The world can change fast. The COVID-19 pandemic struck with speed and fury and has left many of us in tourism related businesses scrambling to make sure that we can live to fight another season. The fly fishing industry is directly in the cross-hairs of the economic lead weight that is the virus. In times like this we can all benefit from sharing ideas on strategies to best make it through what will be a difficult season.
We are better at giving casting tips than financial advice, but here are a few strategies we are working on here at Montana Angler to weather the pandemic storm, maybe some of these ideas can benefit your business as well:
Make some predictions on best and worst case scenarios for the timing and scope of the pandemic and build plans to sustain the worst case.
Yogi Bera once said "Its tough to make predictions, especially those about the future". That statement is certainly true when it comes making educated guesses related to the timing of the COVID-19 pandemic. Here are a few of our best guesses:
1) The initial outbreak is likely to peak in late April in the US. Each community and state will have a slightly different curve. But based on patterns in other countries we do know that the shelter at home orders in most states are showing signs of the "curve flattening". Under the current social distancing measures we would expect the current new case rate to drop about as fast as it started. This would bring case loads down to minimal levels by late May. There is some uncertainty as to how fast the rate of new cases drops, it could slowly taper and take longer to drop. It is important to understand that there is no natural immunity for COVID so until a vaccine is developed (12-18 months would be an amazing moon shot pace). So even if we get a late spring drop off we need to learn how to live with COVID without full lock down this summer. In other words - things will get better soon, but the problem is not going to completely dissolve in 3 weeks.
2) At some point strict social distancing measures will begin to be relaxed. This is likely to be staged with some gradual changes. For example businesses may be allowed to reopen but sports or large gatherings still banned. This is good news for fly fishing businesses because by nature we host small groups in wide open spaces. So fly shops, fishing guides and smaller boutique fishing lodges should be some of the first to reopen once non-essential businesses come back online.
3) There may be seasonal help with COVID-19. Corona Viruses are common. We do know that other Corona Viruses do not spread as fast in temperate climates during hot and humid summers. This is why influenza is seasonal in North America. There is hope that this will help the COVID pandemic to recede in the summer months (but possibly return when it gets cold). It is also possible that the summer doesn't help much, we need to wait and see on this one as no one knows for sure yet.
4) Once the outbreak numbers drop there is hope that we will have more tools in place such as rapid testing, more protective equipment for hospital staffs, more ventilators and hopefully some better therapies, drugs that help reduce the symptoms for patients severely impacted, contact tracing apps on our phones, antigen testing to see who already has immunity, etc. All of these tools and techniques may help to reduce the danger of COVID and also help to keep it under control without full scale lock downs like we are experiencing now.
5) So in a nutshell, at some point it is likely that world will begin to reopen in the late spring. And when it does fly fishing businesses due to their more boutique nature and small groupings would be more attractive than other vacation options like them parks, concerts or casinos. It is likely that we will not see a "light switched on" and everything suddenly snaps back to the way it was last summer. We do see most of our guests on the 2020 schedule are keeping their reservations from June on. We are also hopeful that once the current outbreak wanes, and we begin to ease restrictions that many folks will be looking forward to "getting out". As long as the virus is managed over the summer there should be a "modified" return to vacationing and fly fishing will be an attractive option by its nature. It is also likely that some folks in higher risk categories or those impacted by the recession resulting from COVID will not make their normal trips. So summer and fall will still likely be down from past years even in a best case scenario. We are planning for most spring trips being lost and then a lower than normal summer and fall season.
Reduce the "burn rate" of your businesses expenses
Most of our businesses are built to operate at a certain level of revenue and we have expenses designed for "normal operations". COVID-19 has turned normal operations upside down. We have chosen to scale our operation down and reduce expenses now. We figured the longer we waited, the tougher it would be to dig out of the hole. Here are some things we are doing to trim expenses:
1) Lay off employees. Unfortunately with the loss of all spring guide trips, the closure of most fly shops, and reduced demand there is simply not the same revenue to support a staff built for a normal season. We have laid off several salaried year round employees. We hope to bring some folks back if they are still available and the market rebounds, but it is also possible that the coming recession reduces demand even when the pandemic is over (and full relief from the pandemic concerns may not be fully realized until 2021 even if we get a "new normal" this summer). Fortunately new unemployment rules will allow employees laid off from the COVID crisis to get more than their normal weekly paycheck through July 31st.
