The pandemic and increased pressures of the economic downturn have created a number of operational and financial challenges for most businesses. The economic impact from COVID-19 and the lockdown is leading to severe business disruption, cash flow and liquidity issues, disrupted and even broken supply chains, job losses, poor employee wellbeing, and other operational interruptions.
Act with Urgency
As businesses return to work and ramp-up following the stringent lockdown, the focus of leadership is on recovering and stabilising the operations, preservation of cash, review of existing credit lines, and examination of new funding options, apart from the many challenges arising from ensuring staff wellbeing, strong customer relationships, and safety.
Financial planning and cash flow forecasting will be critical and require financial leadership to focus on horizons encompassing the short, medium, and long term. Preserving working capital over the next months to sustain business operations is paramount, and the old adage that “Cash is King” holds more than ever in times of crisis. A business impact assessment of critical operations is urgently needed, whereby actions and efforts should be targeted at stabilising finance and operations.
Finance leadership should determine for what period sufficient cash must be set aside to maintain business operations and prepare short, medium, and long-term forward-looking cash flow projections under several scenarios. Access to Government relief schemes, including any tax relief measures should be explored and leveraged to support cash flow needs in the short term. Furthermore, financing options should be revisited under the current circumstances.
Supplier contracts may need to be reviewed and credit terms re-negotiated during the initial ‘Act with Urgency’ phase to ensure continued liquidity.
Regular, transparent communication with all stakeholders is important to gain confidence, particularly in supporting contract and credit re-negotiations with suppliers, customers, and financial services providers.
During the Restore phase, the focus and priorities shift to strengthening the balance sheet and seeking out cost reduction opportunities across the entire business. These may include institutionalizing the new ways of working which could have significant real estate, virtualisation, and other cost benefits, revised supply-chain sourcing strategies and contracts, outsourcing, and workforce re-sizing, amongst others. An asset inventory and needs assessment should be performed and redundant and non-core assets should be considered for disposal as part of the effort to shore up the balance sheet.
The risk assessment should be updated to reflect the move to the Restore stage and to support the strategic initiatives that need to be taken across all functional areas of the company is planning for the future.
Having taken a structured approach to restoring operations and strengthening its financial position, the business will be well-positioned to take advantage of opportunities to acquire lower-valued and distressed assets arising from the business disruption as it moves into the Flourish stage. A critical view of the industry and its value chain will unearth opportunities.
Cost reduction strategies taken during the Restore stage should be further leveraged to extract long term value and maximise profitability.
The strategy should be refreshed and re-aligned to reflect the ‘new reality’. Digitilisation, AI, and machine learning initiatives should be accelerated to enhance efficiency and leverage data.
The Covid-19 Business Response Framework provides a sustainable, pragmatic, and holistic roadmap to navigating the current crisis and a winning programme for the business to flourish beyond the crisis.