Establish Financial Resilience during Covid-19

During a crisis, one of the biggest threats for companies is going bankrupt due to lack of cash to cover the immediate expenses. This bankruptcy can be immediate or the result of a downward spiral process, in which activities must be gradually stopped due to lack of cash, leading to a decrease of revenue and cash-inflow.

Introduction

In times of crisis, not only activities and operations are different from business-as-usual, also the way we manage our organisation and teams, as well as the way we take decisions and execute them will change.

This is one of the 3 main sections from the "Ultimate Guide for Phase 1 - Rapid Response to Mitigate the Immediate Impact of Covid"

Regarding Establish Financial Resilience:

Risks to address

• Going bankrupt due to lack of cash
• Discontinuity of critical operations, due to lack of cash
• Jeopardising mid-term continuity due to (financial) limitations on critical developments

Goal

• Cash for immediate business continuity
• Cash to critical activities
• Cash for mid-term priorities
  

Main aspects

• Revenue
• Cashflow monitoring
• Account receivables
• Reduce expenditures
• Utilise crisis funds
• Re-allocate cash

Revenue

Many manufactures are experiencing or risk a drop in revenue. Clients are delaying new investments and, in many areas, also service revenues have dropped. 
We also see some cases where service departments and providers drop prices or even provide (adjusted) services free of charge. However sympathetic this may look, you should try to avoid this and find ways to secure revenue and cash inflow.

Some practices we see are;

• Adjust agreements and contracts with clients via a (temporary) addendum, to secure paid remote services. This is particularly important in industries and companies where service predominantly is delivered on-site without a recurring revenue contract, and occasional remote support is free of charge
• Monetise additional new services like training
• Continue non-critical service deliveries when possible, of course without jeopardising safety and security regulations. For example; Preventative maintenance in now empty buildings

Cashflow monitoring

Managing cashflow and securing cash for continuity is critical;

• Constantly monitor cash inflow and outflow
• Assess risks
• Run scenarios, chances and potential impact on the cashflow

Accounts Receivable

We all see the first companies going bankrupt or delaying payments. To minimise the impact of this on your business, it pays to;

• Asses the current state of the accounts receivable and identify the high-risk accounts
• See how you can secure as much of the payment now
• Ask for securities before allowing debts of clients to increase, particularly with higher-risk accounts
• In some instances, it could be reasonable to stop delivery to certain clients

Reduce expenditures

In a real crisis-situation, rigorous cost management is essential. Particularly discretionary overhead and other indirect cost should be reconsidered;

• Stop discretionary costs with a PO freeze 
• Delay investments, unless their results are short term and relevant to the adjusted operations and will help mitigate the impact of the crisis
• Centralise tighten approvals for costs
• Centralise procurement
• Establish high discipline and rigor

Most companies try to avoid layoffs for cost cutting. You want to avoid losing talents which required significant investment to attract and develop and to lose capacity to recover and scale up your business if the restrictive measures are being relieved again.

Governments of many countries have installed funds to help companies cover costs of inactive labour. 

In Phase 2 of the crisis – Review & Outlook, you can take further decisions what investments to further delay, continue or even intensify, after reviewing the investment portfolio.

Utilise crisis funds

With the aim to minimise the economic impact of this health-crisis, many governments are installing various funds and financial measures to support companies. In order to benefit;

• Mobilise local teams to stay on top of these regulations, funds and applications
• Have a team coordinating the activities and information flow to support local applications and oversee the results

Reallocate cash

Due to the crisis and adjusted ways of working, we also see some shifts in expenses and budgets. Flexibility to adjust focus of procurement is important to allow the crisis operations to function.

Download the full Guide for Phase 1 - Rapid Response