2) Furlough employees. We have also furloughed many on our core team. These are folks we will bring back as soon as the immediate world wide lock down eases. With the new unemployment rules our core team can make as much or more than their regular salary through July 31st after the passage of the CARES Act - it just made sense to put them on pause while the world is at a stand still to trim costs. Read about the new unemployment rules in the CARES act.
3) Furlough business owners. My wife normally works half time as our business manager. We furloughed her and dropped my hours and salary to half time. We both applied for unemployment. New CARES Act rules allow for self employed and business owners to qualify for unemployment. This is certainly a foreign concept to both of us as we enjoy hard work but we owe it to our family, our staff and our return clients to do everything we can to be fiscally sound in order to rebound with a viable business when the pandemic breaks. Every little bit helps right now, if you are spending a lot less time than normal this time of year while your shop or lodge is closed, your reduced workload also qualifies you for unemployment. The reality is that as business owners you need to do everything you can right now to keep your business a-float so when demand returns you can get as many employees and guides back to work. You can only do that if you keep your business upright.
4) Negotiate rents. If you lease your fly shop space, consider negotiating a provisional rent agreement. If you have been a good tenant, this is a pretty fair ask and many businesses are doing this so it will not be a surprise. For our downtown fly shop we now have zero revenues due to "non-essential" business closures. Even with rules change and we can re-open we expect reduced summer fly shop sales as the market slowly rebounds. A good landlord will be willing to "share the losses" with you and renegotiate your rent.
5) Negotiate commercial loan terms. Most banks are willing to be flexible on loan terms during COVID-19. We have mortgage payments on commercial properties like our lodges and boat warehouse. We haven't pulled the trigger just yet but our banker has agreed to more flexible interest only terms. Other banks are offering delayed payments. If you can cover at least your interest payments that is a little safer to avoid problems later.
6) Cancel, delay or reduce pre-season product orders. For most retail fly shop businesses we should expect a down sales year. This depends on your market and if you rely heavily on online sales or not. If you are a "destination shop" that depends on summer tourism you will be more impacted than if you are a regional shop, like one in Denver that caters to the local crowd. For many shops in Montana that rely on tourism it is unlikely that we will see our normal summer product sales - so consider trimming any pre-seasons that haven't shipped while you still can.
7) Review your monthly expenses, cancel expenses that can wait and trim costs that aren't mission critical. This might amount to a lot, but it very dollar counts in the pandemic season. Do you really need recycling pick up or can you drop it off? Are there some wish list plans that can wait a year? etc.
Develop a Provisional Cancellation Policy for 2020 and consider full credits to reschedule in the future.
Most of our businesses have very strict cancellation policies. For example we do not offer refunds on trips once we are within 90 days of arrival on a normal year. These no refund policies are common in our industry and very important on "normal years" since we spend an entire year planning (and incurring costs) to prepare for the next season. Cancellations closer to the date of travel are very costly and often cannot be re-booked. We also use our strict cancellation policies to protect our guides who need to "make hay while the grass is green" so that we can pay them even if they get cancelled when closer to a trip.
Unfortunately cancel rates (especially for April and May trips) are extremely high during the pandemic. Our longtime return clients understand our normal "no-refunds" cancel policy; but the pandemic is bigger than all of us. We have chosen to offer full credits on our cancelled trips as a way to maintain our trust with our best clients. Our guides have also accepted a temporary reality of no cancel payments for this season. The reality is for most lodges and outfitters if we had to refund all deposits and payments for spring cancels we could easily go under fast since we all need to spend some of those deposits to prepare for the season. By offering a full credit we can "spread the losses" over two or more seasons vs. one giant hit in 2020. While offering full credits is very expensive on our end - we have received a lot of appreciative support from our best clients and know that we will see them for years to come as a result.
