Keep your business out of intensive care with sound cash planning in these coronavirus times

If one thing – apart from the scale of the impact on public health – is clear during this COVID-19 crisis, it’s that the health of our businesses is also under severe pressure. The government, working in consultation with the banking sector, has already pumped a lot of oxygen into the financial circuit in recent days, but whether this oxygen doping is sufficient will become clear in the coming weeks. 

Just as the hospitals have recently made thorough preparations for an influx of intensive care cases, so business leaders can get ready to assess the acute or less acute cash needs they will face.

In that sense, a good understanding of the current and imminent cash situation is absolutely vital. After all, a view of your current and future cash position forms the basis for the actions to be taken in these turbulent times. 

10 tips for a good cash planning

In this article we give 10 tips on how a business can build a cash buffer and how it can get started with cash planning. 

• Identify the available cash. Find out how quickly the available working capital (receivables, stock, etc.) can be converted into cash; 
• Evaluate the breathing space offered by the measures introduced by the government. See our previously published article on this subject
• Analyse the cost structure in your business and how it will change; think about which ‘fixed’ costs could be turned into variable ones;
• Identify which investment or planned one-off expenses are necessary right now, and which can be delayed or cancelled;
• Look at how turnover may change in the coming weeks, taking into account the altered market conditions in terms of available raw materials and resources. As part of this, carefully assess which invoices are likely to be actually paid, given that a sale does not yet mean cash income! If possible, work out a number of scenarios (base case, worst case, best case) which will enable you to deduce when your company is in danger of getting into trouble;
• Identify your financial headroom, i.e. the extra space that can be freed up within your existing credit lines;
• On the basis of the previous steps, look at whether, what and when extra resources will be needed;
• Based on the above, communicate with your various stakeholders (shareholders, bankers, suppliers) in order to ask for additional funds or credit within existing or, possibly, additional guarantee structures;
• Cash forecasting is an ongoing process and definitely not a one-off exercise in these uncertain times. It is therefore essential to keep it up to date on a periodic basis, and to integrate it into your existing administrative processes as far as possible;
• Monitor the accuracy of the cash planning. Regularly compare the forecast with the actual cash flows. This will allow you to predict with increasing accuracy.

VGD will gladly assist you in setting up cash planning in your company and making it more professional through process optimisation and integration with your existing systems. Our advisors are happy to help you with interpreting your cash forecasts and, if necessary, with looking for additional resources from your existing or future stakeholders.

Please do not hesitate to contact us should you have any additional questions, troubles or concerns. We will follow this up on your behalf to ensure that you get the best possible guidance and advice. Please contact our advisors at corona@vgd.eu