The – In and Out – of Cash Flow during a Crisis

When a crisis or a recession strikes the world, it brings global economy to a grinding halt. No business can be insulated because every business is only a segment in the ecosystem that has been severely impacted. The foremost fall out of this unprecedented situation is liquidity crunch. Fixed Cost commitments coupled with uncertainty about how long the crisis would continue is a perfect recipe for bankruptcy if liquidity is not well managed. That said, how would one tide over a situation? Here are my 2 cents!
To find out, read more ……
• Cash flow management will have to become your top most priority: A detailed forecasting, monitoring and tracking of cash flows is of utmost importance to make sure to stay positive on cash. This means that Cash is King and not Sales because even if you have Sales but not enough cash to pay fixed costs, you will not be able to survive the crisis. So, the objective is to make sure that inflows are in excess of outflows.
• Adopt a collaborative approach with Stakeholders: In a situation like this pandemic, almost every business would be faced with similar challenges. There will be few cash cows that can survive a longer time frame. If in our ecosystem, one player succumbs to the crisis, the impact is also on our business. So, what is needed is a collaborative and empathetic approach amongst all players. Most will understand the situation because somewhere they are all facing similar situation and each one could be supportive to the other.
• Focus on fixed Costs: There are multiple solutions to managing fixed costs. In the order of effectiveness with most effective first and least effective in the last:

If we have our own money that can be injected, that is the best solution. Debt and Equity from various sources are other options. The reason this is the best solution is because it sends out a very clear message that business is strong and rock solid. Additionally, it also enhances reputation. If we are able to weather this storm with show of strength, we come out victorious when the storm passes. The message is clear, everyone wants to do business with people who can meet their obligations especially in tough situations.

If we cannot make full payments to all our obligations, prioritize the obligations based on business continuity. Know, what will keep the business going. Let’s tighten our belts. Lose some excess fat. There are lot of learnings in this situation, lets grab them. Once the priority has been set, stick to the plan. Weather the storm. Keep the business going.

Let’s talk to our creditors. Have a plan in place. Do we want to ask for time or concession? Are concessions necessary for business continuity? If they are, then it has to be asked. Know what you need, time or concession or both. Let’s ask our landlord, lenders, utility company and other business partners for time and concession, if required. For some it is difficult to ask help from your team. I never find it difficult to ask help from my team. If the team needs to take a salary deferment or cut for the business to continue, then that is what we should ask. That is the last option we should exercise, not the first because it is the team that will take the business forward.