Covid-19 Cash Crunch: Quick Actions to Preserve Cash for your Business

A crisis illuminates the few things that matter most. Within the coronavirus pandemic, management teams work fast to sustain and keep their businesses afloat. In this way, they help their employees and communities. Cleanup and disruption are the significant challenges ahead.

Preserve cash for your business
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Also, companies are tested as never before in all industries. Some people are not going to survive. In most cases, the slump in revenues and profits has been sustained.

Many firms have already formed CEO war chambers – top, dedicated cross-functional teams that can make quick decision-making to address urgent priorities in a fast-changing environment.

Their first critical tasks were to communicate with staff and customers to prioritize security, to adapt operations to meet demand, to comply with regulatory changes, and to reduce Covid-19 spread.

Now, many focus on the financial health of their company — P&L, cash and liquidity positions — with the awareness that the pandemic economic crisis may very well lead to a cash flow threatening the survival of companies.

Don’t jeopardize your ability to fund business. Take the steps below and consult with a fractional CFO if needed.

Get signals on-demand to estimate the necessary levels of employment

Look at your management to find out what kind of demand signals your customers are giving. What are their circumstances? How were they affected, and what are the impacts? What specific plans have they implemented?

Determine the support required for the employee to sustain the predicted business based on these data. For example, if you have an apparent demand for 4 to 6 weeks, you can scale your level of employment accordingly. You can all translate information from your clients and your own evaluation, trust, predictions, and conditions of the market, future orders, and delivery times into optimal employees.

Next, model the window of demand as regards the reduction of salaries, so that you understand what liquidity changes mean. We have seen companies already considering all employees being laid off. Determine the appropriate cost-cutting level before taking this step.

Piles of money 4993992993Signals of requests are translated to stock needs

Once again, take these demand signals that have been collected from customers, determine how and what inventory you have to produce, and how you can meet customer requests. Will you be able to preserve money by adjusting your inventory levels to meet expected demand and service levels? The answer is yes, in some cases.

Ensure that the physical inventory corresponds to the books

You must ensure that inventories of your books match what is on your shelves to get a precise reading of inventory needs. Probably this is not a problem if your cycle counts are always correct. However, if you have a history of untrustworthy counts or significant year-end changes, do a spot check manually or consider even partially physically making key elements. Ensure your books reflect reality so that you can meet fill rates and make intelligent resource decisions.

Know the flow of your cash

It’s a genuinely straightforward step, but we often overlook it. You don’t know how much cash you have to use, after deducing the outstanding checks and other adjustments. Your balance on your bank leader is not entirely telling. And do not try to play the float — you are nearly always surprised, and never a pleasant surprise. Help from a fractional CFO can also bring great impact.

Talk and keep an eye on your bank’s debt pacts

Discuss with your banker the steps you take to manage cash flows and liquidity actively. Your banking representative will want to know what your stakeholders and customers say and do. Be ready to share your current situation and projections on liquidity. Do you have a forecast for 13 weeks of cash flow? If not, now put it together to make the banking discussions more productive.

Banks don’t expect perfection, but they want to know in advance what’s going on

Keep an eye on debt agreements and meet them wherever possible. If you know, you will breach one, contact the bank in advance and let the creditor know what you are doing to alleviate the problem. Continue a dialog on the future then. Banks don’t expect perfection, but they want to know in advance what’s going on. These discussions may mean the difference — if you have problems — between being a customer they want and finding a new lender.

Speak to the merchants

Take first your largest suppliers and those without whom you can not manage your business, which is most difficult to replace. You want to make sure they are paid for (even if extended payment terms are required), and you want to understand what happens to their business and also to their providers. To prevent further disruptions, you need clear visibility into your supply chain. Make sure that you understand the extent of these disturbances and implement mitigation plans for your supply chain.

Speak frequently to suppliers. If you are too thin, divide and conquer by making these calls your purchasing and finance management. But ensure that they are because rumors fly — and often are worse than truth in the absence of information.

Use problem-solving creative work

It is easy to let fear or denial lead to poor decision-making in times of crisis. When managers sacrifice significantly for their own benefit, employees are willing to step up and engage in the enterprise.

Challenge all your assumptions, and don’t worry about seeking information from third parties. External experts have seen hundreds of companies perceive similar scenarios—and they do not bring preconceived concepts about how the enterprise ‘should’ or ‘has always’ run, which may limit innovative thinking.


Interesting related article: “What is a CFO (Chief Financial Officer)?