Cash Management Strategies for Surviving a Downturn

Assess the company as it now stands and figure out what needs addressing

The global effects of Covid-19 demonstrated the need of maintaining finances during uncertain times.

The worst of the outbreak has passed, but many potential threats remain. It’s certain that management groups will have to deal with another slump at some point.

Successfully weathering economic storms requires a company’s leadership to have a well-defined plan for preserving and reinvesting net working capital even when the company faces challenging times.

When disaster hits, thriving businesses quickly assess the market and begin laying the groundwork for a full comeback. Crucial initial actions include creating a cash war room, forecasting cash flow for the next 13 weeks, modelling potential profit and loss (P&L) outcomes, and instituting stricter controls over expenditure.

Once these foundational pieces are in place, leadership teams may shift their attention to maintaining a steady liquidity position for the following 12-18 months and beyond.

Liquidity monitoring that is both thorough and proactive, and the implementation of measures that will materially strengthen or even fundamentally alter the company’s cash position, are the two pillars of a successful plan.

It is crucial to keep an eye on your finances all the time. With all the uncertainties, putting together such an effort may seem daunting, especially if the downturn is just starting and recovery is less likely to be in a year. But with steady financial management, a business could recover from prolonged instability and get back on track for expansion.

Monitor your businesses liquidity – keep it solvent

Markets are volatile and circumstances can change swiftly during a recession. Cash war rooms are used by successful businesses to keep a close eye on their liquidity at all times during the recovery process. The four procedures listed below all contribute to short-term cash conservation and are also crucial to maintaining long-term liquidity.

1) Forecasting cash flows:

Check that weekly cash inflows and outflows add up to the total predicted over the next few months. In cases when there is a large degree of variability, forecast accuracy should be increased. Monitor vital parameters including available cash and cash burn rate, and update cash flow estimates as necessary. Keep a close eye on cash flow and actively seek overdue payments from clients.

2) Profit and loss (P&L) scenario planning with actionable milestones:

Profit and loss (P&L) scenario models should be updated to reflect the most recent recovery trajectories and market outlooks. Create individualised plans of action in response to predetermined events (“when X happens, we do Y”). Maintain vigilance for these warning signs and have responses prepared.

3) Keep an eye on expenses:

Monitor expenditures by meeting with department heads (or your accounts department) to discuss expenses and decide if any outstanding purchases are essential. You might want to give these meetings more sway over bigger ticket items like recruiting new employees or increasing the budget for ongoing expenses.

4) Keep everyone on the same page:

Maintaining a unified vision and meeting organisational goals requires a centralised system for keeping tabs on all the money spent on running the firm. Assign responsibility for each project to specific personnel.

Take steps to improve liquidity

To keep operations afloat during a crisis, successful businesses use the chance to make substantial changes that will fortify their financial footing in the long run. That sort of behaviour is what we call a transformational act.

Think about what has to be done now to make the company survive the downturn, as well as what may help it accomplish its strategic goals once the economy has recovered. Evaluate the company as it is today and imagine where you want it to go in the future.

The steps that need to be taken now to secure the parts of the company that underpin the plan can then be prioritised. We usually focus on four potential growth areas:

1) Boost your company’s net working capital:

Cash flow stability can be achieved by enhancing net working capital procedures. Maximise cash flow by cutting down on receivables, accumulating as little as possible, and extending payment periods. Getting rid of early payments, following up on past-due receivables, and getting rid of old, slow-moving stock are all examples of quick gains.

2) Analyse ongoing endeavours and money spent on infrastructure:

Assess all planned investments again, from scratch:  Determine which large expenditures or projects could be put on hold, and which ones need to be hastened. Think on the long-term value of each project or purchase, as well as the resources and abilities of your team. Focus on initiatives that will ensure operations can continue or that will mitigate imminent threats to safety.

3) Reducing overhead costs:

In order to conserve funds during a lengthy economic slump, it is essential to cut expenditures. Companies can enhance efficiencies and safeguard liquidity at the same time. Companies could either take a holistic approach to cost cutting, or they can zero in on a single area, such supply chain optimisation.

4) Look at some risky options for reorganising your business:

Don’t be afraid to take risks to reorganise in a way that will save you money in the long run. Look at different regions, sales channels, and individual items to see where your company is losing money. To lessen the organisation’s burden, you must decide where to undertake reorganisational changes and where to implement improvement programs.

Adopt an agile mindset

After an emergency situation has passed, cash war rooms transition into a project management office. Even while the urgent need for action has passed, war room teams will be crucial in maintaining liquidity in the coming months. The best war rooms use Agile methods of working to manage cash flow during the recession and recovery.

Agile teams, which are cross-functional and lack a strict chain of command, make quick choices and roll out initiatives to save money. They are held to account and supported by higher-ups to overcome obstacles. Teams are better able to monitor the company’s liquidity condition and measures to conserve cash thanks to Agile’s emphasis on openness, inspection, and flexibility. When an organization is doing well, the Agile teams in the “war room” will teach the rest of the company how to be more flexible and responsive to change.

Plan now to prepare your business for the future

There are currently several signs that the economy will undergo a period of upheaval. Worries about global instability and rising trade tensions are increasing. Serious economic and social imbalances are expected to emerge during the future decade as a result of basic macroeconomic shifts, shifting demography, and increasing imbalances.

After the experience of Covid-19, corporate executives are implementing crisis cash management strategies into regular operations, preparing the company for a more uncertain future.

There is a long time of danger and uncertainty ahead, but company owners can navigate it with the answers to two questions:

1. How can we prepare for and recover from a future catastrophe so that we can come out on top of the competition?
2. Can we restructure the company based on lessons learned from previous disasters so that it would be better able to weather future storms?

Make a real change in your business

Whether your business is treading water or advancing but without direction, our free Business Analysis will help you take stock, diagnose issues, and identify a strategy for the future.

Quickly examine the 4 core pillars of your business and identify the areas that are holding your business back.

• It takes just 5 minutes
• It’s completely free and no obligation
• ​Receive a bespoke report from our consultants

Find out more about the Find out more about our Free Online Business Analysis →