By Scott Norcross and John Archer
As businesses adjust to the continuously expanding coronavirus restrictions and resulting economic impact, management should consider putting a cash management plan in place. Since topline revenues and production will likely be affected, businesses should proactively implement programs designed to control expenses and the outflow of cash.
The cash management tips below may help businesses manage the risk of economic volatility over the next several months:
- Credit Cards: For those employees having access to company credit cards, limit their expenses to necessary purposes. Additional oversight, such as pre-approval requirements, should be implemented to further manage credit expenses within the business.
- Marketing: Assess all marketing spends and limit expenses to only those absolutely necessary or for which there are contractual obligations. For example, suspend all nonessential digital campaigns that may not reach the intended audience during this time, and temporarily freeze sponsorships and membership request
- Travel: To the extent it is still scheduled, all unnecessary travel should be limited or eliminated in the short term. Implement additional approval procedures for future travel to ensure it is addressing immediate business needs.
- Accounts Payable: Develop a strategic plan to address the business’ accounts payable. If it is possible to defer payment without penalty, the business should take advantage of that flexibility and strategically plan payments in accordance with cash flow.
- Company Meals and Client Meals: Assess all leisure expenses, including client entertainment, as an immediate area to manage expenses. This should include social activities such company parties, mixers, golf, etc. There will likely be little interest in these events at this time anyway.
- Loan Document and LOC Assessment: Since lenders are acting swiftly to limit their own risk, businesses should assess potential areas for default risk in their loan documents. Reviewing the terms of lines of credit and cash positions is essential. Subject to compliance with your loan agreements, drawing additional cash from lines of credit may be an option to weather the storm.
- Assess your Capital Position: Access to capital is the best insurance a business has during economic downturn. An audit of your business’s access to capital in short term, whether through governmental relief, cash reserves or lines of credit, is critical.
The best approach for your business is to be proactive in managing expenses in all facets of operation during the downturn. Smart cash management policies can be critical to keeping your business stable during this global pandemic.
If you have question regarding refinancing options, compliance with loan covenants, default risk, and general management of your finance relationships during this turbulent time, please contact Scott Norcross at firstname.lastname@example.org or 216.736.7264, John Archer at email@example.com or 216.726.7224, or one of our Creditor’s Rights & Insolvency professionals.