Struggling Companies Face Post-Pandemic Reckoning
Article

Struggling Companies Face Post-Pandemic Reckoning

by Michael Hogan
June 11, 2021

A variety of COVID-related programs designed to help healthy companies survive economic turmoil also benefited companies that were struggling before the pandemic arrived. But as those programs wind down or exhaust available funding, challenged organizations must assess their financial status and market opportunities if they hope to remain viable.

Delayed Action

As the COVID-19 pandemic started spreading in the United States in March of 2020, the federal government, along with state and local governments, responded with well-intentioned efforts such as Paycheck Protection Program (PPP) forgivable loans and a variety of tax credits and other incentives.

Many organizations, healthy and otherwise, made a series of short-term decisions that focused on keeping the doors open, and struggling companies were able to delay thinking about steps to help them remain viable.

For example, many landlords deferred the collection of rent payments — sometimes through agreements, sometimes through a government-imposed inability to evict non-paying tenants. Similarly, many lenders were unable to foreclose on non-paying customers or to seize assets or inventory if there was little or no demand in the market.

And investors continued to pour funds into late-stage startups, particularly in the technology industry, to protect pre-pandemic investments they hoped would return to viability as markets improved.

These are among the diverse factors that combined to create a “let’s see what happens” attitude that allowed struggling companies to avoid taking concrete actions to improve their operations and financial status during the pandemic.

Lender and Investor Reassessment

As the economy recovers from its COVID-19 depths, however, lenders and investors are looking more closely at the companies they do business with and becoming less forgiving toward struggling organizations.

Markets and expectations are changing, and investors want to know how companies performed during the pandemic, the steps they took in response, and how well (or whether) they were able to adapt to dynamic conditions. Companies that did relatively little, for instance, are likely to find challenging conditions continuing because they’ve lost momentum to competitors who changed their operations and adapted to evolving markets.

Many companies also face inventory, component and ingredient shortages as supply chains remain constrained. With market demand recovering, a larger number of companies will need to compete for valuable resources, and this will create further disadvantages for businesses that are facing financial struggles.

Some organizations are also dealing with staffing challenges in the forms of labor shortages in their sector or local market, coupled with growing expectations among employees that they will continue to be able to work remotely. Companies that have not thought through their staffing needs, and improved their ability to find workers, will find it difficult to regain market momentum.

Evaluate Your Position Now

If your company wants to position itself for a post-pandemic recovery, you should start by understanding your cash flow. This will require preparing a projection that examines your cash needs over the next 13 weeks, as well as monthly for the subsequent three months.

Beyond the basics such as estimating revenue and expenses over this period, review assumptions about market conditions and demand, and how the market may have changed over the past year. Demand seems to be recovering nicely in some industries, such as travel, entertainment and fashion retail, but that recovery may not be broad-based across all sectors and regions in the short-term.

Similarly, consider how competitors have adapted to the pandemic, and think about the ability of your suppliers to meet increasing demand. Markets are not likely to return to the conditions we saw in the first quarter of 2020, so it’s important to evaluate the market today – and in 60 and 90 days — with a fresh and objective perspective.

This review should also include an evaluation of your company’s capabilities to meet expected demand over the coming months and year. Any organization that continues to face financial challenges, as well as shortages in inventory, supplies and staffing, may find it difficult to catch up to better-financed and better-prepared competitors.

The sooner you understand your company’s true financial situation, the better. If your projections indicate that you need to consider options such as restructuring, knowing this now will give you more time and a wider array of options.

To learn more about choosing the best path for your company, contact our Restructuring experts.

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