The challenges we are faced today because of covid-19 are unprecedented, lockdown of entire cities, countries, and borders. The measures taken to contain the disease has a significant impact on global commerce and trade, disrupting supply chains and even threatening food security.
Due to loss of revenue, many companies may become insolvent or bankrupt in a near future, possibly losing jobs of many people. Businesses need to consider strategies to survive through the current crisis, save the jobs and economy. In this article I will discuss 7 steps business could take to survive through the crisis.
1. Prepare and review Cash flow forecasts
Prepare a cash flow forecast for the next 3, 6 and 12 months with best case, worst case and most realistic scenarios. A cash flow forecast will help to understand the expected cash shortages during the next 12 months and take necessary decisions before your cash flow becomes negative.
Do a sensitivity analysis, consider the impact of loss of revenue let’s say by 20%, 30% or 50% on the cash flows prepared. What would be the impact on cash flows if a major customer is lost or if a major supplier is unable to deliver? What would happen if the lockdown is extended or if there are multiple lockdowns?
2. Review procurement policies
Analyse the sales patterns and understand the expected sales and the required optimal level of inventory. Review the procurement policies based on the projected sales to avoid overstocking of goods while avoiding stockout.
3. Review receivable management and credit control policies
Cash is the king always, to maintain liquidity payments need to be collected as soon as possible. Invoice immediately upon delivery of the good or service. Identify large outstanding debtors, follow-up and agree on payment plans. Consider reviewing credit limits of customers based on the payment history.
4. Review creditor payments, bank commitments and leases
Negotiate with supplier and agree on deferral of payments or revised payment plans. Review the contractual obligations with the suppliers on placing orders, frequency, quantity, payment terms etc, negotiate the contract if necessary, to change the terms.
Discuss with the banks to restructure the existing debts, and possibility of additional finance based on the forecasted cash flows. Notify the banks immediately or beforehand if there is a possibility of breaching the loan covenants or default of the debts.
Lease terms and favorable rent payment plans could be discussed with the property owners. You may consider having a separate temporary contract with the property owners until the business returns to normal.
5. Do not compromise on Health and Safety of employees
Provide employees with necessary health and safety equipment when necessary. Ensure workplace is regularly cleaned and disinfected. Consider rearranging workspaces to maintain physical distancing. Work scheduling may be changed for example, always having same group of employees in the same shift.
6. Enable remote working and train employees
This may be a good opportunity to see the possibility of remote working. Enable work from home where possible, provide necessary IT infrastructure and equipment for employees to work from home. Invest in cyber security, educate and aware employees on cyber security risks in remote working. Train the employees on how to effectively collaborate and deliver using online tools and virtual meetings.
7. Optimize resources
Review all the fixed and variable overheads. Consider the required resources based on the expected demand including number of employees required to maintain the operations, office space, go-downs, utilities etc.