Managing Cash Flow Through COVID-19 Concerns

In addition to implementing fully remote workforces, organizations now navigating the business landscape throughout the coronavirus (COVID-19) outbreak have been faced with a multitude of competing priorities across functions and departments. In a perfect world, standard internal operating procedures would remain in-tact through adversity related to the virus. With that narrative currently far from reality for most, it is imperative organizations shift primary focus to any activities that promote maximizing cash flow in the short-term.

Clearview Group’s Accounting & Finance leadership advise on the proper determination and examination of an organization’s primary sources and uses of cash. This deep dive will prove to be a key differentiator for businesses anticipating long-term success on the other side of the outbreak:

Review Items That Dictate the Balance Sheet

• Accounts Receivable (AR) - Map out all receivables and take into consideration estimates of payment time and probability of cash collection. This does not mean the probability to close alone, but probability to pay and pay quickly – any cash you can collect today, from any source, is your priority. Assign higher weights to receivables with these attributes and act on them immediately.  Consider expanding current AR management to include non-traditional employees with the ability to contribute.
• Accounts Payable (AP) - Continually review AP aging and prioritize what undoubtedly needs to be paid timely and if there are any potential items that can be delayed without considerable risk.
• Non-Core Assets - Consider selling any non-core or non-operating assets to influence your cash flow positively.

Explore Non-Revenue Sources

• Tap Investors - Do you have investors you can rely on to increase liquidity? While this route would provoke a valuation (and valuation related fees), it may be a necessary engagement in order to provide short-term liquidity if long-term survival is hanging in the balance.
• Lender Options - Do you have any lender debt or lines of credit available? The time to pull on your bank lines is now if your organization anticipates a need for cash in interim. Even if debt is not cheap, it must be considered as your survival strategy continues to adapt. Lenders are willing to work with borrowers and regulators are allowing banks the flexibility to do so.
• SBA Disaster Assistance Loans – Beginning Friday, April 3^rd, applications for a piece of the $350 billion allocated under the CARES Act for new, forgivable loans will open. The aid is designed to keep small businesses (500 or fewer employees) afloat in the short-term as they experience revenue loss and an unpredictable future. Communicate with your lender frequently regarding these options to determine what application options are best for your business. Visit sba.gov for complete information on the various applications and processes for securing funds.

Prioritize Uses of Cash

• Reduce Costs Through Core Offerings – Depending on your industry, organizations may need to land on the tough decision of halting various production and continuation of services entirely for the time being. If these activities currently do not support the overall goal of maximizing cash flow, they need to be reviewed and addressed accordingly.
• Analyze the Supply Chain – Gain complete understanding of your supply chain/vendors as suppliers are also likely running into their own operating issues due to the pandemic. Communicate with suppliers daily in the event any delivery timelines have shifted and and stress the importance of maintaining expectations going forward.
• Audit Operating Expenses (OPEX) – The first OPEX area to consider is salary expense, since most companies have ~60% of operating expenses allocated to direct people costs. Not every people-related cost savings measure always translates to a layoff, however. Several alternatives include furloughs, across the board salary reductions, salary deferrals and equity in lieu of salary. Every position, from the top down, needs a formal review in this instance. Additional OPEX items including the hard to triage items, such as rent, prove more difficult to move the needle on. Consider stack ranking your OPEX with sources of income and work towards reducing or deferring your largest expenses first. A line-by-line of analysis of your OPEX will be necessary during this exercise.

Continuously Revisit Forecasting

• Forecast, Forecast, Forecast - Building a truly solid forecast helps to understand what you’re up against and what all your options are. This exercise helps to outline the major questions surrounding overall business impact: Who are your buyers and how are they impacted? Has buying slowed? Have payments slowed? High-level, annualized forecasting will not suffice in this current environment. A deep dive into every driver of revenue and expense must be analyzed on a granular level.
• Revisit Cash Inflow & Outflow - Build 30/60/90-day forecasts outlining key cash inflow and outflow and revisit them frequently.  

For more information on prioritizing your cash flow management during this time of uncertainty, contact Clearview Group’s Accounting and Finance Services.