visone’s Home Away From Home Academy.
Carmine Visone’s Home Away From Home Academy.

The crisis’ timing was especially bad for him. “In the summer of 2019 we had to redo the Home Away From Home Academy schoolyard, so I took out a two-year, $45,000 bank loan,” Visone said. “When we had to close the school I immediately reached out to my bank and negotiated a deferral where the payments will be added onto the back end. But what happens if we’re forced to stay closed through the fall or beyond? I may have to reinvent the school for online learning, with dance or music lessons. In the meantime, we’re stuck with lease payments on a 12,000-square-foot structure.”

Business owners may be saddled with overhead items like rent and insurance, but it doesn’t hurt to ask about reducing their payments, according to CPAs like John Evans, partner-in-charge of Marks Paneth’s New Jersey office. “Go through your fixed and variable costs, and you may find a lot of ways to cut back,” he advised. “Maybe you can get a break on your lease, or your commercial insurance policy if your building isn’t being used. Are you paying for parking spaces that aren’t being used? Again, it doesn’t hurt to ask.”

John Evans, partner-in-charge, Marks Paneth’s New Jersey office.

He also said “it’s never too late” to call suppliers and see if you can delay payment, “or offer partial payment now. It’s all about the relationship—if they want to keep you as a customer when things get better, they’ll go a bit out of their way for you now when things are difficult.”

This is also a good time to re-examine everything from personnel to purchases, Evans said. “Maybe you added employees or equipment and other assets that you really didn’t need, but the boom times let you spend a bit extra. Well now things are tight—and even if we lick the virus now, it may come back and clobber us later. So engage in recession planning for the future, too. Because you just don’t know.”

Time for a haircut

Marks Paneth has cut back or eliminated travel and entertainment and other expenses, he added. “Partners took a haircut on their draw, ranging from about 10 percent to 25 percent; and we eliminated some staff overtime, while delaying promotions and raises. But this way we didn’t have to lay people off. Employees may not be thrilled when they don’t get a promotion or a raise, but they don’t mind it as much when they know partners are sharing in the pain.”

Michael Hochman, partner and New Jersey officer market leader, Grassi CPAs.

CPAs at Grassi are also trying to help businesses through the pandemic-dampened economy. “Among other clients, we worked with a New Jersey-based promotional products company on workforce management, helping them to decide what employees to retain and which ones to furlough or terminate,” noted Grassi Partner and New Jersey Office Market Leader Michael Hochman. “We also advised them about cash-flow management and projections, and suggested tapping any existing LOCs [lines of credit] so they’ll have some extra cash on hand if needed.”

Bill Hughes, partner, Grassi.

Hochman also helped the company apply for a PPP loan, which it received, and is now updating the business about changes to PPP’s spending and other regulations. “Later, we anticipate walking them through the loan forgiveness application. Looking ahead to the post-pandemic environment, our professionals are also advising clients about long-term cost-cutting measures like outsourcing human resources or CFO advisory services.”

Grassi Partner Bill Hughes noted that professional services and other firms are also rethinking their own operations. “We’ve been doing a lot of Zoom meetings and conference calls, instead of in-person gatherings,” he said. “They’re working out well, even though it’s not quite like sitting in a room with a client.”

With so many people working remotely, “our firm and others may be rethinking how much office space is really needed,” he added. “I work in Park Ridge, and I’m saving an average of an hour and 15 minutes a day on my commute. There can be efficiencies from work-at-home arrangements, and some of our clients have asked us to help them look at these models. Office landlords may want to consider what they’ll do if huge blocks of space become vacant, because a lot of things will change as a result of the pandemic.”

Think outside of the box

A furniture retailer based in Central New Jersey was considered to be a “non-essential” business so it had to close its brick-and-mortar operations. “But the company maintained sales through its internet presence,” according to Robert Katz, a Philadelphia-based managing director in EisnerAmper’s Financial Advisory Services Group.

Robert Katz; a managing director, Financial Advisory Services Group; EisnerAmper.

“The firm didn’t qualify for PPP, but we helped them to get an increased lending facility from their banker in less than 10 days, which they’ll use to freshen up their retail locations during the forced shutdown.”

EisnerAmper professionals also advised the company, which has locations throughout the Garden State, to ask its landlords for some kind of rent relief. “Communication is important,” he added. “Don’t just try to stiff-arm them, or refuse to return their calls. Regardless of your industry, let your landlord, suppliers or others know ahead of time that you’d like to talk. This builds goodwill because it gives them time to prepare.”