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.
- 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.