The Coronavirus continues to spread globally, including in the United States where the first novel cases that cannot be traced to travel or contact with an infected individual have been reported. The government response has included a series of unforced errors that may have allowed government employees to be exposed to and possibly spread the virus, and the markets have responded quickly, with five trillion dollars in losses to global markets already being reported, along with both the biggest single day drop since 2011 and the biggest weekly drop since 2008.
I’m an asset protection attorney, not a financial advisor, so I’ll leave market advice to actual experts beyond saying that the financial risk is real, advisors are concerned, and some very credible resources are predicting that the crisis could wipe out gains and growth for the entire year. Approach panic selling (and buying) carefully and make sure you have investment advice that includes sensible allocations that spread risk and provide protection and defense where possible.
Now let’s get to what I’m really worried about as someone who is paid to help identify and manage risk and protect business owners, beyond the (hopefully) short term market and investment risks outlined above, here are some longer-term risks I’m warning my own business owner, CEO and medical practice owner clients and their advisors about. This isn’t a complete list and new risks and solutions emerge daily, so I’ll update this as things come to my attention.
SPECIFIC RISKS BUSINESS OWNERS AND LEADERS MUST CONSIDER TODAY
- Loss of labor force. Whether it is because of actual illness or simply fear of exposure, consider how and if your business will survive if you lose a significant portion of your labor force for any extended period of time.
- School closures. We are already seeing this in other countries, Japan as one example, has closed some schools through the end of March. While I understand the need to protect children, the fact is that many Americans live paycheck to paycheck and already struggle with healthcare and childcare costs. If the children of the American workforce aren’t in school, there frankly aren’t enough affordable day care options, grandparents, friends and other options to care for them. That means some of your workforce will have to stay home to care for their children, affecting both their income and solvency and yours. Will employers have to step-up and help provide alternative solutions?
- Loss of Keypersons. In addition to the effects on labor, consider the effect of the long-term illness or death of key personnel including management, owners, partners and executives. We regularly talk to successful business owners, including family business owners that have no succession plans and that lack business basics like funded buy-sell agreements that cover events including the disability and death of owners and partners. These agreements are vita in crisis and are supposed to be funded with both disability insurance and life insurance. A shocking number aren’t, and this failure can lead to distress and litigation at a time when a business and its owners can’t afford the costs or the distraction.
- Loss of business. This may be pro-active and general, with businesses losing clients because of fear and the public wanting to avoid exposure. This means many may avoid public spaces and common carriers like public air, train, and bus travel and it would naturally affect physical facilities with high volumes including schools, hotels, restaurants, concert venues, sports arenas and even healthcare facilities themselves, which may be perceived as high risk. As one specific example the events industry is already predicting that fear motivated cancellations by attendees and vendors could cost this industry alone nearly $250 Billion dollars, by this summer.
- Loss of Attraction. Worse, in addition to the risk above, if an exposure is linked to a specific location, like YOUR business, the negative publicity and the idea that a physical location is “infected” could be devastating if not financially fatal. Business owners need to think about health protocols now, and have plans to keep their customers, staff and facilities as safe and sterile as possible and to avoid reputational damage. This means having enforced and monitored policies and procedures on issues including, but certainly not limited to, cleaning, handwashing, physical contact, food handling and a (labor law compliant) policy for monitoring and quarantining employees that may be sick. Finally, have a crisis management plan to deal with PR and reputational damage if such an issue occurs.
- Loss of supply chain. If your business needs goods that come from infected areas you face both the negative perception of the source as being risky and the perhaps more real risk that production and logistics may be affected. Your suppliers may physically not be able to make or deliver what you sell and that even if they do, you may not be able to deliver it. Carefully consider your sources, their safety, any alternatives to it and how your business will stay in operation if they aren’t producing.
- Insurance gaps. I already mentioned buy sell agreements and that that they are supposed to be funded with life and disability insurance, but there a number of other risks that may be potentially insurable that need to be considered with the help of an experienced commercial insurance agent NOW, while you can still do so.
- Loss of Key Contract Insurance
- Business Interruption Insurance
- Personal disability insurance
- Key Man insurance to protect your business against loss of an executive
- Workers comp coverage for employees affected on the job
- Disability overhead insurance for small business owners
- General liability insurance for any negligence
- Directors and Officers insurance to personally protect a business owner executive or manager from claims related to their acts or omissions on any of these issues
- Cashflow and solvency risks. Be wary of cashflow, discretionary spending and debt service obligations. Some of the most successful people and businesses in the country were wiped out during the last recession because they simply couldn’t meet their fixed business and personal overhead commitments. For some, this may mean getting lines of credit in place, adjusting spending, owner draws and compensation, budgets and doing whatever is required to free up cash reserves and liquidity for both emergencies and opportunities. In a crisis, cash is always king.
- Asset Protection Risks. When you’re a hammer the whole world is a nail, so I am logically concerned with both personal and business risk management and asset protection planning. Times of economic duress cause pain and panic and often lead to people to making claims, filing lawsuits or doing other things (like internal and external theft and embezzlement) they may not have ordinarily done out of fear or panic. During the last recession these risks spiked as people were desperate to remain whole, protect their investments, income and jobs. Act today with experienced counsel to consider legal and risk management options and so that you actually know your risks and target value and if your current level of personal and business legal planning will actually protect you from risks including:
- Intra-company lawsuits between partners
- Investor lawsuits against owners, execs and promoters
- Employment lawsuits
- Exit plan risks to business sellers including both payment defaults and buyer claims
Again, this is a rapidly evolving crisis and I will HAPPILY be wrong about all of this. That said, as with all other risks and asset protection strategies out there, they are only predictable and cost effective if implemented in advance of a crisis, not as heroic triage after a crisis hits you. Stay safe out there, and wash your hands.
About the Author:
Attorney Ike Devji has practiced exclusively in the area of Asset Protection, Risk Management and Wealth Preservation for 17 years. In this role he helps protect a national client base that includes thousands of successful business owners, executives and physicians and that protects billions of dollars in client assets. He is the founder of Pro Asset Protection and Arizona Wealth Law and is of-counsel with two leading American law firms, Davis Miles McGuire Gardner, a highly rated Arizona-based business law firm with offices in New Mexico and Utah, and the Asset Protection law firm of Lodmell & Lodmell, where he acted as the firm’s managing attorney.
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