When the rhythm of any business is suddenly interrupted, it is important to assess the financial implications for today, through the rest of 2020, and beyond. To start, this is no time for a complacent let’s-see-what-happens approach. Face facts and proceed.
Now: What is the impact for Today?
Secure remote access is of paramount importance. Invest in expertise to ensure remote connections are hack-proof and globally communicate the necessity to avoid scams such as WHO impersonations, accessing unknown “COVID-19” links or downloading dangerous “tracker” apps.
Non-electronic cash transactionsmay require a change plan. Many businesses use a mix of electronics and paper – a shift to electronic transactions will be the new norm. There are third-party applications that facilitate this automation and some of them integrate with accounting systems such as QuickBooks.
Vigilant cash internal controls stay at the forefront especially in a remote environment. All scheduled electronic disbursements should be listed and specifically approved by supervisory personnel. Large disbursements should be confirmed in writing by an executive or owner. Dropbox shared files work well and confirmations should be retained for control purposes. Bank reconciliations are paramount, preferably prepared by an individual other than the transaction originator(s). Be vigilant of cash scams – it is never acceptable to wire/transfer funds based on a seemingly-authentic email from the company’s owner making an “urgent request.” ALWAYS directly confirm in person or by conversation.
To monitor ongoing cash viability, it is important that the company’s books be kept up to date to ascertain accurate cash reserves, amounts owed by customers and obligations due to vendors. While tradition performance metrics remain important, the key focus is on maintaining the flow of receipts and prioritizingdisbursements.
Looking Ahead: What is the impact through 2020?
Track the direct expenses related to COVID-19 in either separate accounts or by using designated item or class codes for potential reimbursement purposes. This pertains to cash-related transactions not ‘opportunity costs’ which identify economic gains and losses that could have been achieved or avoided but were not due to some constraint.
Set up or update the company’s rolling cash forecast plan, preferably for at least a 13-week interval. This should project cash receipts and disbursements by category by week to identify potential surpluses and deficits. The rolling cash forecast is an excellent tool under normal conditions but becomes critical during volatile times. The updates are never static – always continuous, iterative with ongoing changes in estimates and priorities.
Most likely, the 2020 financial plan and operating budgets set earlier this year need revision. To the extent possible given these unprecedented times, staying ahead of the curve is essential. This requires ongoingrationalization of projected revenue streams, gross profit contributions, overhead expenses, working capital vulnerabilities, capital expenditures necessities, viable debt capacity and what-can-be-lived-with owner returns. This is a management team strategic initiative, not a CFO/Controller/Accountant tactical exercise. Worth repeating, these updates are never static – always continuous, iterative with evolving changes in estimates and priorities.
More than ever, driving financial performance needs to be on par with maintaining operational integrity. The quantification of evolving conditions needs to be reflected in monthly P&L, balance sheet and cash flow projections. Taken together, these projections comprise the road mapleading to viability, sustainability, expectation-setting, and the monitoring of targets. If the financial model is the road map, then processdiscipline is the compass. However difficult under remote conditions, formulated activities and practices that are planned, executed and evaluated in a cohesive, professional, legal and fiscally prudent manner always pave the right course.
The devil is in the details, so employ creative collaboration to contain the inferno. Must-include topics for the finance brainstorming sessions:
Maintaining a commitment to margin-based selling over the rationalization of volume-based selling;
Re-assessing the tangibility of backlog-pipeline-sales order promises;
Forbidding the cost structure to remain out of alignment with changing revenue streams;
Transparent renegotiating of purchase order commitments and fixed contractual obligations;
Tightening marketing and business development initiatives to leverage brand value;
Centralizing common activities among departments, offices or divisions;
Eliminating discretionary spending (pick a committed $ limit instead of agonizing over categories);
Analyzing related party transactions for overall savings.
The financial considerations stemming from the COVID-19 pandemic are jarring and unrelenting. Tenacious decision-making requires broad dialogue, discernment, compassion and collaborative wisdom. With all this in mind, action today is the key to sustaining your company’s viability and paving the way for a brighter future.