As the world reels under the weight of uncertainty resulting from the novel coronavirus (COVID 19), we hope you and your family are healthy.
The burgeoning pandemic’s direct and indirect impact on businesses is indeterminable and worrisome. Borrowers and lenders are calling us for advice on tracking performance given disruptions across supply chains, event cancellations, customer relationships, employee welfare and myriad other business issues. Private equity firms want to know how to help influence their portfolio companies' action plans, particularly in situations when they don't have board seats.
The following list of action items are based on our 40+ years of experience providing forensic accounting and restructuring services to banks, alternative lenders, private equity firms and operating companies:
- Due Diligence - Gather the facts so constructive decisions can be made.
- Communication - While this may sound elementary, don't wait for your phone to ring. Open the line of communication with your borrowers / lenders / equity partners / advisors to gain the benefit of their knowledge and manage expectations.
- Financial Contingency Plan - Model cash flows (i.e., 13-week cash flows), P&L and balance sheet for various economic scenarios.
- Identify trigger-based moves to stabilize the organization.
- Lenders to assess the impact on covenant compliance and proactively communicate with borrowers to adjust covenants accordingly.
- Quality of Earnings - Perform an earnings assessment to verify reported results, which may include one-time adjustments related to the coronavirus.
- Supply Chain - Evaluate sole or multi-source suppliers and the company’s ability to shift immediate, mid and long-term sourcing given global constraints, tariff impacts and other limiting factors.
- Plant Shutdowns / Furloughs - Assess the impact of a plant shutdown or furlough, perform a breakeven economic analysis, calculate contribution margin, identify key performance indicators and / or supplement existing operational knowledge.
- Operational Assessments - Assess inventory needs based on revised forecasted sales / inventory turnover scenarios and assess the company's need to revise spending budgets to reallocate short-term resources.
- Business Interruption Insurance - Review and evaluate the terms of the business interruption policy to determine whether losses are covered or considered Force Majeure.