This article is a guest post by David Dragich, a corporate restructuring attorney and founder of The Dragich Law Firm. The views expressed herein are solely those of the author.

In the current turbulent economic environment, many business leaders are struggling to balance growth against mounting risks. Recently, global tariff measures have significantly impacted financial markets, intensifying uncertainty and placing many companies in potential distress. Companies that successfully navigate this volatility are often those that take decisive action now, using proven strategies to strengthen their financial position, preserve key relationships, and prepare for various restructuring scenarios.

Looking Back and Ahead: Market Conditions and Future Directions

In recent weeks, news of the U.S. imposing high tariffs on goods from multiple countries has triggered severe turbulence in global markets. The immediate market reaction was highly negative: on April 3, the Morningstar LSTA U.S. Leveraged Loan Index fell 0.63% in a single day, marking its fourth-largest daily decline since April 2020. The following day, the index dropped another 0.47%, further deteriorating investor sentiment and pushing year-to-date returns into negative territory.

Analysts' growing concerns about stagflation risks—rising prices accompanied by slowing economic growth—have prompted multiple financial institutions to downgrade their economic forecasts. Equity markets have also suffered heavy losses. Historically, cyclical industries tend to bear the brunt of such credit crunches, including retail, commercial real estate, manufacturing reliant on global supply chains, and other vulnerable sectors.

Current market dynamics bear striking similarities to previous restructuring waves, particularly the 2008 financial crisis, suggesting that many companies may soon face severe financial strain. Businesses that previously benefited from easy credit and low interest rates are now encountering tightening liquidity, rising financing costs, and supply chain pressures from global trade disruptions.

Proactive Measures to Protect Your Business

As financial conditions deteriorate, the actions companies take in the early stages of distress often determine their ultimate fate. Businesses that quickly identify warning signs and implement strategic measures typically preserve more options and safeguard stakeholder value. Based on observations across multiple economic cycles, the following five steps are key actions that distinguish resilient companies from those struggling during market reversals.

  1. Increase liquidity.Cash is critical to weathering a downturn. Companies should proactively draw on available credit lines before conditions worsen and consider divesting non-core assets while the market still has vitality.
  2. Secure your supply chain.Tariff-related disruptions could lead to supplier failures or significant delays. Assess key suppliers, especially single-source suppliers, and develop contingency plans to mitigate supply chain interruption risks.
  3. Closely monitor customer financial health.During economic downturns, customers may delay payments to preserve cash. Regularly audit their financial health, strictly enforce payment terms, and consider cash-on-delivery or requiring guarantees. Watch for signals such as delayed payments, requests for extended payment terms, reduced orders, or changes in purchasing patterns. Monitor metrics like deteriorating cash conversion cycles, rising debt/EBITDA ratios, and narrowing profit margins. Set up early warning systems for customers overdue by more than 15 days and consider credit insurance for important accounts.
  4. Anticipate bankruptcy risk in contracts.Be cautious with new agreements, embedding bankruptcy protections and safeguards in contract terms to limit exposure when counterparties encounter financial distress.
  5. Cease collection efforts immediately after bankruptcy filings.Once a customer files for bankruptcy, stop collection efforts immediately. Instead, pursue claims through legal avenues such as administrative claims or rights to reclaim goods.

Additional advice:Fully understand all restructuring options. If a company becomes distressed, bankruptcy is not the only or best solution. Alternative mechanisms such as out-of-court liquidations, state or federal court receivership proceedings, or assignments for the benefit of creditors can offer many benefits while avoiding bankruptcy scrutiny and adverse effects.

Proactive preparation minimizes risk and enables companies to respond effectively to economic turmoil. Given the uncertain environment created by global tariff disruptions, taking these steps now will significantly impact a company's resilience in the coming months.