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March 20, 2020

How to prepare for short-term business disruption

As the public health crisis from COVID-19 deepens, businesses must prepare for disruption and a financial downturn that has likely already begun.

Here are steps you should take right now:

  • First, identify your sources of revenue and necessary expenses, and then determine what impact, if any, the public health crisis will have on them. To successfully manage cash in a crisis, you need to know how much money you expect to receive, what you absolutely need spend it on and changes you can make to boost revenue or cut expenses in real time. 
  • Second, review contracts with key trading partners to determine whether any of them contain provisions that excuse performance when there are unforeseen events beyond the parties’ control or contemplation. These contractual provisions are often known as “force majeure” or “Act of God” clauses. The scope of these provisions can vary from contract to contract, but it is possible that some will excuse performance in the event of a global pandemic, public health crisis, or epidemic. Even if the contract is silent on these issues, it is possible that the public health crisis may frustrate the purpose of the contract — which may, but does not always, excuse performance or allow a party to suspend performance. The bottom line is this: contracts are as varied as the people and businesses that enter into them, and you should review your key contracts with a trusted legal adviser and make a plan on how to respond to changing business circumstances in light of them. 
  • Third, be prepared to learn a great deal in a short time about state and federal loans, grants, and disaster relief programs. The U.S. Small Business Administration already has a website up and running with information on loan and disaster relief programs in response to COVID-19 — and it is likely that even more information is coming. As of right now, U.S. Sen. Susan Collins is proposing a low-interest loan program for small businesses impacted by COVID-19 that would provide working capital to businesses in the form of loans that could be forgiven as long as the business does not lay off any employees during the current health crisis. 
  • Fourth, if there is a risk you will default on any loans, speak to your lender in a way that they can understand in order to enhance the chance of a successful workout or forbearance agreement. Following a default, lenders need to evaluate the likelihood that the loan can perform, even if that means agreeing to different terms. Prudent lenders also need to consider the potential liquidation value of any collateral. Have relevant financial documents available to provide the lender. This includes a 13-week projection of receipts and disbursements as well as updated financial statements. If there are changes that you anticipate to your business, then develop pro forma financial statements showing the financial impact you expect and be prepared to explain relevant assumptions. Together, these documents will help to provide you and your lender with information needed for short- and long-term decision-making. 

While we are operating with rapidly changing information about the scope of the public health problem, it is clear that there will be significant financial and economic impact, and now is the time to plan.

Andrew C. Helman is an attorney and a partner at Murray, Plumb & Murray in Portland. He specializes in business law, including work-outs and restructuring, and can be reached at

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