Cashflow and Borrowing Tips

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As the global response to coronavirus COVID-19 evolves, organisations are experiencing significant operational, financial and liquidity challenges. One major concern on the top of every businesses agenda is how to manage cash pressures to ride out the crisis.

What can you and your business do at this time to succeed at this time of uncertainty? This article by PWC contains some useful tips. We’ve taken the below snippet to highlight some of the areas that may be relevant to your business:

Understanding the current financial position

In a critical situation like COVID-19, a business may need to make an assessment of available and trapped cash in a matter of weeks, or even days. Your ability to respond quickly is essential.

Cash

  • Assess the potential short and medium-term financial implications of COVID-19. Focus on liquidity and covenants
  • Create or review your immediate 13-week short-term cash-flow forecast
  • Update your business plans, budgets and forecasts
  • Identify potential worst-case scenarios
  • Perform sensitivity analysis, modelling worst-case scenarios and downsides, inclusive of the impact of FX on your cash position
  • Test the capability of your existing reporting tools and systems. Do they allow real time reporting across multiple locations?

Funding flexibility or capacity

Review your finance documentation. Identify if there is:

  • Flexibility on covenants, cures, force majeure or baskets
  • Additional borrowing capacity and unencumbered assets: inventory, receivables, intellectual property
  • Any scope to access government funding initiatives

Contingency plans

  • Update your financial position and resource planning analysis to assume staff sickness
  • Assess where and what levels of tactical cost reduction and cash conversion or stock liquidation could be undertaken, if that were required
  • Develop operational contingency plans to minimise disruption to your business. Include reviews of authorised personnel to manage bank and system processes and controls

Stakeholder management

  • Review your key supplier and customer contracts
  • Identify if there is contractual flexibility to amend payment and pricing terms for both sides. Engage with suppliers and customers accordingly
  • Reassess payment priorities and consider time to pay arrangements
  • Consider the position of other key stakeholders, e.g. shareholders, pension trustees, regulators, credit insurers and credit card companies
  • Check insurance policies for business interruption clauses

Take action to protect the position

Once you have clarity on your cash position, your directors and management teams should take immediate action to ensure they can, at least, maintain it. You should also identify opportunities to access new money, if that should be required.

  • Implement cash conservation measures. That might include cancelling non-essential orders, shift rationalisation and four-day working weeks
  • Optimise your working capital to preserve liquidity
  • Seek additional funding support from existing lenders, new funding from alternative providers. Are there opportunities to generate cash via equity release?
  • Obtain consent from lenders for short-term financial covenant waivers or relaxation in anticipation of potential covenant breaches
  • Implement rapid cost reduction plans based on your financial position. The severity of cost reduction levers and time execution will be dependent on available liquidity
  • Set up a programme management office (PMO) to help ensure consistency in managing the impact of COVID-19. This will enable rapid responses to deal with operational and financial issues as they arise
  • Depending on the severity of the situation and size of the organisation, consider bringing in a Chief Restructuring Officer (CRO) to have responsibility for taking control of the cash position
  • Consider whether liabilities and cash can be accessed via a managed exit or accelerated disposal process of underperforming parts of the business.

Full article available here: Managing Your Cashflow Pressures

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