As the coronavirus spreads across our nation, so does fear, illness and death. I am not a medical doctor, and I am not qualified to opine on how to handle those critical health issues. But having practiced in the insolvency arena for more than 25 years, I have seen the effects of economic downturns, and I have guided dozens of businesses through difficult times. Obviously, I have never personally experienced the effects of a global pandemic. Then again, no one alive today has. But, based on the cycles and events I have seen, I wanted to share some general advice I have given to my fellow entrepreneurs and business leaders already.

  • Get ahead of the message. Choose your course of action and communicate with your stakeholders—employees, customers, clients, partners, vendors, etc. Let them know you have a plan.
  • Don’t panic. Our employees and customers/clients look to us for leadership. If we are not calm and collected, then we cannot expect them to be. Very rarely are good decisions made under the shadow of panic.
  • Plan for the worst. You must plan for the worst case. If it doesn’t come, you will be celebrating. But plan for it. In this case, nobody knows how long this will last. I think we have to be looking at a three- to six-month window at least.
  • Conserve cash. Liquidity is always an issue during down cycles. Do you have enough cash to operate for three months with no more revenue? Six months? What expenses can you defer? Tighten the belt where you can. Eliminate non-necessary expenditures. No one wants to fire any employees. But you must do what you can to protect the business. If you don’t layoff the ones you need to now, you could end up laying them all off later.
  • Review your contracts. Take a look at your leases, credit agreements and vendor contracts. Know your rights and obligations, and those of the other parties. Check for provisions that reference “force majeure.” This type of provision excuses a party’s nonperformance when it is due to an event that makes performance impossible or highly impracticable. You might be able to use such a clause to negotiate a modification, forbearance or other consideration.
  • Check for insurance coverage. Dust off your insurance policies and check if you have business interruption or other coverage that might help. Contact your agent or attorney if you have any questions or concerns. This is the time to put them to work.
  • Avoid personal guarantees. There are a number of loan programs rolling out from both the public and private sectors. Many of them require personal guarantees. If you can avoid it, don’t sign one. It is better to pledge the business’ assets than your own.
  • Consider equity. The tendency is to borrow our way out of these cycles.  But if you know someone who likes your business—maybe current or former investors, employees, friends, family—now may be the time to let them buy in.
  • Ask for help. Don’t be afraid to speak to your creditors. Contact them and ask for help. But when doing so, keep a few things in mind. First, you want to convey confidence. Let them know that you are not just trying to avoid your obligations, that you intend to pay them and that you have a plan to get there. You just need more time. Second, be clear about what you need:  I am asking you to give me an additional 90 days to make payment and to waive interest and late charges.  Third, confirm your agreement in writing, or better yet, ask the lawyers to do that.
  • Kick the can down the road. When asking for help, take what you can get. If you think you need 90 days and can only get 30, take it. Just recognize you may be having the same conversation again in 30 days. But both you and the creditor will have had another 30 days to let the process unfold. You will both have better information. And hopefully things will have improved.

This a quick and cursory list. But I wanted to share this information, because I have already started having these difficult conversations with so many of my clients and colleagues. And sadly, I fully expect the number of these conversations will multiply, in some ways like their tragic cause.