Furthermore, our offer to allow guests to receive a full credit is helping to keep guests booked for trips beyond 90 days scheduled. They know if for some reason we get to July and they are not comfortable travelling that they will be able to reschedule without penalty. So we are seeing very few cancellations for June and later since our guests know we have their back if things are worse than we expect later in the season.
Consider delaying lodge open dates
Some programs require a lot of expenses just to "turn on the lights". A friend of ours owns and operates and Alaskan fly-out fishing lodge. Just to open the lode there are incredible expenses - flying around in airplanes to go fishing isn't cheap! While operating some day trips may be realistic in May - opening a full service lodge by then is a big maybe; even early June has some risk. Now is the time to hedge your bets, it may be wiser to simply delay opening more expensive operations to play it safe.
Reduce personal expenses
Like many others, we have also worked on cutting our personal expenses:
1) Ask for a 6 month deferment on your home mortgage. As part of the CARES Act you can ask your lender to pause payments for 180 days without penalty or negative credit reports
2) Negotiate your rent with your land lord.
3) Sorry kids - PB and J for lunch...again
Consider new loan and grant options:
There are several new federal loan programs as well as some options from private companies to help during the COVID crisis:
1) Consider applying for the new Paycheck Protection Program loan. If you use this loan for payroll, rent, mortgages and utilities much or all can be forgiven. You can read more on the PPP loan program here.
2) Consider the Economic Injury Disaster Loan (EIDL). The cool thing on this one is that you can get an advance of up to $10,000 of which will likely be forgivable. There is also a very easy application process for the advance. You can also then do a longer application for more at 3.75% interest later. More on the EIDL loan advance program here.
3) Some companies like Google and Facebook are offering grants on advertising. We even received a $75 credit from our expense app (Zoho) to help with COVID. Every little bit adds up.
Consider traditional lines of credit:
Unfortunately even with the $350 Billion slated for small businesses in the recent CARES Act; that money will go very fast. There are already lots of headaches and bottle necks. For example many larger banks are no longer taking new PPP loan applications due to the huge demand. So you should still consider other funding options. Depending on how long the COVID outbreak lasts into the spring, and how fast summer rebounds and to what extent - we are anticipating the real likelihood of a negative cash flow in the winter of 2020 and 2021. We have already done the math on what we feel our own business is worth to determine how far in debt we are willing to go this off season. We hope it doesn't come to that but we need to be prepared. We are not overly optimistic on the CARES Act funding options, we hope to get some but understand that there simply isn't enough stimulus money out there to meet the needs of all small businesses. We are also setting up lines of credit backed by our personal home (HELOC), our boat warehouse and our lodge.
1) Home Equity Line of Credit: The raging bull market housing means that your appraised home value may be a lot more than the principle that you owe. Banks will generally offer a line of credit up to 75% of the appraised value of your home less any principle that you owe. So you may have a lot of value in your home if you have owned it for a while that can back a line of credit at a great interest rate to help you get through the winter
2) Lines of credit backed by commercial properties: If you own the building that your fly shop is in, or a fishing lodge that you own you may be able to use it to back a line of credit. Although we have commercial loans on some of our lodge properties, we have enough equity in them that we are able to establish lines of credit. We are basically stockpiling as much credit as we can just to be safe.
3) IRA loans: The CARES Act is allowing modified rule changes to IRA withdraws to remove penalties. This should be a last resort as you really want to avoid messing with your nest egg if you can. Another option is to take a loan backed by your retirement funds. You essentially loan money to yourself.
We wish everyone the best of luck while navigation the unique challenges that COVID-19 has placed on our businesses. Hopefully we will be back to worrying about snowpack levels and forest fires in 2021.