When an unexpected event like the COVID-19 crisis disrupts your operations and threatens your business’ financial health, you need a clear understanding of your financial situation so that you can make timely decisions.
Now more than ever, you need to optimize each of your business’ key processes and procedures.
This involves assessing the company’s short-term situation and reviewing its treasury management. Specifically, you want to optimize your cash flow, financial risk, funding sources and working capital, while looking to defer certain payments or negotiate instalment payments.
Here are three recommendations for effective cash management in a crisis situation.
1. Evaluate your current situation and financial health
- Analyze your working capital
These are, of course, accounts receivable, accounts payable, cash assets and credit facilities.
Resist the temptation to be overly optimistic. For example, don’t count on funds from clients whose account is already in arrears. If they weren’t able to pay you before the crisis, it’s unlikely they will now.
- Make sure you have a clear understanding of your credit facilities, guarantees and margins
For example, do you have equity available to obtain additional financing or margin coverage?
Identify your priority debts and repayment concerns
You might need to negotiate new repayment terms. Government authorities are likely to be accommodating in light of the current situation.
2. Create short and long-term plans for your cash flows under different scenarios
- Calculate past sales and expenses
This will ensure that you understand your operating cycle.
- Review your sales prospects
Be realistic— or even conservative—in your estimates.
- Try to quantify the impact on your expenses
Do it to the best of your knowledge and based on your assessments of the current situation.
- Revise your investment plans
It is important to review your capital investment plans.
- Analyze your financial structure
Analyze your financial structure and repayment obligations.
Once you have all this information, you can prepare a cash flow budget to give you a better idea of what the next year will look like. Test different scenarios and see what your financial needs are.
3. Develop a cash asset protection strategy
Look for potential financing sources
If you anticipate having cash flow issues, look for potential financing sources. Be proactive and approach financial institutions. Build trust with your financial partners by being transparent. Remember that they will be some of your most important allies.
Learn more about the recently announced government assistance programs
You’ll want to apply as soon as possible to reduce wait times.
Repeat these steps regularly
Things are evolving rapidly right now. Take control by reviewing your treasury management plans.
Technological solutions for a better management
This crisis might have raised performance issues with your management tools. If that’s the case, consider switching to cloud-based treasury and payment management technological solutions to help you weather these turbulent times, and future crises. These reliable tools will boost your credibility and earn you the trust of your clients, partners and suppliers.
Today’s unprecedented situation quickly derailed everyone’s best-laid plans. But if you follow these tips, you should be able to handle whatever the future has in store. We’re here to help you get through it.
23 Mar 2020 | Written by :