Survive and Succeed: Business and Legal Issues through the COVID-19 Era
April 28, 2020
Owners of small and mid-sized businesses were already spending nearly all of their time running their business. As a result of the COVID-19 pandemic, they now also have to implement weekly, if not daily, changes to survive and succeed in a different economy. Strategies matter more than ever. Depending on the type of business, owners are taking various approaches to cope with the business and legal issues of the COVID-19 era.
As we all know, the Federal and State governments provided help but owners had to quickly identify the available programs and immediately apply for and implement them. Federal payroll protection loans and State grants and loans helped to retain employees, and tax credits were made available in connection with mandated paid sick leave. Our inboxes are filled with emails discussing these programs.
Some businesses have a business model that can easily be adapted to teleworking – for example, accounting firms and digital marketing firms. Other businesses have a business model that can be adapted to teleworking with substantially more effort – for example, temporary staffing firms. With updates to telemedicine laws, clinical therapists are also implementing the telework model and are dealing with the shortage of computers. When employees work remotely, whether at home or otherwise, the confidential information of the business and its customers is accessible from many more locations. Employees need to enter into telework agreements that express the policies and procedures for working remotely with confidential information.
Some businesses are not adaptable to teleworking – for example, the manufacturers and the home repair service providers. Of course, they are all implementing the CDC guidelines to protect their employees and customers. Social distancing, masks, gloves, and barriers are becoming the norm to keep the business running. Some have implemented multiple shifts and closed down the break room. Even so, some employees were terminated, furloughed or moved to part-time status as a result of these changes. Many employee handbooks are in need of revision.
In the COVID-19 economy, revenue projections are much more difficult. To provide some stability, businesses are offering to extend the term of their engagements into the next year at current rates. A contract extension can easily be documented. But owners also have to deal with the loss of revenues now.
Some businesses are putting American ingenuity and creativity to work and making changes to their business models to make up for the drop in revenues. In the COVID-19 era, businesses are growing revenues by increasing delivery of products and services with heightened demand – for example, some are manufacturing liquid soaps, hand sanitizers and personal protection equipment, and others are performing testing and data analytics for COVID-19. Other businesses are changing their business model to offer new or modified products and services. Restaurant carryout services and a variety of delivery services are helping to generate revenues and preserve jobs. In some European countries, taxi drivers are now providing delivery services.
In all cases, owners should review and revise their terms and conditions of sale. Limitations on liability may be more critical than ever. Many business interruption insurance policies are not covering losses from the pandemic, and accordingly owners need to tighten contractual provisions.
Some businesses may look to an acquisition to improve revenues. Some small and mid-sized businesses that have been hit hard by the pandemic are likely to entertain a sale at this time. If a buyer does not have all of the funds to make the purchase, the seller may be happy to receive a down payment and a promissory note for the balance due. The deal may also include employment for the seller and some of his employees. In a time when large businesses are backing out of already signed but not yet closed billion dollar transactions, such as the proposed purchases of Victoria’s Secret and Embraer, the small business owner may welcome a purchase or a merger.
Businesses are also reviewing their long-term contracts – for example, their lease agreements. Owners should talk with their landlord and negotiate a short-term change to the payment terms for their lease.
Of course, owners are reviewing the status of their accounts receivable, accounts payable and cash flow. Those owners who did not previously manage this aspect of the business well must immediately change their habits. This crisis should be viewed as an opportunity to implement more efficient and less costly procedures to perform some of the basic business tasks.
Many owners are jumping to virtual meetings in an attempt to save their marketing programs. Virtual meetings are likely to continue in demand even when we move towards the old normal, especially for long distance discussions. But privacy and security policies and procedures must be implemented.
Unfortunately, some business models may not be viable in this new economy. Those business models will have to change most radically or the business will be gone. Government funding will give business owners several months to retain employees and make changes to the business models to survive and succeed. Some of these business owners may consider changing compensation to consist of lower salaries plus offering equity grants (whether voting or non-voting) to key employees.
Americans still have their needs for food, water and shelter, for security and safety, for cars and transportation, for entertainment and vacations, for friends and relationships, and more. While the means of delivery of products and services have changed, and will likely remained somewhat changed even when we return to the old normal, owners must tackle the business challenges and legal issues to survive and succeed in their business.
1 Vasilios Peros is founder and principal of Law Office of Vasilios Peros, P.C. He provides legal advisory and business advisory services to clients across various industries. His practice is focused primarily on business, technology and intellectual property law. He has been recognized as one of Greater Baltimore’s top attorneys, including SmartCEO’s 2016 Centers of Influence, 2015 CPA + ESQs, 2014 Power Players, and Legal Elite in 2011, 2010 and 2009. He can be reached at (410) 274-2053 and VPeros@PerosLaw.com.
2 This article is provided for informational purposes only and should not be construed as a legal opinion or legal advice. The reader should not rely on this article in making business, legal or other decisions on any matter without first consulting an attorney regarding any such decision or undertaking.