At the end of the 1st quarter of 2020, we are left with more uncertainty than certainty. Putting out fires is what we do all day but the rest of this year looks like Steve McQueen’s ‘Towering Inferno’ (no disrespect to co-star Paul Newman but McQueen was the fire chief).
It’s not possible to foresee the entire fallout from within the Corona-Crisis yet, but as developments unfold business management will have to constantly do a 3,6,9-month analysis on an on-going rolling basis.
The next 3 months i.e. the 2nd quarters of 2020 is going to be the worst most businesses will face. This Corona-Crisis is not just a one-off health & economic crises; there are likely multiple waves. And there is the socio-economic potential disorder to consider too. The primary concern remains the health; physical & mental well-being of the businesses extended family – employees, their loved ones, suppliers, customers, investors. But in addition it will be a very trying time to maintain cash-flow liquidity, which is going to be very tight.
Following a crisis management approach to minimize damage, one of the tools businesses should implement weekly, is the rolling analysis of cash flows, liquidity and revenues as they reassess and renegotiate terms of payments to suppliers, vendors & employees. Communicate to all concerned to dial back expectations, if any, from 2Q since top line, bottom line and cash will be affected.
With a weekly approach to reviewing key ratios, near term visibility will improve and additionally businesses should immediately start to look at short-term liquidity improvement actions – tap extra credit lines, discount prices to boost sales, reduce costs, increase working capital, delay or renegotiate financial obligations. Most senior management have a worst-case scenario for their business, it’s time to freshen up that dusty tome and look at all sensitivity analysis related to that.
By the time the 3rd and 4th quarters roll around it will be abundantly clear as to the extent of the Corona damage – the world will likely not have ended but it’s definitely going to be worse than what listed company CEOs & CFOs are admitting to currently. Businesses that don’t have a stock price to worry about should have the guts to take an unbiased view and implement new budgeting & planning with reconsidered inputs, diversify supply chains, reconfigure employee mix, outsource non-essential functions, innovate product lines, consider newer distribution & revenue models. This while implementing strict, rolling, weekly performance stress tests on profit & loss, balance sheet and cash flow so that a view can be built on the potential impact to the business in the face of the looming supply, demand and commodity shocks.
