Financial Planning in the Time of COVID-19

While the safety and health of employees should be of utmost importance for businesses during the COVID-19 outbreak, companies should also triage their financial well-being. In response to the impact this pandemic is having on global financial markets, companies should have already implemented a contingency plan to help them stay afloat. Having a solid business plan in place might determine how a company will fare once this pandemic ends.

Whether a company is dealing with business loss, a reduction in productivity, disruptions in supply chains, or all of the above, it is almost certain that many businesses will soon confront fears about their financial future—if they aren’t doing so already. One of the significant challenges faced by companies that are rolling out their financial plan is the uncertainty of when business will go on as usual. As reports continue to push back the projected date of when our economy is expected to reopen, companies should be prepared to implement a contingency plan that might last for months, with a recovery plan that might last years.

Companies should begin by analyzing their cash flow projections against their monthly expenses to determine what cost-cutting initiatives they can put in place. Minimizing travel and non-essential spending, as well as postponing costly projects, can help businesses preserve cash. Taking an inventory of staff and productivity levels to determine if layoffs and furloughs are necessary might also be considered. However, companies must keep in mind that many of the government programs that have been put in place to offer relief to small businesses under the CARES Act require employers to keep employees on payroll to be eligible for the loan forgiveness benefits. While the goal is to trim the fat and gain a better understanding of where the company financially stands, we encourage companies that have questions on what strategy is best suited for their company to contact an experienced professional to assist them.

Companies should also look into restructuring their debt. For example, companies that are trying to protect their working capital may choose to draw from existing lines of credits or use unencumbered assets as collateral to seek additional financing. In the case where it is found that debt levels cannot be maintained, businesses should work with their attorneys in negotiating different solutions with their lenders. Banks may be open to discussing covenant waiver options or the possibility of extending a loan’s maturity date. Additionally, a complete restructuring of a loan might be an option, allowing interest payments to be waived until the end of the loan to provide some relief to companies that are facing financial hardships.

If reduction in spending or restructuring efforts prove to be insufficient in mitigating the blunt COVID-19 has had on business, companies may be able to obtain the protection they need under Chapter 11. Filing for Chapter 11 may provide companies with some breathing room since collection actions such as foreclosures and other lawsuits will be stayed. It will also give businesses the ability to sell assets free and clear of liens and will provide them with the ability to get out of costly contracts and leases.

Based on the financial plan selected, companies should also prepare a separate recovery plan. This plan should cover the steps the company will take once the stay orders have lifted, and business returns to normal. We encourage you to call us if you have questions on how to protect your business' finances during this pandemic.