When your restaurant or bar goes into default, the court may appoint a receiver to help protect the value of the establishment. This provides a neutral third party without an emotional stake in the restaurant to help protect revenue and cut expenses. While this process protects the lenders, the receiver may also be able to save the business itself. After all, if the restaurant can succeed over time, it can repay lenders and investors. For this reason, a court-appointed receiver can also serve as a restaurant turnaround consultant. The same skill set and business approach serves both roles effectively.
Why Restaurants Go Under
Everyone loves a great restaurant experience. Unfortunately, that does not always mean restaurants will perform well. The costs can run high; people can make a good meal at home, so they go out for the service and the experience. Labor costs can rise quickly, and the lease, utilities, decor, and operating equipment make for small margins. Even in bars where margins are higher, free or stolen drinks are frequent enough to eat into the profit line. Competition is fierce enough to keep menu prices down, so there is little room for error.
Further, many of the payments made at restaurants never drop to the bottom line. Card payments include fees that go to the processing company. After that, some of the funds go directly to owners and investors. If you are not careful in your audits, you can be vulnerable to additional skimming from some of these recipients. The margins grow thinner and reduce your profits over time.
In the midst of all of this, a major problem can sink a restaurant or bar. Kitchen equipment fails, a health inspection shuts down service, or a natural disaster strikes. When this happens, emergency funds or savings may not be enough to keep the business afloat.
Court-Ordered Receiver or Turnaround Consultant?
Whatever the cause, a failing restaurant leaves everyone in the lurch. The court will often order a receiver with the first focus on protecting the lenders’ ability to recover. He or she will help cure defaults, cut expenses, and work to get revenue flowing again. In this case, the receiver is now running the restaurant, and the primary beneficiaries are those lenders and investors. All decisions come from a perspective of preserving value, whether to raise enough revenue to pay debts or to reach a sale that allows them to recover what they have put in.
On the other hand, if you own or operate the restaurant, this focus does not quite match your own goals. Preserving value might look the same, but you want to get the restaurant running again in a way that you can sustain over time. The consultant does not necessarily take over, but instead offers direction to you or your managers, helping you get the business operating in the black again.
For the lenders, then, the best option will usually be the court-ordered receiver. This gives them the ability to recover without any concern of dual loyalties to the restaurant ownership team. A restaurant turnaround consultant keeps more power in the hands of restaurant ownership, returning a little more risk to the investors and lenders. On the other hand, if the consultant can help manage a viable restautant, everyone can ultimately win.
To some extent, everyone is at the mercy of the court on whether a receiver or a restaurant turnaround consultant works the best. If you have an individual serving in one role, though, you may be able to suggest using the same person in the other role as well. Absent conflicts of interest, you can take advantage of the same skills to cut expenses, to increase revenues, and to drive the restaurant into a more successful, profitable model. Lenders and owners should work with each other on this approach. In the end, all are interested in a profitable, successful restaurant or bar, as this protects everyone’s financial interests.