As forced shutdowns have hit the region, there is a level of business uncertainty that is unprecedented in its rate of change and breadth of impact. Many businesses are reassessing how to manage their cash to survive for an unknown period of time. There are some key areas for business leaders to focus on at a time like this:

  1. Change Your Focus – If you are like many businesses, the focus over recent years has been on the income statement, figuring out how to increase revenues and improve efficiencies and profitability. It is now time to turn that focus to the balance sheet. Monitor your working capital and begin to forecast out cash flows. Your income statement is looking in the rear-view mirror at past results, the balance sheet is going to help you in the next 30-60 days.
  1. Receivables / Payables Management – It may be management 101, but it needs to be said, now is the time to tighten up on your receivables. Get aggressive on collections and if necessary, offer discounts for early payment or even on long-over due payments. At the same time stretch out those AP payments to the extent possible without damaging your key supplier relationship. It is also time to perform a review of your customer credit risk. While the impact of the COVID-19 situation is unknown, there are clearly industries hit harder than others. Now is the time to identify those customers who are more at risk and begin limiting credit.
  1. Inventory Management – The sudden change in demand is going to result in higher than desired inventory levels for many businesses, which will result in a reduction in orders. But it is time to go a step further, reassess your safety stock levels and look to lower the ones you can without hindering your ability to meet customer demand. If more aggressive moves are necessary, consider those low or negative margin sales you may have rejected in the past and look for opportunities to convert your excess inventory into cash.
  1. Supply Line: Time to Negotiate – While you are looking for cash, so is everyone else, and your suppliers (or their competitors) may also be sitting on excess inventory. Use the opportunity to negotiate lower prices, you likely have more leverage than you did a month ago.
  1. Discretionary Costs – Although we said the focus is on the balance sheet, cutting costs remains a necessary focus. Some immediate cash flow considerations may include looking at the company match for your 401(k) Plan (if that can be reduced to zero or if the Plan allows you to pay the match at year-end instead of each pay period) and consider leasing significant purchases you can’t defer, rather than buying. Further payroll savings may be obtained through COVID-19 tax credits and cash flow savings related to certain deferrals and relaxed limitations on tax deductions as part of the proposed CARES Act.
  1. Assessing Financing – First, it is time to consider drawing down on your line of credit while it is available. Secondly, as you act on the above items, assess how significant your cash flow situation is. It may become necessary to look at recapitalization opportunities. This can include taking advantage of SBA lending, including the economic injury disaster loans recently made available, or more conventional lending.
  1. Be Prepared for the Rebound – Although today looks grim and there is significant uncertainty on what the situation will look like in three weeks, the current projections from major financial institutions, including IHS and Goldman Sachs, show a significant bounce back in GDP in the third quarter. While difficult decisions may need to be made, keep in mind the goal is not just to survive, but to be able to take part in the upswing. This means maintaining your key supplier and customer relationships and, as importantly, your key employees. While the above areas may result in cuts to personnel and benefits or hard decisions with customers, be careful not to proceed with a one-size-fits-all approach and hinder your ability to turn the corner and thrive.

Additional Resources

In addition to the above items, our COVID-19 Advisory Team is continuously monitoring the assistance being provided at the federal and state levels and providing that information here as it happens. Please contact our COVID-19 Advisory Team or any of our leadership team at Barnes Dennig to discuss.

Barnes Dennig COVID-19 Advisory Team Leaders: