One advice for corporates affected by COVID-19: Do not run out of cash!

We are at the verge of unforeseen change which will affect business and our everyday life as we have come accustomed to during the past decades. Whilst operative management is in over their heads managing COVID-19 newsfeeds and consequential immediate implications, the alignment between management and the board room has rarely been as important as it is now.

My short-term advice to corporate leadership would be as follows: Keep calm, Ask the right questions and Execute the right actions. Consequently, I would be keeping the following questions close to me:

How do I get control of cash and liquidity?

  • First steps include determining your available cash headroom and time span before you run out of cash, assessing your cash tax position, and identifying any large, near-term receipts and payments by preparing a short term 13-week cash flow forecast.

What governance do I need to stabilize the current cash flow?

  • Proper thought through governance can reduce unnecessary costs and improve cash flow. You need to initiate cash flow improvement measures, maintain cash flow forecasting, and ensure transition to medium-term cash improvement actions.

How do I improve control over my cash and costs?

  • Review and rationalize cost budgets, adjust or halt discretionary capex, expedite collections, renegotiate payment terms, and identify stocks and assets for possible quick sell at a discount if necessary.

What information should I share with my external stakeholders?

  • You will gain increased support for the transformation by identifying external stakeholder groups and their characteristics and by agreeing appropriate communication–identify key stakeholders, gauge their negotiating strengths and weaknesses, and structure your approach appropriately.

What progress reports should I have?

  • Effective communications purpose made for lenders, tax authorities, credit insurers, and other relevant parties is a critical success factor in a turnaround. To make stakeholders better understand forecast cash requirements and your intended cash improvement actions, you should develop cash improvement initiative reporting, support detailed receipts and payments forecasts and implement situation complaint measures to enhance trust.

Are there gaps in the management team?

  • You can encourage better management performance when you understand both the strengths and limitations of your management team. Does your management have the understanding, skills, knowledge, support and commitment needed to fulfill their roles, including root cause analysis.

Visibility and cash flow forecasting

  • Ideally companies would have three forecasts as follows, which should all reconcile:

 

KMPG on päivittänyt Yritysjärjestelyt ja arvonmääritys -osion DIF-Tietopankissa (vaatii kirjautumisen).

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