Amanda Munday is the founder and CEO of The Workaround, a co-working and childcare space in Toronto.
On April 1 I defaulted on my commercial rent. The day before, I posted a photo on my business’s Instagram account along with a message that we are at risk of closing permanently.
Many people in my community expressed shock, and assumed that federal relief programs will help. From the eyes of a small-business owner, though, it’s as though a bomb went off and no one can see the damage.
The federal relief is simply too slow to save small businesses such as mine. There is a pile-on effect that makes each day worse, even with new programs announced.
The Workaround is a co-working space with on-site child care. When I signed the lease, I imagined many alternative financial models to psychologically cushion the risk of personally securing my house.
At our 2018 opening, the monthly fixed costs before payroll were just more than $16,000. Then, late last year, we expanded, increased monthly expenses by 30 per cent and added 27 desks. Today, with nine staff, our monthly fixed costs are $30,000.
When The Workaround was ordered to close because of the COVID-19 pandemic, I knew immediately we were in crisis. The refund requests for reservations rolled in. I stopped all billing, sending future revenue to $0. I don’t yet have rent relief, and I defaulted in April and incurred NSF fees (non-sufficient funds) from my bank.
Perhaps I should walk away, but I’ve been told the “force majeure” clause in our lease, which would allow us to do that without penalty in case of an extraordinary event, doesn’t apply. The details of the Canada Commercial Rent Assistance Benefit will be crucial to knowing if we have a chance.
As with the minimum requirement of $20,000 in annual payroll needed to qualify for the Canada Emergency Business Account, if there is a ceiling on the monthly rental amount that can be claimed, will the cap hurt us? I fear the requirements may exclude us and our neighbours.
And how should I account for the inevitable cash burn when we’re allowed to return to limited normalcy? The uncertainty makes strategic planning impossible and leaves me with only worry and looming insolvency.
With all my planning, in no scenario did I imagine I’d be personally liable for a space that is now illegal to operate.
Talking with other owners on Danforth Avenue, my neighbourhood’s main street, we are a tragic chorus. Common Threads, a small shop a couple of doors east just announced it was closing. The Shore Leave, my favourite local bar, has already been locked out. SaveSmallBusiness.ca, a coalition of small-business owners, has collected more than 32,000 stories of businesses at risk of permanent closing and bankruptcy.
I received dozens of celebratory texts after Justin Trudeau announced the 75-per-cent wage subsidy program. Except 75 per cent isn’t useful with zero-per-cent revenue.
I’ll be bankrupt much sooner if I keep my staff on payroll, unable to front their salaries until the subsidy kicks in a month from now. I don’t have the cash to float the extra 25 per cent. Factoring in taxes and other deductions, my team is better off collecting the Canada Emergency Relief Benefit.
In my case, the options for relief are scarce. I’m sitting in my kitchen staring down interest payments, overdue rent and personally secured liabilities. The $40,000 Canada Emergency Business Account loan might be useful (I haven’t been approved yet) but is anxiety-inducing. The last thing I want is more debt – debt I’m not sure I can repay, and that will only carry us two months.
I’m estimating The Workaround will lose at least $100,000 in the next year. That’s our best case.
Before I started The Workaround, I had an excellent credit score with very little debt. Because it was my first business with an unproven model, I secured a loan from Business Development Canada for just more than $100,000, personally guaranteed, and also took out a home equity line of credit with my bank to fund additional cash flow.
But BDC was also the first to turn us down for additional loan capital during the current crisis. Now, if The Workaround closes, personal bankruptcy is inevitable.
I didn’t start The Workaround to be wealthy. Many owners of family-run restaurants and local salons are onsite daily, not sitting on a tropical island raking in cash. We choose to start community-focused businesses to improve our neighbourhoods and add a little sparkle. We create jobs and support families.
The objective is to bring home a modest salary and get cash-flow-positive. Those are often the only goals beyond serving our community. I was motivated by a desire to help parents, knowing that child care is in great demand in Toronto.
It’s growing increasingly likely that there isn’t enough time remaining to repay my home equity line of credit before the lease expires. That’s if my landlord – a major national REIT – doesn’t lock me out. The general public, not understanding the complexities of running a cash business, think we are in a wait-and-see scenario. When our neighbours emerge from their houses and see the ubiquitous “for lease” signs, they’ll cry out.
But the damage is irrevocable. We will be boarded up, too broken to return and too broke to start again.
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