4 minute read 6 May 2020
COVID-19: How to assess your financial viability and build resilience

COVID-19: How to assess your financial viability and build resilience

By Nick Van Gils

EY Belgium Transaction Tax Partner

Passionate about M&A, tax and international teaming. Dedicated husband and father. Loves cycling and music.

4 minute read 6 May 2020

Key take-aways to rapidly gain insights in your short-term liquidity position and prepare for recovery with cash analytics and forecasting.

As the threats from the COVID-19 pandemic continue, the economic landscape is marked by volatility and uncertainty. The number one priority for business leaders remains, and continues to be, the concern for their people’s safety and wellbeing. At the same time, they are concerned about the survival of their organization. Many companies face cash flow, liquidity risks  and financial challenges as a result of disrupted operations, higher operating costs and lost revenues.

Does the business have enough cash to survive the next three, six to twelve months, given the uncertain outcome of the current lockdown? That’s one of the main questions we receive from clients these days. In these turbulent times, you need to act fast to alleviate the pressures on your company’s liquidity. Taking cash preserving measures, making use of tax relief solutions and, if necessary, using available credit facilities are essential.

Federal, regional and local governments have introduced support measures in response to the COVID-19 crisis. But the majority of these measures are only meant to provide some short-term breathing room for affected industries and businesses. Inevitably, these tax and payment deferrals will have to be paid at some point.

It’s therefore critical that business leaders assess their liquidity needs fast and build resilience. Here are some key take-aways to keep track of your liquidity position and take appropriate actions.

Manage liquidity, combined with short-term cash forecasts

Liquidity management and cash forecasting is not new. Before the crisis, these methods enabled companies to identify key weaknesses and improve their liquidity viability. But now there’s a real sense of urgency. Given the unpredictable nature of the outbreak, business leaders need rapid insights of its impact on their organisations. This way, they can be agile, get prepared and take appropriate actions adapted to economic circumstances that keep changing. Starting with a short-term liquidity and working capital analysis is the first step.

Focus on:

  • Identifying available cash and due payments.
  • Allocating cash reserves to entities in need.
  • Setting up a rolling 13-week cash forecasting methodology that includes various scenarios.
  • Monitoring financial covenants to ensure compliance with the conditions of the loan agreement.

Monitor repeatedly based on a rolling 13-week cash flow forecast

Quickly identifying available cash, allocating buffers and repeatedly forecasting the coming thirteen weeks are critical cash management activities to monitor and manage a company’s liquidity position in turbulent times. You would expect companies to already have an overview of their available cash, but that’s often not the case. Before the crisis, companies with positive cash flows, didn’t always feel the need to stress test their cash flows. But a positive cash flow doesn’t equal a strong liquidity position.

Today, for many of these companies, their cash inflow has decreased dramatically or has even come to a full-stop, while expenditures continue. Serious continuity problems arise. It’s then often too late to adjust the strategy, consider selling assets or taking other mitigating actions.

Gaining actionable insights of where and how you can quickly free up cash is therefore essential. That’s were cash analytics can also help. This solution is ideal for complex situations. Think about a company with the magnitude of a turnover of 50 million euros or an organisation with a turnover of four billion euros in sixty countries. There’s money in those organisations. The trick is to find out where.

Gain agility, speed and deep-insights with cash analytics

In times of crisis, business leaders need full transparency on available cash and dry powder, as well as their financial obligations for the upcoming weeks. With cash analytics, companies can realise fast, effective and structural cash improvements based on a continuously updated 13-week cash forecast.

This forecast is based on all incoming and outgoing cash flows, mostly related to working capital necessary to finance operations. But it also looks at operational costs, taxes, financing flows and investments. Processing transactional data from hundreds of thousands of files leads to actionable insights to accelerate cash collections, plan inventory levels and optimise supplier purchases.

Cash analytics uses advanced technologies to gain actionable insights and provides a structured methodology to forecast cash flows. Thanks to reporting tools and predictive machine learning, companies can visualise different scenarios and proactively respond to challenges in a volatile economic landscape.

There are three main steps:

  • A diagnostic phase to identify and validate actionable improvement opportunities at a granular and operational level.
  • Identification of quick wins for rapid cash improvements and mobilisation of employees to successfully deliver on the project ambitions and objectives.
  • The design and implementation of a rolling 13-week cash flow methodology. Based on analytics insights, scenarios are created with action plans per improvement initiative and phase, and with required timings for cash delivery.

Cash management in the new normal

Cash management combined with embedded cash forecasting is essential to prevent insolvency and counteract the disruptive impact caused by the COVID-19 crisis. Cash analytics provides actionable insights that help business leaders refocus their efforts on structural and rapid cash movements initiatives enabling them to continue operations. No matter how volatile the economic landscape, insights based on agile cash analytics and forecasting are critical steps towards recovery.

Reshaping results with cash management and forecasting

Reshaping Result is one of EY’s five Connected Capital Solutions. Connected Capital Solutions help clients drive inclusive growth by focusing on their business, capital and transaction strategy through to execution to drive fast-track value creation.

An integrated team of EY experts quickly identifies the cash position of your organisation based on cash analytics. Thanks to a comprehensive set of diagnostic and reporting tools with dynamic visualisation, we leverage machine learning and advanced analytics to mitigate the risks and challenges of the COVID-19 crisis. We thereby combine technical and functional expertise, underpinned by a strong commitment to excel for each client.

Discover the complete series of articles by following us on social media #CashAnalytics #CashReliefs #CashForecasting #COVID-19.

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Due to the disruptive impact of the COVID-19 crisis organisations are struggling with liquidity risks  and cash flow challenges. Business leaders need to act fast to take away the pressure on their companies’ liquidity position. Cash forecasts will enable companies to quickly identify available cash and allocate financial buffers.

About this article

By Nick Van Gils

EY Belgium Transaction Tax Partner

Passionate about M&A, tax and international teaming. Dedicated husband and father. Loves cycling and music.