Tips for Businesses to Navigate the New NormalMarch 16, 2020 | Stuart I. Gordon | Matthew V. Spero | |
In this time of extreme uncertainty, an unfortunate reality is that many businesses are wondering whether they will be able to survive an indefinite economic downturn. Virtually every industry is facing the prospect of weeks or even months of drastically reduced sales.
Businesses need to take steps immediately to weather a prolonged new normal in which customers stay home and avoid public spaces, which will cause a ripple effect throughout the economy.
First, since all businesses are in the same boat, regardless of industry, economic position, or location, business owners should be proactive. Borrowers should reach out to their lenders; tenants should reach out to their landlords; and customers should reach out to their vendors, and vice versa, so that they can discuss working together over the coming months to try to make arrangements that are mutually acceptable. After all, it’s in the best interest of every business throughout the chain to find a workable solution.
Second, business owners should contact their insurance brokers or carriers to determine what, if any, insurance coverage may be available.
Third, owners should consult with legal and other professionals to take immediate stock of their financial situation, including evaluating their liabilities and their assets. Unfortunately, while many companies traditionally and rightfully focus on sales, they oftentimes have not planned for unknown contingencies, which can strike at any time. Many companies may not have ever conducted a “financial checkup.” Doing so will help owners determine whether their business can continue. Now is the time for owners to meet with their advisors to evaluate their options while they may still be somewhat in control of the situation.
If the result of this meeting is that the business can weather the storm for a time, it is important to strategize on how to marshal potentially limited resources. For example, secured creditors are entitled to look to their security, and a lender could have a lien on all of a company’s cash. As another example, some creditors (like credit card companies) may be more willing to negotiate and accept a discounted settlement. It is important for business owners to realize that they may not be free to simply do as they please with their company’s limited assets and they need to be both strategic and aware of their obligations with respect to liquidating assets.
This is perhaps even more crucial for businesses that are considering ceasing operations. While filing for bankruptcy is always an option, it can lead to unintended consequences and should be considered as a last resort. “Out-of-court workouts,” whereby a restructuring professional puts together a plan to deal with creditors, can be a cost-effective to way to wind down operations in an orderly fashion while minimizing potential litigation. Simply walking away could leave a business owner exposed for the business’s liabilities.
We now find ourselves in uncharted waters and cannot predict what the future may hold for our economy. It is more important now than ever that businesses consult with professionals to evaluate and plan for all of the potential challenges facing them.
Rivkin Radler remains available to discuss the new normal and to help our clients navigate the challenges facing us all in the coming months.
- Stuart I. Gordon
- Matthew V. Spero