COVID-19. Can your business survive the new normal? A Step-by-Step Guide for Helping Businesses Address Their Liquidity Challenges.
Everyone is affected by the pandemic. Our firm is no exception. Here’s a step-by-step guide we pulled together last week to help us navigate the challenges of the COVID-19 climate. We hope you benefit from our experience.
Step 1: Know Your Documents. Review your leases and loan documents. Look for default provisions and grace periods in each contract. Check to see if your contract contains a force majeure clause–a provision that forgives certain performance in the event of unforeseen calamities ranging from natural disasters like hurricanes or avalanches, to manmade emergencies, such as labor strikes or wars. This allows you to suspend business or stop doing business all together if it becomes impossible or impractical.
Step 2: Review Legislation. Stay up to date with COVID-19 legislation to see if there’s anything that can help you out. For instance, the “Paycheck Protection Program” of the CARES Act, issued five days ago, provides loans up to $10 million to existing “small businesses.” Meaning, any company with 1-500 employees. If you have the right documentation, the government will forgive new loans for up to eight weeks as long as they’re being used to cover: (1) payroll costs; (2) mortgage interest; (3) rent and (4) utilities.
Step 3: Call Creditors. Call lenders, suppliers, landlords and any other creditor you can think of to renegotiate the terms of any existing agreements. If you think you’re going to default, there’s a number of smart things you can do, including postponing payments, waiving defaults, lowering interest rates, and potentially extending out the length of a loan. A good attorney can help you through that.
Step 4: Review Insurance Policies. Check your insurance policies to see if you have coverage that provides help in times of crisis. Look for (1) Civil Authority Coverage; (2) Business-Interruption Coverage; and (3) Trade-disruption insurance.
Step 5: Determine if You Are Insolvent. If you’re still coming up empty after Steps 1-4, you might be “insolvent.”
Here’s the top six signs that your company is running out of cash:
1. You’re in breach of contract with your lender;
2. You’re unable to pay bills right away;
3. Your 13-week cash flow budget is trending downwards;
4. Your vendors ask to be paid cash on delivery;
5. You have maxed out your line of credit; and
6. You can no longer purchase what you need to run your business effectively
Step 6: Remember the adage “Lose the battle, win the war.” Filing for bankruptcy is a strategy; it doesn’t have to mean the end of everything. If you’ve thought you might run out of cash, it’s time to call an attorney. Pronto. Don’t wait until it’s too late. You’ll find you have more options than you think. Good options. We’d be happy to discuss them with you.
We’ll leave you with this. As you navigate Steps 1-6, please remember:
No matter what, NEVER use personal credit cards or savings accounts to prop up your company. It’s a lose-lose situation. You’ll put your family at risk to save your business. Diverting payroll and sales taxes to fund operations doesn’t solve anything. In fact, it creates more problems. The IRS will hold you personally liable for failing to pay those taxes. We know this isn’t fun. We know this isn’t fair. But with the right counsel, you can provide your business with the best chance it has to survive, and eventually, thrive again.