These are unprecedented times. As the COVID-19 situation continues to impact the global economy, businesses need to focus on cash flow management strategies and take decisive action in order to preserve value and successfully navigate the challenges.
The biggest challenge facing business leaders is liquidity and cash flow management. During the webinar, participants were asked what their level of confidence was for their cash flow. Nearly half (45%) said they were concerned or very concerned, while a quarter (24 %) expressed confidence.
Business needs will vary
All businesses are different. A range of factors – discreet sector challenges, balance sheet strength, funding structure and organisational capability – will affect the way corporates respond to the impact of COVID-19. This means that the crisis will require an array of approaches depending on the magnitude of impact and balance sheet resilience.
Of particular concern are low-liquidity businesses which have seen a high adverse impact, such as SMEs. These businesses are the most vulnerable and will need to implement turnaround strategies, including early identification of operational and commercial turnaround initiatives such as optimising working capital and right-sizing their cost structure. They will also need to reforecast liquidity and start looking to secure financing and government support.
When asked how far they were currently forecasting cash flows, nearly 80% of the audience suggested they were forecasting between 8 weeks and 24 weeks. This is well within market best practice guidance that businesses need to forecast cash flows up to 13 weeks ahead in order to ensure effective visibility (based on industry norms). “These forecasts should also be revised on a weekly basis to ensure they remain reflective of the changing environment” says Pri McNair, Regional Head of Client Coverage, HSBC.
More broadly this is the time for businesses to strengthen their existing position by improving operational and organizational processes, such as assessing and managing third-party credit and supplier risks. They should also assess the ability of their own operations to meet the demands and impacts of the lock down, and even identify potential growth opportunities. This includes solidifying digital strategies, applying learning from their recent experiences as to how digital transformation can support how they operate.
What all businesses have in common is the need for a robust approach to stakeholder management, liquidity management and funding, including short-term cash flow forecasting. Businesses fail not because they run out of profit, but because they run out of cash.