With the rising impact of COVID-19 being seen worldwide, all industries will face significant disruption to their supply chain, workforce and cashflow. The right response will depend on the specific circumstances you and your business face. However, when experiencing significant stress or distress, we recommend you focus everything you do around the management of cash.
Our Resilience Wheel outlines five key considerations for businesses with cash management at the centre.
1. Cash management: the most critical issue for businesses
Cash is King - understand your cash and working capital needs
Cash is the lifeblood of any business. In a volatile and slowing economy, getting an immediate handle on your daily cash needs is essential. Take a critical view of operations, review existing cash flow forecasting processes and understand how potential disruptions to operations may affect liquidity.
- Now more than ever you should create a robust cash forecast. The minimum expectation for most businesses should be a 12-14 week daily (or even weekly) forecast
- Run scenario analyses on your financial and cash forecast and understand how that interacts with short-term liquidity needs.
- Strategically manage working capital, potentially selling inventory or minimizing new inventory purchases to generate cash. Take a critical look at working capital KPIs such as days payable outstanding and days sales outstanding and understand impact of stretching these days in either direction. Assess capital expenditure requirements and defer non-essential spending if possible.
Take steps to retain cash in the business
This may include actions to:
- Develop and monitor cost reduction initiatives, such as review fixed and variable costs carefully and determine what costs you actually need to run the business, rationalizing SG&A, taking a close look at headcount, etc.
- Stretch creditor payments
- Negotiate payment deferrals with landlords and banks where possible
- Sweep idle cash from other facilities into your working capital account, or draw down on availability in your banking facilities
- Negotiate with customers for them to pay early, by offering them a discount or other concessions
- Explore tax concessions available
- Investigate available government grants and
2. Contingency planning
Where are the critical points in your supply chain? Consider stock piling essential supplies (try to create and hold an emergency reserve of critical supplies), ensure alternative sources are identified.
Who are your essential employees? Establish staff support plans to allow them to continue working (childcare, flexible working, remote working).
Explore what reliance your business has on external support for any processes/interaction with other businesses (including the supply/delivery chain).
Consider whether part (or all) of your business should be suspended, and the implications in terms of deactivating equipment and dealing with live projects or work in progress.
Think about if employee absence could cause you to
miss a tax/regulatory filing deadline.
Look at the insurance cover you have and check whether you have a legitimate claim for the kind of disruption your business is currently facing. Similarly, check if a successful claim could be made against your business for the cancellation of services or goods.
3. Stakeholder management
Stakeholders who are contemplating providing financial assistance will not be able to support everyone to the same level. Having a robust plan underpinned by strong financial forecast will give comfort and clarity to the stakeholder, thereby maximising your opportunity to access the necessary funding.
Be proactive and engage with tax authorities, lenders, landlords and key suppliers to avoid missing out on financial and other support that may be available.
Understanding your employees’ profile is critical; consider the flexibility you have to deploy people into different areas of your business.
In many cases workforce solutions can be negotiated, and a big part of this is active engagement with people, unions and other employee representatives to explore what options can be accommodated for each business. Engaging with your legal advisers early will help clarify the options available.
There is always going to be a sensitive balance between maintaining employment levels and the ultimate survival of the business.
Set a clear policy for people absence, covering voluntarily absence and for situations where people are quarantined
Employees need to know where they stand and trust messages from their business leaders – tone, accuracy and relevance can make all the difference to behaviour.
5. Setting up a crisis management team
Ensure representation from key departments or groups and meet frequently to discuss and prioritise problems. Wherever possible, try to anticipate the next problem.
If you have spare resource, allocate some of it to a ‘hot planning’ group who can react and find solutions to individual problems as they emerge without tying up the whole management team.
Communicate early, often and frankly with the team. Establish a communication system which can reach staff at home or otherwise isolated. Lack of news breeds uncertainty and concern.