Planning in a Time of Uncertainty: How COVID-19 is Affecting You Financially

March 24, 2020 | Article

In these volatile times, anxiety is everywhere. Organizations and individuals alike are feeling the impact of the coronavirus pandemic. Many are concerned about the impact of the markets in their 401k or retirement plan. Owners of closely held or family businesses are worried about the future of their business and how to keep their employees during uncertain times.

Business interruption insurance can help potentially recover lost income in times of uncertainty and disaster.

Concerns Impacting Businesses in the Wake of COVID-19
The first concern is usually liquidity. Cash is king and keeping up with payroll and other obligations can be difficult when revenue slows. Many also wonder the impact volatility has on the value of their business. Several business transactions have been put on hold, ESOP feasibility has stalled, and other succession plans may be disrupted.

Business value is always a product of future benefits to ownership and the risk associated with achieving those benefits. Future cash flows may be impacted by the recession/volatility and risk hasincreased. The same factors that have impacted companies on the NYSE, may impact your small business.

Maintain Focus
As we continue to experience volatility for weeks and months to come, it’s important to stay focused. Preserving cash flow and reducing risk are critical. Of course these things are easier said than done.

To preserve cash flow, start by doing what you can to maintain revenue and margins and reduce overhead, but beyond that make sure to turn accounts receivable and inventory more quickly and defer payments if you can.

To the extent you can, work to reduce risk. This will not only benefit you know but also at the time of a potential exit. Improve internal controls, shore up processes, ensure financials are clean and diversify your operations as best you can.

Business valuation is a key component of any business continuity plan.

Next Steps
It’s hard to know how to navigate in this uncertainty, but some things may help.

  • Hold family/shareholder meetings. Communications on the performance and outlook of your business can help alleviate anxiety and reduce tension. Plus, it helps to get everyone on the same page and maybe temper expectations for distributions, stock value and so on.
  • Perform sensitivity analysis. It can be helpful to analyze business trends and understand the impact to cash flows and business value when projecting how long and severe this business interruption may be. It could affect hiring, capital expenditures, and overall growth plans.
  • Check with an advisor to start or revisit your overall wealth plan. Planning may help you understand the impact of changes in the market. Performing sensitivity analysis can help you understand what it looks like to work longer, rebalance your portfolio, etc.
  • Review your estate plan. You may be experiencing disruption which may lower values. This provides an opportunity to move assets out of your estate and use less of your exemption.
  • Review your succession plans. In some transition plans, it may be beneficial to lower tax obligations to employees, family or sellers when values are lower.

Other considerations to review include:

  • Tax planning. In the wake of the IRS filing deadline extension, it’s more important than ever to review your tax plan with your advisor, especially as it relates to future years.
  • Review your insurance. Proper insurance planning can ensure that those you love are prepared for life when things don’t go as planned. This can be an important tool for business continuation.

The Importance of Planning Even in Time of Crisis
It’s important to continue to plan, even in the wake of times of disaster. A comprehensive wealth plan can help you examine pros and cons, take advantage of exemptions and look at your estate as a whole. This way you can get the full picture of what’s going on and how external factors, like COVID-19, are impacting your wealth plan.

Need to review your wealth plan and how it’s being impacted?

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