All of us have been consumed by suggestions for how to protect our own health and welfare, as well as that of our families, employees, and friends from COVID-19, in addition to adhering to advice on how to protect the health of our business. As much of the technology industry works to offer a path to fight this pandemic, a lot of start-up and medium-sized companies will see less product introductions, lower revenue projections, and cash flow shorts, which in turn may affect the company’s workforce and production.
Here are a few things to consider as we all face these unforeseen times:
Cash Runway/Capital Spending
Do you really have as much liquidity as you think? How many quarters are you able to float? Where could you trim expenses without hurting the fundamentals of the business? Does your company have a contingency plan? Companies should reassess their current spending plans and goals and identify where they could trim some of their expenses, such as variable expenses, advertising, and non-essential work–orders, while holding off on any large purchases. This could affect how your company views headcount and evaluates how they could do more with less for the near future.
Companies should speak with their investors to understand how this may impact future fundraising, as the COVID-19-related economic crisis could continue into the backend of 2020, similar to the downturns in 2001 and 2009. How could you turn the challenges you are facing now into an enduring opportunity in the future?
Supply Chain Disruptions
The unprecedented global lockdown is affecting global supply chains. Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers. Pure software companies are less exposed to supply chain disruptions but remain at risk due to cascading economic effects.
These times may call for companies to pull back the reins and revalue customer acquisitions and their related marketing spends with so much uncertainty regarding future fundraising.
Companies should reassess current and future deal flows as customers begin to alter their spending habits and deals that were near their final stages may now be considered unnecessary. Companies should monitor customers to ensure that they will comply with their contractual obligations, including timely payment. In anticipation of disruptions, technology companies should formulate a plan for managing communications with other parties, keeping in mind that strategic considerations may be involved when deciding whether to take further steps or not. Additionally, companies should stay vigilant as it relates to collections, as customers may look to extend payment terms to preserve cash.
Paid Leave and Employer Tax Credit
Treasury, IRS, and Labor recently announced a plan to implement coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing coronavirus-related leave. Read the full news release here.
Public and private companies should review and make accurate required disclosures in the event that their business operations are impacted and a “triggering event” may have occurred. All companies who have credit agreements and other financing arrangements should review existing financial and non-financial covenants and clauses, and the potential impacts on these financial covenants, in order to determine whether any preemptive discussions with their lenders may be necessary.
Companies should review insurance policies to determine possible coverage in the event of a business disruption and comply with all applicable notice requirements. Companies may also review the possibility of obtaining business interruption insurance. Regardless, businesses should evaluate their coverage.
As governments require or recommend office and school closures to prevent or slow the spread of the coronavirus, many companies may decide to implement or expand employee work-from-home programs. These programs allow for business continuity, but they also pose increased cybersecurity risks by creating several additional avenues for unauthorized access to company systems and information. Therefore, companies should review their current cybersecurity controls and whether they must be enhanced prior to initiating or significantly expanding remote working technology. For example, best practices require implementation of two-factor authentication for accessing company networks, webmail, and encryption on laptops and mobile devices. Companies should ensure adequate physical security and access controls for information technology assets during preparations for extended office closures. Additionally, policies that govern the acceptable use of company systems and devices as well as the transfer and storage of company information are essential. Employees working remotely are more likely to forward company information to personal email accounts or to store information on unprotected laptops or other mobile devices. Therefore, training or reminders about such policies is critical.