COVID-19 Cash Game Plan

By Tony Price, CPA, CGMA

3 Critical Cash Planning Actions in a Crisis

The Coronavirus pandemic has had a tremendous effect on businesses across the country. Lockdown’s have closed everything from restaurants to factories, and the resulting movement of cash has slowed to a trickle.

Without a clear strategy, the ability of a company to weather this storm will be dependent on its ability to be flexible and liquid until business activity returns to some sense of normalcy. Contingency plans should be made for everything. A strong focus on cash will be key for surviving this difficult period.

Forecast and Project

It is always a good practice to maintain a six-month rolling forecast. But in a crisis or economic downturn, a forecast is a must. While the terms forecast and projection are interchangeable, there is a difference.

  • Your forecast is the course you reasonably expect to take based on the assumptions and conditions you expect to encounter.
  • A projection is used to present outcomes under one or more hypothetical scenarios.

So right now, at a minimum you should have a six-month forecast that includes all activities materially impacting cash. Once your forecast is complete, you should prepare a projection including a variety of scenarios.

Prioritize and Communicate

Once you have completed your forecast you can then review those activities to prioritize your cash spends such as employees, creditors, and key vendors. Communication with both internal and external stakeholders is necessary for both helping to prioritize cash usage. This is also important in safeguarding your business relationships with customers, vendors, and creditors.

Consistent and honest communication is key. Communicate your plan with employees; call your vendors and discuss payment options; contact your creditors and explore payment deferrals or temporary adjustments in terms. And if at any time you realize you cannot meet a commitment, communicate, communicate, communicate.

Reporting

Quality financial reporting is important regardless of a crisis. However, during a financial crunch, your reporting cycles should be shortened. Standard reporting times vary by industry and the company’s cash position, but during these times we encourage the following:

  • Cash-on-hand– This is an area for daily focus. In addition to the obvious money in your checking account, this should include short-term cash equivalents. This includes Treasury bills, certificates of deposits, short-term bonds, or investments parked in a money market fund.
  • Cash flow – Review total cash inflow and outflow on a weekly basis.
  • Forecast – This should be updated at least monthly. Focus here more frequently if there is a significant change in your assumptions or conditions.
  • Projections – This is an area to update monthly. New scenarios should be put into consideration whenever there is a known change in condition, assumption, or strategic decision.