So your business temporarily closed - now what do you do?
As dire as it is, the coronavirus (COVID-19) crisis is not the end of the world. And it shouldn’t be the end of your business, even if your business had to temporarily shut down in order to stop the spread of the virus or because your customers shut down. So how do you make sure your business survives? The two key things to remember are cash and communication. You need to preserve cash to get to the end of the tunnel and for ramping up when it is time to restart operations. And you need to proactively communicate.
- Reach out to your lender. Don’t wait for your lender to contact you and certainly don’t stop making payments without talking to the bank, as hard as it is. While lenders are often limited in what they can do in terms of waiving payments or reducing payments (there are numerous regulatory rules that govern what they can do, and they have numerous customers in financial distress that they were not ready for), they value your business and will, in most cases work with you. Also, the FDIC and other applicable governmental agencies have signaled to the banks that they will be permitted more flexibility in regard to payments, although the details have yet to be provided.
- Communicate with your customers. If this means the general public, you need to let them know, via email, mass telephone calls, texts, tweets, or other advertising that you have closed to protect them and will weather the storm so that they can expect the same great service or goods when the crisis passes. If your customers are businesses, your need to make sure that they will still pay their accounts and must assure them that you will be around when they resume operations. Bear in mind that they too are hurting for cash.
- Make sure your employees are still around when business resumes. Until recently, employees could easily find work elsewhere, but this is changing quickly. You may be able to offer to pay them a portion of their regular pay and to keep benefits to stay, or you may need to lay them off, so they can qualify for unemployment insurance (many state legislatures are reviewing ways to waiver or change qualification for such benefits). Let them know that management is also sacrificing and do it. Congress is also in the process of enacting other paid sick leave or FMLA requirements. Once passed into law, many employers may be required to provide additional benefits. Remember, when this is over, you may also be able to hire new employees.
- Communicate with your vendors and, if applicable, your landlords. They are in the same situation as you. Suppliers can extend payment terms, accept partial payments and otherwise work with you. Keep in mind that they -- like you -- will need customers when the crisis ends. Landlords too, cannot afford to lose tenants at this juncture with real estate and rental values likely to fall. They are likely to prefer to waive or reduce rent rather than seek to evict, especially as eviction is a slow process and the courts can be anticipated to not look favorably on evictions during these times – indeed many courts are only permitting limited cases to go forward over the coming weeks.
- Consult with your insurance broker and review your insurance policies. Determine whether you have available business-interruption insurance in place to help potentially mitigate losses stemming from the pandemic. Standard business-interruption insurance is insurance coverage that replaces business income lost in a disaster, while contingent business-interruption insurance provides the insured financial assistance when the loss of a primary supplier or customer affects the insured’s ability to do business. Many commercial property policies also provide coverage for business losses resulting from a “civil authority” prohibiting or impairing access to the policyholder’s premises. Given all of the government-mandated shutdowns, this may be another avenue to protect against business losses. However, the applicability of business-interruption coverage to the COVID-19 outbreak will be considered on a case-by-case basis and will depend largely upon the language within a particular policy, including possible exclusions.
Finally, don’t be afraid to get help from your financial and legal advisors as you address these crucial issues. Experienced professionals can guide you in developing strategies to make sure that your business not only survives, but emerges stronger on the other side.