Lessons From A CEO Roundtable: Increasing Cash Flow During The COVID-19 Crisis

Now, more than ever, cash is king. As a business leader, your mission is to maintain liquidity that is sufficient to get your company through the current storm and grow and prosper on the other side. Ask yourself: What expenses can I slow down? defer? eliminate? How can I accelerate A/R? To what extent do I need financing? The details on how best to defend your balance sheet will be unique to your own business, but during a recent CEO Roundtable several CEOs shared and discussed some suggestions that should apply to most businesses looking to maximize cash flow during the current crisis:

• Take a look at your monthly cash burn under the current conditions. Determine to what extent you may need financing.
• Apply for every government support program applicable to your business. Wage subsidies, lending programs, and payment deferrals are in place that can help improve your cash flow.
• Draw down on any unused credit and consider moving it to another bank.
• Renegotiate everything: software subscriptions, leases, rent, cellular plans, fleet auto-insurance, dental plans, software supply, etc.
• Look at your illiquid assets as well as the costs of expediting turning those illiquid assets into cash.
• Identify your receivables by essential and non-essential businesses and prioritize collections from non-essential businesses.
• Stay in constant contact with your controller and bookkeeper regarding accounts receivable and ensure that they are watching any problem accounts. Do you need to give discounts to encourage fast payments of receivables?
• Cash can get tied up in inventory during the best of times. Turn off your inbound purchases if you haven’t already and liquidate the inventory in your stores and warehouses. Turn it into cash ASAP.
• If you are one of the many whose business is down, and some of the employees you want to retain are left with not as much to do, it may be worthwhile to encourage them to take their vacation now. This will help you avoid a large accrued liability of vacation pay on your balance sheet at year-end.

Here are some additional suggestions on tools that might help facilitate greater cash flow:

• Adhere to the best practice of having a 13-week cash-flow model and know your daily cash flow balance. Test your cash flow across three scenarios: reasonable, bad, and catastrophic. Where is your break even? What does it look like under each scenario?
• Cash conversion cycle is a great measurement tool. It tells you how long a dollar cycles through your process. If you know the components of that, you can find out where you are going or at the very least see where you're [over]extending or where your cash is getting held up.
• Real time access to up-to-date financial data is critical right now. If you find that Excel spreadsheets simply aren't cutting it, it may be beneficial to look into products such as OuickBooks Online or Xero, Receipt Bank, Waypay, OVinci, Fathom, Spotlight, and others.

Closing thoughts:

Banks are not really saying no to businesses requesting credit or deferrals at this point, but the risk level is shifting out of their comfort zone and they are beginning to get nervous. Moving forward, cash flow will be an increasingly valuable tool in managing discussions with lenders and your projections will be an important aspect of funding in Q3 and Q4. It is important to present your cash flow in a model that covers multiple hypotheses/scenarios and you should add some commentary to support your thinking. You will need to explain why you feel that a certain scenario is probable or remote.

If you haven’t yet set up direct deposit through the CRA’s My Business Account, do it now. The administration of many of the government’s COVID-19 response programs will occur through this online portal and the registration process can take a couple of weeks.

And remember—your banks are your best friends right now. Keep them informed. They don't need or want surprises.

What best practices have you implemented to ensure your company’s cash flow is sufficient to get through this crisis?