Having a set of reality-based scenarios to create and execute your company’s plan makes the difference between survival and defeat. Here are best practices that experienced CFOs are performing now.
- Assess the effect on the near- and medium-term cash flow of your company. Perform sensitivity analysis on cash flow and access to cash. Use your functional financial model to project 13 weeks in detail and 12 months more generally. You should already have a base financial plan for this year that you developed prior to the pandemic. Use this model to stress-test the company’s financial integrity under a range of assumptions.
- What does the company’s financial situation look like if sales fall 20%?
- What happens if we are able to cut cost by 20%?
- Under worst-case assumptions, how much cash and credit can we draw on over what period of time?
- Test these scenarios to determine what the company can withstand. The model should provide a good view of financing needs over the next week, month, next six months. Compare that to internal and external resources.
- Get down to the shop floor. There is no substitute for the CFO getting down on the “shop floor” to garner and energize support to meet the financial challenge. The high-level view is just the start; next, follow up with senior managers in sales, engineering, service staff, call center, production, marketing, talent management, etc. Ask:
- What needs to be done under the different scenarios you have developed?
- What preparations can managers make to prepare the company for sustainability?
- How are our customers reacting?
- What does the sales pipeline look like?
- What costs can you cut before seriously affecting employees and operational efficiency? Feedback from these managers is vital. Input their views on financial effects to the model. This consensus view becomes part of an overall action plan, with clear accountabilities for senior managers. The plan must remain flexible. Monitor for changes week by week and update as needed.
- Meet immediately with your suppliers of financial resources. Armed with an operational and financial plan, talk to your bank, the US Small Business Administration, suppliers and vendors and all supply chain and financial agencies who can provide help. Stay on top of aid packages from the Federal and state governments. Note: Agencies will be inundated with requests for financial aid. The applicants who show that they have a strong grasp of their needs under different scenarios, and who have a coherent and clear plan, will be more credible as a bankable risk even under tough circumstances. These are the companies that are going to be successful. If you’re squeezed financially now you won’t be able to quickly expand your line of credit and other financial resources without going armed with a plan.
Does your company have its plan ready?
If not — now is the time. BeaconCFO Plus can help get it done asap. Contact Rob Joseph at r.joseph@BeaconCFOPlus.com, or 866.946.2322 ext. 701. We have seasoned CFOs who can help you get your plan done, and survive.
Here is an example of the financial projection spreadsheet. (This example is provided for information only. It should not be used without consulting a financial professional.)