Restaurant Industry Sees Hope in Targeted Relief Package
As the first quarter in 2021 winds down, there’s much for restauranters to be hopeful for. The combination of fiscal stimulus and accelerated vaccine distribution brings predictions of a much-needed economic boom. It’s a long road to recovery for the restaurant industry, that at the end of February still showed a net loss of over two million industry jobs from a year prior- a number that is more than double the next closest industry and represents a drop of approximately 16% from pre-coronavirus levels.
Restaurant Industry Recovery Begins
As the restaurant industry begins its recovery, Sean Kennedy, the executive vice president for public affairs with the National Restaurant Association sets the table in his recent commentary on the latest bill from Washington, the American Rescue Plan. Kennedy shares in a statement, “The Senate passage of the American Rescue Plan means we have turned the corner and can see the finish line.”
As relief has been provided in various forms throughout the pandemic, and knowing where to start may be overwhelming, the Windham Brannon team has compiled a list of recent opportunities that your restaurant(s) may benefit from.
The Consolidated Appropriations Act 2021, which includes the Economic Aid Act, was signed into law on December 27, 2020. The Act extends the Paycheck Protection Program (PPP) to include a second round of funding to certain qualifying businesses. Key provisions are discussed here Consolidated Appropriations Act of 2021 , with an important call out to those provisions impacting restauranters:
| PPP2 | Tax Matters | Temporary enhancements to SBA (non-PPP) lending programs |
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American Rescue Plan– Many restaurants will benefit from the latest bill out of Washington, as the bill provides a $28.6 billion “revitalization fund” that provides grants to help restaurants cover pandemic-related revenue losses. The Restaurant Revitalization Fund provides up to $5M in grants (a distinction from previous relief in the form of loans) for individual restaurants, bars, caterers, breweries and talking rooms, or up to $10 million for restaurant groups. Qualifications require the restaurants to not be part of an affiliated restaurant group of 20 or more locations. Further measure was taken to ensure 20% of the funding is reserved for businesses that grossed less than $500,000 in receipts in 2019. The grant period also allows restaurants owned and operated by certain minority groups- women, persons of color or veterans- to be prioritized for the first three weeks.
This separate grant period is of value to the restaurant industry since, 40% of restaurant businesses are majority-owned by minorities, compared to only 29% of businesses across other industries, according to the National Restaurant Association.
Leases– As some restaurants struggle to return sales to 2019 levels, they may continue to be negotiating lease terms with their landlords. Many COVID-19 related lease concessions and abatements may be eligible for a simplified accounting treatment, first announced in a Staff Q&A from the Financial Accounting Standards Board (FASB) in April 2020. Furthermore, FASB deferred the required adoption date of the recent lease standard, Accounting Standards Codification 842, Leases (ASC 842), for private companies for fiscal years beginning after December 15, 2021.
ASC 842 requires a change in existing lease accounting, including requiring lessees to recognize most leases on their balance sheet. The expected impact to the restaurant industry is significant, given the expected resources required to change the systems, processes and controls to adopt ASC 842. Details related to the accounting guidance can be found here COVID-19 Lease Accounting Relief.
Federal Minimum Wage- Although the above lists what is available, honorable mention should go to what was excluded from the recent legislation. Rumors and failed votes over an amendment to increase the deferral minimum wage to $15 an hour have dominated headlines. Voices loudly heard in the industry believe the Raise the Wage Act is counterintuitive to the much-needed relief needed during this time. By significantly increasing labor costs and eliminating the tip credit, restaurants would once again be reforecasting cash flows and analyzing profits to determine if they can survive yet another month.
Our team of experts works with restaurants of all sizes that serve customers locally, regionally and nationally. Please contact Maggie Wise, CPA for questions regarding your business recovery.
