A. COVID-19 has interrupted business operations for many industries, but there are steps that organizations can take to address this. If there are existing incident response and business continuity plans, these can highlight critical measures to implement now. Professional services firms should assess the specific risks that the pandemic poses to business continuity—looking critically at their cash runway, including cash, sales pipeline and lines of credit—and identify a core response team to lead crisis management efforts.

While a crisis management team should be formed, it will be a part of every executive’s job to continuously build intelligence, scenario plan and apply lessons learned to operations. Communicating consistently with internal and external stakeholders also helps the organization stay up to date about the response.

Reviewing current and potential disruptions to operations can help develop scenario planning for a range of circumstances in the short and medium terms. Reviewing current workforce needs and capabilities can inform the organization’s options for transitioning temporarily to remote work by using cloud computing and collaboration platforms. When it comes to workforce reintegration planning, prioritization and staging for a slow return to work is essential.

It is also important to carefully review insurance coverage to see if effects of the pandemic apply, and then establish milestones for claim recovery. Professional services organizations should carefully document any losses and expenses related to the pandemic as well. In cases of declining revenue and liquidity issues, businesses can engage with lenders and landlords to review options for payment terms. There are also options for economic relief through federal stimulus programs like the CARES Act, but eligibility and compliance requirements need to be reviewed thoroughly.

For more, read our recent insight: Middle Market Businesses Need a Plan to Weather the COVID-19 Crisis.

A. In response to the pandemic, governments around the globe have taken action to provide both companies and individuals with tax relief designed to increase cashflow and help companies continue to employ their workers. In the United States, The Coronavirus Aid, Relief, and Economic Security (CARES) Act addresses the economic impacts of COVID-19 and includes a number of tax relief options.

The CARES Act includes payroll tax credits for employers that have been harmed by COVID-19 but have retained their employees, and permits employers to defer payment on the employer portion of Social Security tax that would otherwise be due at the end of this year.

Additionally, the CARES Act accelerates the refund schedule for corporate AMT credits. Now the credits are fully refundable for either the 2019 tax year or 2018 tax year.

The CARES Act provides for an elective five-year carryback of net operating losses (NOLs) generated in taxable years beginning after December 31, 2017, and before January 1, 2021. In addition, the 80% limitation on NOL deductions arising in taxable years beginning after December 31, 2017, has temporarily been pushed to taxable years beginning after December 31, 2020.

The CARES Act also contains a technical correction to a drafting error in the Tax Cuts and Jobs Act that required qualified improvement property (QIP) to be depreciated over 39 years, rendering such property ineligible for bonus depreciation. With the technical correction applying retroactively to 2018, QIP is now 15-year property and eligible for 100% bonus depreciation. This will provide immediate current cash flow benefits and relief to taxpayers.

While there are many tax savings opportunities included in the CARES Act, eligibility for some provisions is dependent on company size and other factors, and many benefits are mutually exclusive or have other tax implications. Given the level of complexity in applying these provisions, it is critical organizations consult with tax professionals in order to maximize their savings.

Outside of the existing stimulus measures, organizations should also consider tax relief measures that pre-dated the COVID-19 pandemic. If businesses are working to develop, improve and adapt products and processes, they may be eligible for Research & Development tax credits from federal and state taxing authorities.

Read more about IRS guidelines and COVID-19 postponement relief.

A. First and foremost, organizations should thoroughly evaluate all of the government assistance programs designed to reimburse employers for continuation of wage payments to employees under the PPP, Emergency Paid Sick Leave, Emergency Family Leave, Employee Retention Credits, 3601 Payments as well as employee payroll tax deferrals.

If federal COVID-19 relief legislation does not provide the assistance necessary to maintain your company’s workforce, leadership teams will be faced with difficult decisions. However, there may be some alternatives to the worst-case scenario of layoffs.

Many professional services firms are implementing pay cuts across the board to save jobs, with higher reductions for higher salary brackets to protect the most vulnerable. For businesses considering this route, it is critical that leadership teams lead by example and also commit to pay cuts. Several executives have announced that they’re giving up their salaries altogether to avoid layoffs for as long as possible.

Professional services firms can also consider shortening the work week for any roles in which a capacity reduction is feasible. If given the choice, some employees might opt for part-time work if it will save their job, particularly when the work can be done in condensed time frames.

Some employers may also make the tough decision to delay or temporarily cut back on fringe benefits like 401(K) contributions, paid vacation and gym or tuition reimbursements in an effort to preserve salaries and health insurance.

Similarly, temporarily suspending non-essential vendor services—including office supplies, maintenance for closed physical spaces, event support or certain conveniences—could free up cash to reallocate for labor expenses.

In any scenario, open and clear communication with staff is critical during turbulent times when stress levels are already heightened. If staff reduction is unavoidable, companies should also consider the differences between formally laying off vs. furloughing workers. Layoffs terminate employment status and mean an organization will incur costs from rehiring, while furloughing maintains employment status but the employee stops working until they are reactivated. Minimizing uncertainty and maintaining transparency surrounding difficult decisions is key for individual wellbeing.

A. Due to the economic impact of COVID-19, most professional services businesses are experiencing declining revenues. Between the ongoing costs of continuing operations and additional expenses incurred as a result of responding to the pandemic, many organizations will experience a liquidity crunch because of reduced cash flows.

