SAM asked resort financial management consultants Mike Krongel, Mirus Resort Capital, and Tom Lithgow, Resort Logic, how resorts should approach their finances during the coronavirus pandemic. Their advice: rely on lines of credit, work with banks and financiers to look beyond the immediate crisis, and be aware that supply chain disruptions will likely cause delays for most capex plans.
Tend to your employees. First things first: Be aware of your employees' needs. "Employees lost wages is your biggest problem," Lithgow said. "If there is government outreach it could be weeks away. Be prepared and communicate what you can do for staff now."
Next: pay attention to your sources of cash. Stay in close and steady communication with your banker and shareholders, Krongel said. "Hopefully, you have worked on developing a good relationship with your banker. Now is not the time to develop one," he added.
"Lines of credit for most operators should be fully paid down and ready to cover the off season," said Lithgow. "Be certain of your line of credit terms and conditions. The current situation should not change them. In fact, interest rates are as low as they will ever be, so now is a good time to renegotiate the rate on the line."
Stay in charge. "Make your banker and shareholders feel included, but don't let them run your business," Krongel advised. "Stay in touch with them and make sure they understand your cash flow needs. Be transparent about any uncertainties. Let them know, 'This is what we need, as best I can tell you today.' Keep them updated as events unfold. You really have to give them a realistic picture."
Part of that picture is maintenance capital. "You can't abandon sustaining capital," Lithgow said. "Keep your eye on the ball. Next year will happen, so don't forsake your assets."
Is this a crazy time to expand? If you have confidence in your big capex plans, stick to them. "Expansion spending might get pushback from banks and financiers, but remind them that the Fed took interest rates to nearly zero, so the cost of money to them is next to nothing—and you will be operating next season. It's in their best interest to keep you moving along on your planned path," Lithgow said.
If an owner/operator approaches his banker and is denied lending capacity, that owner should remind the lender that the Fed lowered rates to insure more dollars enter the economy, and that the bank has an obligation to fund ‘distress' loans at this time,” Krongel said. "Banks and bankers have a moral and ethical obligation to keep commerce and business flowing. Not lending is counter to banking’s purpose in the community
Practice patience. "Consider that the virus is affecting other parts of the world, which may impact your supply chains if you had plans for snowmaking, lift, or grooming capex investments—there might be delays," Krongel said.
Remember, it's in your financiers' interest to keep you afloat. "If you think you will be out of cash flow by mid-July, ask your bank or financiers, 'Do you really want to own a ski resort?'" Krongel said.
Keep selling. With an eye on the future, Krongel encouraged resorts to continue selling. "Be careful with your messaging, you can't be insensitive to what is happening in the world right now. But don't stop selling," he said. That echoes advice from marketing experts as well (see related post, "Business Continuity: The Sale Must Go On").
"Outdoor environments will be the safest place to be as we come out of this virus crisis," Lithgow noted. "When the quarantines are lifted, our mountain environments will benefit from being a great place to send people. Communicate about your continued care to cleaning surfaces, though, as potential visitors may still be nervous."
"Now is not the time to sell," said Krongel. "If you had plans to make an exit and ride off into the sunset, you might want to put that off. Lithgow agreed: "It's a buyer's market right now."