CEOs, Cash and Covid: What Every Company Must Do ASAP

Everybody's talking about liquidity. This is how you translate that talk into action.

I’ve been talking to a lot of CEOs in the last couple weeks. They’re asking me: What three or four points must I turn my attention to right away?

Here’s what I’ve been telling them:

Focus on customers and employee safety first. Without those, the business will have a hard time recovering.

The second most important thing to do is make cash flow forecasts week by week for the next six months. An ultimate scenario and a conservative scenario. Cash is the blood flow for business.

Everybody’s worried about liquidity. This is how you translate that concern into an action item.

It’s a lot of work, but you must do it. It will be shocking, it will create defensive reactions, and it might create pessimism. But here we need realism.

I say this very forcefully: The need to do a cash flow forecast applies to all companies, large, small and mid-sized. I would say especially small and mid-sized. They’re at the greatest disadvantage because they don’t carry excess cash.

Even though we may begin to recover in 90 days, we will have cash issues when things begin to come back. You must plan for a minimum of 180 days from now.

This is not something you should have your accounting people handle.  Unfortunately, many of them won’t know how to approach it. They can’t go about it mechanically, making projections based on the usual percentages.

You will have to create scenarios, make some assumptions that are major breaks from the past, and face up to some stark realities.

It will be hugely emotional. It will test your courage and psychological resilience, because many things will be negative. Customers will be calling, saying they don’t need your products right now, or they can’t pay. They may sound a bit depressed. Even if you’ve always been an optimist, confronting this reality can tax your emotional energy, because you realize that if you can’t create continuity for the business, many people will be unemployed.

But doing a 180-day cash flow can work to your advantage from the standpoint of building a team.  You see so many articles filled with generalities about how to build a team. Well, doing this difficult analysis can make it happen.

You can’t build a team unless you focus them on a common task. So focus your team on this, via digital means, via telephone or Skype or whatever. Whatever it takes. But find a way. Get everyone to understand your situation, and use this to help them come together.  Get them focused as a group.

Five Realities to Pin Down Now

What do you need to think through as you prepare a projected cash flow statement?  Five items:

Number one: Let there be no doubt, with few exceptions, sales will decline by an order of magnitude. In some cases, as much as 50% or more. That’s got to be in your cash flow model.

Number two: Most companies have receivables.  But many of your customers cannot pay, or soon will not be able to pay. Try to collect as much as you can, as fast as you can. Start today.

Number three: For businesses that have inventories, they are going to accumulate. You must stop reordering immediately. Don’t store perishables whose value will decline. Get rid of them, keep clean—anything you keep that’s not going to be worth anything six months from now is only going to depress you.

Number four: If you have production, shut it down unless it is needed to deal with the Covid-19 crisis. Stop hoping.

Number five: If you have a credit line, draw on it right away. Big companies, like AB InBev, for instance, have already done this.

If You Have Plenty of Cash

For those who are in good condition regarding cash—and by good condition, I mean that you have plenty of cash and can weather the storm for the next six months—you should prepare to go on the offensive when the clouds part and the economy begins to roll. And you must have conviction that the economy will roll.

So prepare now: How will you come out of the gates with high speed and high quality—and shape a new, post Covid-19 game? What do you have to do now to shape the game?  Prepare to double down on what will be new positive revenue growth, and allocate cash to it.

On offense, imagine what your customers, or new potential customers, will need when this crisis wanes: What could you offer that is more or better, and why? Make changes to your product development priorities to take advantage of these opportunities now. To help, recruit new talent that you were not able to recruit before, as other players are suffering badly. Could there be a chance for you to buy companies? Think about that as well.

At the same time, be sure to protect your own talent. Get them busy on innovation, on creating ideas to become more productive and reduce costs—and better at connecting with customers. This is the time to have the customer admire you.

On defense: In this crisis, almost every company will discover some things they have been doing that will not be needed in the future. Phase them out now. Change your organization’s structure. Reduce the number of people who are engaged in those activities. Bite the bullet.

Overall, this is the time to take leadership with specific steps. Inspire people, but tell them what you think is the truth with no sugar coating, and let them help you think it through. Communicate with your people every week. And don’t let this crisis go to waste.