The COVID-19 pandemic has dealt a blow to a majority of businesses. But it need not be fatal, if you take the right steps now. Doing a thorough analysis of where your business is positioned today is the first step. The next steps should include cash-flow forecasting and scenario planning. When coupled with proactive cash-flow conservation and management practices, you can help ensure your company survives this unprecedented setback.
Following are some tips from our expert panelists during our recent webinar, COVID-19: Manage your cash flow and ramp up for business.
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6 things to consider in your response to the COVID-19 economy:
- It’s unprecedented: Even the largest companies were caught off guard and did not plan for this level of disruption in their risk mitigation strategies.
- Don’t dwell in denial: The faster you accept the magnitude and possible length of the current situation, the quicker you can plan and act strategically to stave off a liquidity crisis.
- Take immediate- and mid-term planning into account: Most analysts are predicting a 12 to 18 month pandemic timeframe, so plan for a minimum of 12 months out.
- Think about technology’s exponential effect: Overnight, companies have had to provide a centralized and secure virtual office for their work-from-home employees. The remarkably positive results will likely redefine the notion of the “office” forever.
- Progress your digitalization: Use digital processes to eliminate repetitive, inefficient, manual calculations, such as forecasting. Time is money, and your employees’ time is far better spent interpreting data, rather than creating it manually.
- Get ahead of cash crunches: Assume that at some point in the mid-term, you’ll be faced with a cash crunch, and will need to tap into your line of credit or additional types of funding. Make proactive arrangements with your bank now, just in case the worst-case happens.
A two-pronged, proactive response:
- Mitigation strategies.
a) Renegotiate mutually beneficial and acceptable terms with your landlord, vendors, customers; get advice from your accountant and lawyer.
b) Limit discretionary spending to conserve cash.
- Use modelling tools for day-to-day management.
a) Determine your current-state cash position and use this as your baseline.
b) Use a technology platform to run scenarios that will allow you to prioritize where your business focus should be placed.
Tips on cash-flow forecasting:
- Understand and evaluate government relief programs.
- Evaluate accounts receivables and payables to uncover unbilled work or discounts.
- Identify workforce changes and implications of compensation packages.
- Employ scenario planning and perform stress-testing to address risks.
- Use digital platforms or programs to assist in developing liquidity forecast.
Tips on conserving and managing cash flow:
- Ensure you have a framework for managing supply-chain risk.
- Ensure your own financing remains viable.
- Focus on cash-to-cash conversion cycle
- Revisit variable costs.
- Focus on inventory management.
- Extend payables intelligently.
- Manage and expedite receivables.
- Audit payables and receivables transactions.
- Consider alternate or non-traditional revenue streams.
COVID-19 key financing relief programs by Export Development Canada (EDC) and by the Business Development Bank of Canada (BDC):
4 things banks evaluate when extending financing:
- Well-formulated business plan.
- Evidence of your own commitment in the form of personal investment and collateral.
- Examples of financial strength, including credit history, financial acumen, and your prior financial success.
- Demonstration of a capable professional profile, exhibiting business savvy, skills, determination and competency to successfully lead your company through recovery.
Key performance indicators to maintain strong financial health:
- Revenue/labour hours
- Billable time
- On-time delivery
- Financial health
- Cash flow
- Debt management
- Credit insurance
- Protects against non-payment.
- Offers customers more competitive payment terms.
- Provides increased access to cash from financial institutions.
- Foreign exchange facility guarantee
- Frees-up collateral tied to foreign exchange contracts.
- Helps manage currency volatility risks by securing exchange rate.
- Increases access to cash from financial institution.