Businesses should examine their current cash flow and make a realistic projection over the next three to six months to understand their expected capital requirements. Planning for a range of possible scenarios can also help identify the options available to professional services businesses of all sizes, and help them strategize for various circumstances as the situation develops.

Beyond reviewing profits and losses, it is crucial to focus on the balance sheet and determine the current cash conversion cycle, especially as suppliers and customers experience disruption themselves. Although some back-office functions may not be top of mind, decision-makers need a clear picture of accounts receivable and the timeline for conversion to understand cash flow now and in the near future.

A. Many professional services organizations have rapidly shifted their employees from an office-based work environment to a remote one. As a result, service provider firms have been forced to urgently review their security practices. When IT professionals set up a business’ network, they implement numerous controls that are designed to prevent data leakage and loss. However, many popular platforms that enable remote work do not align easily with these controls. For example, while corporate controls might enforce a policy that prohibits the remote sharing of desktop files and USB connections, remote working tools may not prohibit such actions. Moreover, employees who use their own devices for work instead of company-issued devices could unwittingly introduce malware to the network. This endangers the security of all network data, with particular concern regarding proprietary and sensitive information, especially related to revenues, costs, cash flow and new business opportunities. Read our recent insight for an overview of options and best practices for remote working.

Increasing the number of entry points to a network raises serious issues for data protection and heightens the possibility of data loss. Security teams have also observed an increase in phishing attempts that could expose networks to ransomware. For this reason, employees should receive additional training for cybersecurity while working remotely. Not only could a company lose important data and be unable to retrieve it, but that data could also be shared improperly outside the organization or breached by a malicious third party, thereby exposing the business to potential violations of data privacy laws. Read more on data security risks during COVID-19.

To mitigate data security and privacy risk, professional services should use cloud computing for all files and require employees to connect using a cloud VPN. This provides secure access to the organization’s network and shared files and encrypts all data. Two-factor authentication further strengthens these controls. Companies should also consider implementing specific data loss prevention (DLP) solutions that give the network administrator control over the data that employees handle, and enforces policies around what data can be transferred and who can receive such transfers. Advanced detection tools may also be deployed to prevent improper remote access. These technologies use machine learning to identify and respond to suspicious activities. Overall, network access for remote workers should be protected by numerous robust controls and barriers and actively monitored for any issues in real time.

Learn more about combatting IT management challenges during the pandemic.

A. The decision most management teams and investors are making is: pause. The economic realities are changing fast, and so too are deal threats and opportunities. For the professional services industry, in particular, COVID-19 has introduced uncertainty around revenue and cashflow since clients are facing their own challenges. Buyers, sellers and lenders are currently assessing the situation and will be making decisions to proceed, adjust or discontinue processes based on critical factors including crisis management, performance outlook, valuation changes and COVID-19’s lasting impact on both the professional services sector specifically and the economy more broadly. Ultimately, and hopefully soon, paths will become clear and many sellers will resume sale processes with customary haste. To be sure, some will have to modify their approach or even take longer pauses. Every situation is and will be different.

For more, view our recent webinar: 2020 Private Capital Outlooks: M&A, Shifting Strategies & Capital Deployment.

A. Professional services firms of all types and sizes are likely able to leverage some aspect of the economic stimulus packages passed by the federal government. However, when considering available options, companies will need to factor in that many benefits are mutually exclusive or come with reporting and compliance obligations.

For small businesses, two disaster loan programs—The Paycheck Protection Program (PPP) and the Emergency Economic Injury Disaster Loans (EIDL) program—were made available via the Small Business Administration (SBA). For smaller professional services firms facing financial strain as a result of COVID-19, these forgivable loans can help offset a variety of costs. The PPP provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. EIDL loans can be used to cover any necessary financial obligations. Professional services firms can apply for loans under both SBA programs as long as they don’t cover the same expenses.

• Employers that don’t take advantage of the PPP and meet either of the below criteria are eligible for a 50% credit on qualifying wages paid to employees on March 13 through December 31, 2020:
• Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or Experience a significant decline in gross receipts during the calendar quarter

All employers are eligible to defer their social security tax liability due March 27 through the earlier of PPP loan forgiveness—if applicable— or December 31, 2020.

Read more about relief for employers that continue paying employees.

In order to qualify for a loan under either the PPP or EIDL, companies must employ 500 workers or fewer (both full-time and part-time), or meet the industry size standard set forth by the SBA. Additionally, a business can qualify for the PPP as a small business concern if it met tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after federal income taxes of the business for the two full years before the date of the application is not more than $5 million. Many professional services companies do not have significant tangible net worth and may meet this exception.

Midsized and larger companies could have also applied for low-interest loans under the economic stabilization plan included in the CARES Act.

The CARES Act also includes a number of additional tax savings opportunities, including AMT credits, Net Operation Loss Carryovers/carrybacks, and tax-deductible charitable contributions.

Most recently, the Fed unveiled a new $600 billion Main Street Lending program available to small and midsized businesses with up to 15,000 employees or up to $5 billion in 2019 annual revenues. Principal and interest payments on these four-year loans can be deferred for the first year.

Read more on fiscal and financial measures being taken to support professional services businesses worldwide.