[Covid-19] How companies can respond to protect their company during Covid-19. About war rooms, critical questions about, for example, the stability of the customer base, cash protection, etc.

Bain & company. Interesting article from Andrea Yandreski and Simon Henderson, April 09, 2020

 

Act now

Immediate steps to address liquidity:

  • Step 1: Create a central cash war room - The CFO leads the cash war room with a team drawn from treasury, sales, purchasing and human resources. A war-room approach enables rapid, real-time decision making and focuses leadership teams on the most urgent liquidity needs and cash-preservation actions.

  • Step 2: Develop a single view of your liquidity position and outlook - Create a 13-week cash-flow forecast This diagnoses the severity of your current position

  • Step 3: Launch decisive actions to preserve cash - Implement immediate mandates to reduce spending. Act quickly, understanding that speed is essential and initiatives can be temporary. 

  • Step 4: Control all cash outflows - Initiate daily spending review sessions to challenge all purchase requests and instill a ruthless cash-preservation mindset across the organization

    • What can we deny? Which outlays are not vital to operations and not yet committed?

      What can we delay? Where do we have flexibility in timing or credit terms for required spending?

      Should we invest? When is the business case for investment justified to enable continued operations?

  • Step 5: Prepare enterprise models based on different macro scenarios - Modeling helps the leadership team assess the company’s level of exposure, stress test the P&L and develop contingency plans. At a minimum, develop the best-case, base-case and worst-case scenarios. The worst-case scenario should envision a disastrous sequence of events.

 

Test

A few questions can serve as a litmus test of whether you have a clear view of your liquidity and cash position:

  • Are we testing the company’s ability to respond to a range of challenging scenarios?

  • With the current burn rate and cash position, how long could we continue to operate?

  • What additional sources of capital can we pursue, and what lead time do they require?

  • How stable is our customer base, and what share of the business comes from our largest customers?

  • How are receivables trending compared with the budget, considering both sales and payment terms?

  • Have we identified our most important suppliers, and are we putting their needs first?

 
Bain&Company-How to protect Cash.jpg

How to protect Cash?

5 steps companies can take

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