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The novel coronavirus (COVID-19) pandemic is creating rapid and unprecedented disruption and dislocation all over the world and among CR3’s clients in particular. In this article, published in March 2020, we share our practical and actionable recommendations for managing through this crisis and discuss the concrete steps many of our clients have taken to mitigate the impact of COVID-19 on their businesses.
First and foremost, all of us at CR3 hope that our colleagues and clients, along with their families, remain in good health and support one another in the fight against the spread of COVID-19.
We believe frequent and honest communication with stakeholders, along with quick and fact-based decision making, are the cornerstones of a lasting turnaround. This is no less true in the unpredictable and challenging times all of us are facing right now.
To help you during the difficult weeks ahead, we wanted to share with you several of the practical and decisive actions our clients and colleagues have taken in the last few weeks to mitigate the impact of COVID-19 on their businesses.
Protect your employees. Our client with a large call-center operation is allowing selected employees to use “softphones” from home, staggering shifts to reduce employee density and instituting flexible leave policies. Another client in the food-distribution business is taking the temperature of everyone entering its facility, providing extra hand sanitizer in the office and warehouses, and implementing a work-from-home plan for all employees.
Reduce risks to your customers. COVID-19 can be transmitted on surfaces, which therefore increases the possibility of transmitting the virus through inventory being shipped to customers. We are serving as interim CEO of a packaging company and have quarantined all finished goods at the client for at least three days in order to reduce the likelihood of COVID-19 being transmitted on delivered product to our client’s customers.
Project the downside and expect uncertainty. We are revising near- and medium-term financial projections at nearly all our clients. Most of the sensitivities we are modeling account for supply-side risks such as disrupted or delayed shipments resulting from quarantines, port closures and below-average production levels at our vendors; and demand-side risks at customers in disproportionately impacted industries such as restaurants, hospitality, leisure, recreation, and transportation. In addition, collecting receivables is quickly becoming an issue as our clients’ customers manage their own liquidity during this period.
Preserve liquidity creatively. Although we are working with all our clients to calculate their liquidity needs due to the potential COVID-19 downside, the added uncertainty is driving more creativity in conserving cash. We have begun working with our clients using a creditor-composition approach in which we negotiate with groups of creditors rather than individually. Our client in the indoor-recreation business, which is significantly affected by COVID-19, is negotiating with multiple landlords to not pay rent for the next two months and roll the balance into a balloon payment or lease extension at the end of the lease period.
Give your financial constituents better and more frequent visibility.
We always advocate for increased communication among constituents, and that advice is relevant now more than ever. Setting frequent meetings with lenders and investors to update them on current and projected performance creates open dialogue, sets expectations among the parties and reduces the potential surprises that can degrade the relationship between our clients and their capital sources.
Cash is still king. In the current climate, liquidity management is paramount. Covenants can be renegotiated, and long-term projections reset, after this crisis passes.
Some industries may be disproportionately affected by this crisis, including restaurants, retail establishments, travel and hospitality, along with middle-market businesses in general and family-owned businesses in particular. Lenders to these companies need to be proactive in touching base with borrowers who are forced to close locations by government edict, lay off personnel and deal with internal management and succession issues that were once dormant but are now being brought to the fore.
SBA and other government-assistance programs may help, but will the funding arrive in time to save the business from irreparable harm? The options are changing daily and we continue to research them to determine how and when they can help our clients.
Do you have questions about how to navigate through these challenging times or want to tell us how you are dealing with them? If you would like to talk further, please call us at 1 (800) 728-7176, visit us at www.cr3partners.com, write to us at firstname.lastname@example.org, or contact a CR3 partner you have worked with before. Although our on-site travel may be limited in the next several weeks, we are accustomed to working remotely and are available to assist you wherever you are and whenever you need us.
In the meantime, please click here to read about our strategic framework for crisis management during the COVID-19 pandemic.
CR3 Partners, LLC is a national turnaround and performance improvement firm that assists, guides and collaborates with management teams and their constituents facing any sort of transition, stress or distress. William Snyder and Rob Carringer, Partners in CR3’s Dallas office; Dustin Lough, a Partner in CR3’s Charlotte office; Sean Cunningham, James Katchadurian and Barak Tulin, Partners in CR3’s New York office; and Holly Ollier, a Director in CR3’s Los Angeles office and the firm’s Chief Operating Officer, contributed data and research for this article in addition to the information provided by the full partnership.