Companies are scrambling to determine the long term effects of the coronavirus pandemic on their business. There are several steps you can take now to prepare yourself to weather the storm over the next year:
Virtualize whenever possible to prioritize safety – The safest place to work is from home, and many employees have the capability to work remotely with current technology. Teams such as finance, marketing, administration and executives can all complete tasks and give direction from home. If you are outsourcing research and development to a contract research organization, they will develop their own protocols for keeping employees safe. If you manufacture, there are several ways to help people work safely, such as cleaning between shifts and staggering shifts to help employees keep their distance from each other. The primary goal over the next year will be to keep employees safe by creating distance and having them work remotely whenever possible.
Consider the effects of a reduction in salesforce travel on revenues – Does your sales team typically travel to customers and/or conferences in order to complete sales? Most are currently working safely from home trying to sell via Zoom or Skype. Taking into account the effects of reduced sales from a lengthened sales cycle will be a prudent exercise. The sales teams can likely feel the effects of working remotely, so understanding any changes or disruptions from them will be critical to making timely revisions of financial projections. Failing to acknowledge that the sales process could be affected negatively in the new social distancing environment is a mistake.
Preserve cash in the face of declining revenues - If revenues are declining, what costs can you cut in order to preserve cash? If orders are declining and not as many personnel are needed to manufacture, can you redeploy staff to perform different, necessary activities? Can other nonessential costs, such as underutilized space, be cut in order to reduce rental costs? The finance team should examine all operating costs to see which can be eliminated or reduced to preserve cash.
Start the process of obtaining financing earlier - Financing will take longer to obtain, so start earlier. With all investors evaluating their current and future investments, everyone is thinking twice before committing to new or additional financing. With clinical trials taking longer to complete due to system wide delays in trial enrollment, companies will need to extend the timelines for trial completion. With hospitals focused on treating patients, selling a new product into a hospital could take longer. Investors will require these extended timelines to be incorporated into financial models, so make sure to contemplate the effects of these delays when finalizing your plans.
Consider M&A as an exit source - With the IPO window all but closed, M&A may be the only source of exits for the foreseeable future. The good news is that large strategic investors are sitting on large piles of cash and will be looking to add promising drug candidates or medical devices to their product portfolios at a discount. Financing for them has never been less expensive, so borrowing for acquisitions will be possible. Focus on an M&A exit in the foreseeable future, instead of an IPO.
Communicate effectively with state and local governments - Working with governmental agencies will be critical to success over the next year. As states mandate that businesses shut down for safety reasons, you will likely need to convince governments that the nature of your operations makes you an essential business, and therefore should be exempted from these shutdowns. It is critical to communicate effectively with state and local governments to sustain your operations.
For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.