Better Cash-Flow Management In A Crisis

With so much uncertainty looming, cash efficiency has arguably never been more critical. Some tips.

Since the Covid-19 pandemic began, the resulting economic crisis has shuttered 1 million small businesses, and half of those that remain are skeptical about surviving longer than three months, despite governmental stimulus packages and loans. Cash efficiency, critical in the best of times, can make the difference between survival and disaster.

While some sectors are more likely to make it through the storm than others—the World Economic Forum pointed to the tech industry, financial services, online retail, education and healthcare as falling into the “highly resilient” category—all companies need, as Ford chief operating officer James D. Farley put it recently, “a laser focus on cost and liquidity.”

Several factors that will determine which remain viable longer term:

1. Ability to focus on both now and later.  As hard as it is to take eyes off the immediate fires, businesses still need to maintain a sense of where they might be several months down the road. Whether that analysis is performed by a team convened in a company’s “war room,” or by a third party, it is a critical step. Bain & Co.’s Andrea Yandreski and Simon Henderson recommend formulating a 13-week cash-flow forecast, though Price Waterhouse believes wise executives look even further down the road, to 120 days. Worst-case scenarios must be taken into account and tough questions must be asked about the company’s ability to find alternate sources of capital and the relative stability of its customer base.

If you haven’t already taken all steps to minimize payables, it’s not too late to negotiate with vendors and look for temporary cuts to expenses. On the receivables front, you might take a page from Tesla’s playbook and ask for deposits on products not yet produced, or seek partial payments from new customers or those past due.

2. Staying nimble. We have already seen ample evidence of companies’ adroitness during the pandemic. Ford began producing ventilators. New Balance, the sneaker manufacturer, began churning out surgical masks. Even local distilleries like Portland-based Shine Distillery & Grill began making hand sanitizer for their community out of their facility.

A more wide-ranging example of reinvention is the transition to remote work, which allows companies to continue their operations while protecting the health of their employees. Today, many companies have even extended their WFH policies beyond their initial projected timelines.

Another recent trend, and one that has particular application in the face of a deadly pandemic, is the one toward social intrapreneurship. Such entrepreneurs are geared toward making companies forces for good by developing solutions to societal problems. Doing so has been found to drive employee engagement while also spurring innovation and attracting new customers. Like when Levi’s created their ‘Water-Less Jeans,’ which reduced water consumption to benefit the environment. Consumers are more likely to buy from these socially conscious brands.

3. Maintaining transparency. Never has it been more important to have open lines of communication than it is now, whether with stakeholders, employees, vendors or clients. Everybody needs to be looped in, given the volatility of the situation and the life-and-death consequences.

In the face of a crisis, leaders must take a virtual approach to maintaining visibility and prioritizing communication with employees, stakeholders, investors, and more importantly, customers. It’s never easy to discuss uncertainty within your organization, but the most successful leaders are committed to being human and making themselves vulnerable, rather than putting up a front to save face. Consider, for example, uploading constant video communications to your website that are made accessible to everyone. These videos can share insights, updates, and overall changes that are being made to your organization.

“The overarching theme is uncertainty,” David Lefkowitz, an equity strategist at UBS Wealth Management, told the Times. But three things seem certain:

  1. Nothing will be set in stone until a vaccine is discovered, and that remains months off;

2. The economy has been forever changed, in ways that cannot yet be fully discerned;

3. Business leaders will have to remain light on their feet, and open to change.

The best of them are. Moreover, they understand that cash-flow management, as important as it is in everyday situations, is that much more crucial in times of trouble.

Paige Soya
Paige Soya is Managing Director at Everest Capital Group, which provides corporate financial consulting and investment analysis to companies across the globe. Paige holds over 15 years of financial experience and over 4 years in C-suite level and executive management roles.