As we are in crisis, determining how you will survive and the financial health of your company is essential. Here are a couple of things to consider.

Listen to and Communicate with Your Clients

As this crisis continues, it is essential to communicate with your clients. You need to remind them why you are there, what benefits you deliver, and how they need you to survive. Everyone is going to eliminate whatever costs they deem unnecessary, and if you cannot show the value you are providing, you are gone.

Take a customer-centric view of this situation – how will you build trust, loyalty, and market share through and beyond this crisis? You want to develop that loyalty so that you protect your revenue streams during this crisis, and afterward, when many companies are trying to acquire your customers, they are loyal.

Also, listen for issues your clients are having so that (i) you can better serve them, and (ii) you are not caught with a significant value of receivables if they file for bankruptcy.

A Rolling 13 Week Cash Flow Model

Have a 13-week cash flow model for your business and also one for each of the scenarios that you are considering. This model must show:

• Your cash balance. Know your cash balance is essential; companies don’t go bankrupt because they lose money, they go bankrupt because they run out of cash. While the government has said it is providing loans, assume that these take longer to get than expected. Also, model what happens if your revenues fall by 20%, 40%, 60%. Consider what happens if your clients start paying you in 120 days rather than 60. Build extreme downside scenarios – this has the potential to be a “100-year” event. At what point do you have cut expenses further to maintain a positive cash balance.

• Bank covenants. As you model, these different scenarios look for points at which you breach your bank covenants. Banks may be looking to pull lines and loans, and if you violate the covenants, even though you are making payments, your loans might get called.

• Delays in supplies. What happens if there are further supply chain disruptions. How will that affect your ability to supply products and get paid?

• Talk to your bank and suppliers. Honest communication with your bank is essential. Banker hate surprises. See if you can change your loan to interest-only for a period. Will your landlord consider a lower rent for.a year with higher rents on the back end. This is a time to get creative.

• Know what you are going to do when! Set aggressive ‘break glass’ cost actions triggered by more extreme revenue scenarios – This is about saving the company – no ideas are too radical.

Understanding What You Easily Scale Down/Up

Look at your expenses and operations. What can you quickly scale down now and scale up when appropriate? The ability to quickly turn off expenses will help during the liquidity crisis. As you consider these items, look at the forecasted demand for each item. If you have luxury goods or travel-related goods, demand may evaporate for some time, so shut down that product line, but consider a sale to clear inventory.

If you have a product or service for which there is an expected increase in demand, how can you scale that up? How can you deliver it more efficiently? What can you do differently? This requires some different thinking; consider getting out of your comfort zone.

Look for alternative supply chains for items that you need to meet demand. You cannot afford to fail to supply during this time, as that could be an event from which there is no recovery.

What Expenses Can Be Deferred

All CapEx is probably on that list unless it is essential to the business operations. Look at all operating expenses to see what is not essential. Go through all subscriptions; it is amazing at how many duplicates people have or how many no one uses. Cut everything non-essential. You can add it back if it is. As a Vistage member told one of his departments, “I want you to do what you are doing now with just 50% of the budget.”

Who Has To Go?

If people have to go, who goes? Seriously look at each employee and the value they contribute.

• Can they cover multiple areas?

• Are they essential in the rebound?

• Are they pulling their weight now?

• What is their attitude and added value?

On these bases, make the decision. It is hard, but if people have to go, make sure it is the right ones.

A Chance to ReInnovate

This is an opportunity to recreate. Looking at the way things are done and ask if we didn’t do it this way, how would we do it? Also, giving a department a smaller budget and telling them to do the same thing requires creative thinking. No idea is too extreme. I think of Apollo 13 at times like this when there was no choice, but they had to create something new to save the crew.

Good luck and hang in there, this too shall pass.

Copyright (c) 2020, Marc A. Borrelli