COVID-19: Cash is King in a Crisis. And today is no different. The 5-steps to managing your cashflow through the Corona Black Swan Crisis.

dollar


By Eric Michrowski

Cash is King. It’s an overused expression that I learned early in my career, but it really came to life for me after the 9/11 Black Swan Event. I was in the airline industry, sitting in disbelief as the towers fell. I will never forget that moment. I was frozen in front of the TV in disbelief. After spending several days meeting inbound crews from around the world, taking care of their needs, I quickly came back to reality.
I was brought to an executive briefing room. We signed agreements that prevented us to trade shares as the stock price kept getting hammered. We ran through cash projections on days left and looked at options and scenarios to buy extra days. Cash was no longer measured in dollars. It was being measured in days.

As we enter this COVID-19 Black Swan event, it becomes critically important for businesses to pay much closer attention to cash and cash flow. The unfortunate part is that Wall Street typically hasn’t rewarded strategies for conserving cash. In a recent report it was identified that airlines that now are going to be seeking a bailout (which isn’t going to be called a bailout for political reasons) have spent 96% of their cash in share buy-backs.

Hopefully your business has shored up a sufficient rainy-day fund to weather the storm.

Here are the 5-steps to consider when it comes to Cash:

1. Check your cash
Know your cash reserves. Know how many days you have at current levels and what you need to do and when to adjust your spend levels in order to survive this storm. This doesn’t mean that you should immediately furlough your teams to a worse-case scenario plan as you will need them when things recover but you do need to know your situation and how to manage through it. Check back daily.

2. Collect Receivables
Some clients are bound to default. It’s more important than ever to make sure you do your best to collect any funds that are needed, as soon as you can. Options will become more limited as time passes.

3. Reduce spend
Look for discretionary spend categories. Stop purchasing anything that you don’t need to purchase. Be wise about where you spend. Some would say to stop spending but the economy collapses if you don’t spend. It’s about spending wisely.

4. Invest
I’ll be a bit of a contrarian here. I would suggest considering investing (assuming you were wise and are cash rich). For the economy to continue to work, you need to spend and invest. Assets will likely become incredibly cheap. Some investments will come at massive deals as companies struggle to take any cash in. If you want to survive through this crisis, you need to be ready to invest in the right opportunities when they present themselves. Make sure you keep cash for these opportunities. Don’t be too fast at choosing these but be on the lookout for them. This could include:
a. Acquisition targets or assets that you always wanted to buy that would bolster your business in the recovery. Most people bought at peak, but you should buy ‘low’! I’m not talking about stocks. I’m talking about assets that position you better through a recovery.
b. Invest in brand awareness, marketing and sales – most will cut back, but you should consider being a contrarian. Not with your old campaigns and target markets but by redefining based on new opportunities that will present themselves.
c. Invest in new markets and opportunities that will present themselves. Every crisis brings new opportunities. While most give up, a few look for these and make them happen. Be on the lookout for new markets and opportunities. Experiment quickly and fail fast. Prosperity will come to those that seek out new opportunities and invest.

5. Secure Funding
If you can, secure credit facilities from banks and explore any government grants that you might be eligible for to strengthen your balance sheet.

The first reaction shouldn’t be to furlough your team. You might need to adjust the size of your team and be prepared to respond quickly but you also need loyal team members for the recovery that is around the corner. If you cut back too quickly you also risk missing the success once things stabilize. But don’t be too slow to adjust as you do need your cash for the investments that you need and to protect the core of your business.

Stay strong, focused and healthy.