COVID-19 continues to spread at an alarming rate, causing rippling effects throughout our daily lives and profoundly impacting our health, wellness, financial futures and families. For companies, and especially start-up and emerging companies, uncertainty and turbulence have become the new normal. From past experience with weathering a number of economic downturns, we have found that the following are some of the key considerations for start-up and emerging companies as they plan for operations in a world that is changing minute-by-minute:

• Your Runway: There isn’t a single public company whose financial forecasts haven’t been impacted by the crisis, and emerging companies are no different. Whatever your plan was, it has changed. Pay attention to how changes in the current market conditions, such as changes in customer demand, sales cycle, renewal rates and payment discipline, may affect the assumptions you made when calculating your burn rate and runway. Do you really have as much runway as you think?  Critically evaluate your cash reserves and how poor performance for the next few months could affect them. Could you overcome a few poor quarters if the economy continues to stall? Also consider where you can cut expenses without hurting the business in a material manner. Payroll expenses, including accrued PTO, should be on top of mind. It is important to ask these questions now to avoid more painful consequences later. 
  • How the CARES Act could help. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, the formal name for the $2T stimulus law, might be able to extend your runway by offering low-interest Payroll Protection Loans (PPLs), all or some of which could, in certain circumstances, be forgiven, or Emergency Economic Injury Disaster Loans (EIDLs). For an overview of the availability those programs, see here, but hurry: the PPL program began accepting applications from small businesses and sole proprietorships starting April 3, 2020 and will stop on June 30, 2020. In all cases, you should work with your Board and your legal advisor to assess whether to apply for a PPL, including whether you are an eligible business under applicable rules and whether you meet the standards for certifying whether the loan is “necessary” to support your ongoing operations. 
• Your Financing Prospects: If your cash runway shortens as a result of COVID-19, what will you do if fundraising—whether on attractive terms or at all—proves difficult as 2020 continues? Across the board, fundraising prospects have dropped significantly, and companies should prepare for this trend to continue. Based on your latest runway forecasts, determine whether to seek additional fundraising sooner, potentially at the sacrifice of valuation, and whether opportunities for different types of fundraising approaches, including debt refinancings and strategic collaborations, could be a solution. Cash on-hand will separate the winners from the losers. 
• Your People: Most employers have been forced to move to remote operations as a result of shelter-in-place orders. This creates myriad challenges for companies and employees alike, which require careful attention from your executive, technology and human resources personnel, among others. You may need to consider whether your company can continue serve existing customers, or even seek opportunities to expand business, with fewer employees. Bear in mind, however, the consequences of layoffs and furloughs, including whether existing severance arrangements or other WARN Act or collective bargaining obligations are triggered. These FAQ for what employers can and can’t do under the existing regime can help you determine various employment law do’s and don’t’s under existing laws. As noted above, the CARES Act may also offer some help by offering low-interest PPLs or EIDLs, which could enable you to keep your workforce afloat. 
• Your Stock Incentive Program: Many option vesting schedules require employees to exercise their options within 90 days of termination, and employees who are being laid off may either not have the resources to exercise or may not want to exercise due to the uncertainties around the future. You may wish to consider extending option exercise periods to help alleviate any stress that your employees may face from this issue. Any such extension would cause incentive stock options to be treated as non-statutory options if exercised beyond the initial 90-day period and would require approval of the board of directors. If you furlough employees, you should also ensure that doing so does not inadvertently trigger a “termination of service” as defined in your option plan documents.
• Your Investors. Now more than ever, you should keep open dialogues with your investors and work to understand the constraints on their businesses and their concerns. Are they in a position to provide bridge funding if you needed it, and even if so, would they? You should also revisit your organizational documents for a refresh on the rights that your investors have with respect to your business and how involved they are entitled to be. This will also be an important step if you are seeking to participate in the PPL or EIDL programs under the CARES Act because your investors’ entitlement to control the company’s daily activities could, in certain circumstances, affect your company’s ability to receive one of those loans. See here under the heading “Impact of Affiliation Rules on Venture Capital and Private Equity-Backed Companies” to learn more. 
• Your Contracts: Revisit your existing lending arrangements and contracts with significant customers or suppliers. COVID-19 may already have had enough of an impact on your company’s ability to meet financial covenants in its existing lending arrangements such that banks may not approve your draw requests. A walk-through of these types of provisions can be found here. Also consider whether COVID-19 and changes in customer demand or sales cycles or supply chain disruption could trigger a “material adverse effect” related to your company’s ability to meet contractual obligations and whether a “force majeure” clause could help you out. See here to learn more.
• Your Government Contracts: The Department of Defense (DOD) and Department of Homeland Security have issued memos to help guide government contractors with respect to general policies and performance for essential critical infrastructure. In certain cases, direct guidance should be sought from the relevant government agencies. 
• Your Supply Chain: China, the world’s largest and often least expensive producer of most industrial goods, has faced significant reductions in production due to extensive quarantines and facilities closures, creating a dramatic debilitating effect on many businesses. Other countries that may be part of your global supply chain are facing the same challenges. And travel bans, global work stoppages and other restrictions are exacerbating the problem. While this could create imminent problems with either shortages in available quantity or obstacles due to the price or quality of available alternatives, it could also pose an opportunity to innovate or engage with alternative suppliers.       
• Your Business Outlook: After taking a hard look at the various factors that impact your company, ask yourself how your business, as currently envisioned, will be relevant to the post-pandemic marketplace. COVID-19 is likely to fundamentally change the way we interact and consume, making it an opportunity for many businesses to innovate and adapt—if they recognize it as such. 

The COVID-19 global pandemic is resulting in far-reaching, multi-layered impacts that people and businesses will continue to feel for many months and possibly years to come. Companies are faced with complex and nuanced issues expenses survival and finance that require compassionate and focused navigation. We’re in an unknown world, with the stunning disruption of economic momentum and uncertainty of timing to recovery challenging even the most seasoned entrepreneur. From past experience, we know that in economic downturns revenue and cash reserves always seem to decline more quickly than expenses. Making fast and decisive adjustments to changing circumstances is key to survival. With careful and constant analysis, nimble decision making and openness to adaptation, overcoming these challenges could yield some of the most innovative and successful companies as we navigate and ultimately emerge from this crisis.