Liquidity in the time of Covid – #Cashflowdoctor

Corona was the definitive Black Swan that struck the global supply chain. This disruption led to a massive cash crunch, making liquidity a top concern for CFOs.

In order to make good decisions consistently, CFOs need to effectively develop their capabilities to answer four central questions:

1. What is our Cash balance?

Use real time, consistent and realistic reporting to assess your current cash position. Remember to consider all sources of cash, including multi bank, multi currency, and cash-equivalent asset balances.

2. Where is our Cash balance headed?

Prepare three to five revenue-drop scenarios for your business. With each revenue % drop, reassess the maximum level of financial stress that your firm can manage. Use these financial stress levels to establish early-warning indicators.

Business owners need to have a three-window scenario for cash levels – business as usual, emerging stress and survival cash

3. What options do we have to raise Cash?

Prepare a list of actions available to raise liquidity; cite- timing of inflows, impact of inflow on financial stress, costs and benefits of liquidity inflow, and risks of liquidity inflow.

4. How do we decide quickly ?

Establish executive management committees to review and steer liquidity decisions. Early-warning indicators from # 2 should be the basis for all call to action. Use authority matrix to funnel appropriate decisions into line managers. Developing a management playbook to test response turnaround time will come in handy!

The key to good liquidity decisions in the face of Corona, is for CFOs to develop capabilities to answer above questions with urgency and brevity.

For more insights into liquidity cash  management, please read full article here.

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