The Paycheck Protection Program (PPP), a $349 billion federal relief program for U.S. small businesses that launched April 3, ran out of money April 15, just 13 days after it started. Many who applied are now left waiting for a lifeline to fund their payroll and avoid layoffs until the economy returns to normal.  The government-backed loans, which are forgivable in full or in part if employers use the money to keep employees on the payroll for eight weeks.

The government-guaranteed loans were available on a first-come, first-served basis, but without further funding, these small businesses that have flooded banks with applications won't get any help.

What It Means for You: 

Kent Zimmermann, a consultant with the Zeughauser Group, said that if a firm was counting on PPP money as a way to cover employee paychecks and can't get the money for whatever reason, it likely means the firm will now need to consider other options to manage cash flow and expenses.

What You Can Do:

Per Zimmermann:

• Reduce partner draws.
• Delay 2019 distributions to equity partners if they have not yet been fully paid.
• Reduce/defer/eliminate bonuses and merit increases for certain attorneys and staff.
• Institute mandatory reduced workweeks and reduced compensation for certain people.
• Reduce other overhead.
• Negotiate with landlords to defer a portion of rent payments.
• Possibly furlough select staff and maybe attorneys or reducing headcount. For firms that consider headcount reductions, many weigh the possibility of starting with the most chronically underperforming staff and attorneys, people the firm sometimes considered counseling out of the firm even before the crisis.

As The Recorder affilliate The American Lawyer has reported, many larger firms across the country (including several in California) have already taken a number of these measures.

Questions You Should Be Asking:

Per Zimmermann:

• What is the duration of the downturn likely to be based on best available data inside and outside the firm?  The Congressional Budget Office says U.S. employment will be at 9% at the end of 2021 and Morgan Stanley sees full recovery not before late 2021.
• What is the likely impact on revenue in 2020 and possibly beyond depending on the firm's mix of work (practices and how they are impacted), clients (industries and degree they are impacted), and geographic focus (and how it is impacted)? Different firms will be impacted differently depending on drivers such as those. Many firms are prudently developing forecasts for revenue based on the best available information and act promptly to develop expense reduction options and scenarios depending on their revenue assumptions, considering the kinds of levers mentioned above.
• Does the firm have plans in place for the reasonable worst case revenue scenario and corresponding expense reduction strategy, as well as for the reasonable best case and most likely case scenarios? Zimmerman said that process should start with developing a revenue assumption and plan for how the firm would remain resilient even if revenue decreases far more than expected.