By Chuck Faunce, Director of Business Valuation & Litigation Support at Gorfine, Schiller & Gardyn

It’s nearly impossible to plan for a “black swan” event such as the COVID-19 outbreak. The pandemic is forcing businesses to work on damage control by conserving cash, working with lenders to maintain liquidity, and pursuing the extraordinary government assistance being offered in these uncertain times.

The first priority of damage control is conserving cash. For instance, many companies have adjusted compensation and are extending payables. Second, challenges with AR collections or asset impairment could affect loan covenants during this time, so it pays to be proactive with your lenders. Also, companies should be working with their advisors to understand local, state, and federal programs, such as SBA loans and grants, and the new Payroll Protection Program.

Given the magnitude of the COVID-19 disruption, many companies have had no choice but to completely pause operations and furlough employees, hoping to re-open and re-hire when the pandemic is behind us.

Beyond immediate damage control actions, managing through any disruptive event is complex. Every business has unique vulnerabilities under a given set of circumstances, so the ability to quickly evaluate alternative courses of action is paramount.

The objective of the evaluation is to identify cash needs associated with different courses of action and compare those needs to available resources to quickly determine whether a given course of action is feasible, and which one of several possible courses of action is preferable.

The necessary decision making speed can be achieved by reducing decision making complexity. One possibility narrows the thought process to four variables:

1. The expected duration of the disruption

2. Alternative ways to replace the business volume lost during that period

3. The profitability of that replacement volume

4. Additional expenses incurred to generate the replacement volume

These variables can be influenced by factors both directly and indirectly related to the affected company. The COVID-19 pandemic, for instance, has seen an unprecedented level of direct interruption by civil authority – an order not to operate from the government.

Indirect factors to consider in evaluating these variables include the possibility that a supplier or customer experiences a disruption and either can't supply physical components or can't purchase the products or services from another company, or that a leader property, like an anchor tenant, experiences a disruption that reduces traffic to all the other tenants.

Getting input from a range of advisers can help identify the vulnerabilities of a business and develop and evaluate plans to minimize those vulnerabilities, whether they're financial, legal, operational, or some other aspect of the business.

The sooner companies begin to think about business disruption and continuity, the better position they’ll be in to emerge from the current crisis and weather the storm the next time a disruption occurs.

About the Author:

Chuck Faunce is the Director of Business Valuation & Litigation Support at Gorfine, Schiller & Gardyn. He has more than 20 years of experience providing clients with valuation consulting services including financial and tax compliance reporting, economic damages analysis and expert testimony, and buy and sell side transaction analysis. To learn more about Gorfine, Schiller & Gardyn, please click here.