4 Steps to Cash Management During COVID-19

Let’s expand upon the tried-and-true phrase, “cash is king.” As the pendulum swings from day to day in this fluid financial environment, it’s now also suitable to say, “cash buys you options.” And options are what leaders truly need as they manage their companies through COVID-19-related uncertainty. A true test of leadership is measured by how quickly and effectively your company can extend your cash runway not only to survive the impact of the COVID-19 shutdown, but to thrive during and afterward.

Step 1: Pool All Cash Without Pause

All available cash should be pooled immediately. Experts are also recommending chief executives to draw down their entire line of credit. The outcome is a rainy-day fund that can be used, if needed. Interest is at an all-time low so take advantage of this as a type of insurance policy, even if you don’t use the funds. The peace of mind is well worth the low-interest payments incurred over several months to extend your cash runway. Companies should also tap and rely upon all other available sources of cash, including PPP funds in the U.S.

Step 2: Calculate Your Cash Position Alongside Experts  

Whether an external resource, your CFO or controller, leverage the financial acumen of an expert to calculate your cash position, instead of trying to manage this in your head. The historical number of months you’ve had as a cash runway may no longer hold true as the variables that affect your cash flow have changed.

CEOs are advised to have the minimum of a six-month cash runway to safely weather the market turbulence caused by the coronavirus.

It is recommended to run a cash flow sensitivity analysis to forecast three scenarios: bad, worse and worst. Once each scenario is modeled, chief executives will be able to see the gaps that exist between those scenarios and their desired cash runway and illuminate which financial lever(s) to pull to get where they need to be.

Step 3: Build the Cash Bridge Based on Prudent Projections   

Next is the need to swiftly architect a cash bridge based on the worst-case scenario, (followed by worse, then bad) by pulling the appropriate levers to achieve your cash runway. This requires a strong leader, as payroll often stands as the highest variable cost – making it the most obvious line item to cut. Things to consider when analyzing payroll:

• Focus first on underperformers
• Hourly cutbacks – you may have a mid-range choice
• Furloughs and deferrals

Additional opportunities to lower operating costs include negotiations with property managers for rent concessions (either permanently, or on a temporary basis) and with loan officers for loan deferrals.

Step 4: Create a Dashboard Based on Key Cash Bridge Variables   

Dashboards are designed to help CEOs breathe easier. These “breathe-easy” charts are visual in nature and should be monitored daily in reference to all the factors that affect your cash runway.

Trends will appear, and the CEO’s focus can be prioritized based on how closely the KPIs align with each scenario. For example, sales may be trending close to scenario A, while receipts dip toward scenario C. In this case, one would devote more time toward understanding the lag in receipts instead of on revenue.