Crisis Playbook

Capital Management

The Guide to Capital Management provides best practices for acquiring and conserving capital, so your business survives the crisis, and has the resources required to thrive during the recovery.

Acquire Stimulus Funds

Stimulus Funding Programs

The government has 3 loan programs to help businesses get fast funds to survive during the crisis & thrive through the recovery.

Get up to $10 million dollars in forgivable funding if you are a business with 500 or less employees.

Get up to $2 million dollars of low interest rate loans payable over 30 years if you are a business with 500 or less employees.

Get up to $200 million of low interest rate loans to be paid in 4 years if you are a business with less than 15,000 employees or $5 billion in revenue or less.

Create a Comprehensive

STRATEGY TO ACQUIRE & CONSERVE CAPITAL

Develop a plan

Given the importance of cash flow in times like this, companies should immediately develop a plan for cash management as part of their overall business risk and continuity plans. In doing so, it is essential to take a full ecosystem perspective, as the approaches you take to manage cash will have implications for your business and your customers.

Focus on the cash-to-cash conversion cycle

Under normal business conditions, companies primarily focus on the profit and losses–growing the top line while managing the bottom line. Routine back-office activities such as paying bills and turning receivables into cash are often taken for granted. In the current abnormal business conditions, smart companies are shifting their focus from the income statement to the balance sheet. Of the three elements of working capital, payables, receivables, and inventory, executives have a tendency to focus on inventory. But, in order to minimize working capital requirements during challenging times, it’s important to apply a coordinated approach that addresses all three areas.

Revisit capital investment plans

With cash flow forecasts in mind, consider what’s really necessary for the near term:

  • What capital investments can be postponed until the situation improves?
  • What capital investments should be reconsidered?
  • What capital investments are required to position for the rebound and for creating
    competitive advantage?

Consider alternate or non-traditional revenue streams

If your scenario planning is showing pressure on your continued revenue streams, consider ways you could temporarily or maybe even permanently replace that revenue. If you have assets you use to generate revenue, how could you think differently about how those assets are used to generate alternate revenue sources? Not only could this reduce some of your top line pressures, it could also mean not having to reduce your cost lines as significantly (not to mention a potentially more diversified revenue mix in the longer term).

Think beyond your four walls.

To maximize working capital, you can’t only focus on your own operations and inventory levels: you need to think about your entire ecosystem and supply chain. The same is true for payables and receivables. It’s important to carefully consider the upstream and downstream impact of your actions.

Explore new finance and revenue sources to help your business

ACQUIRE NEW FUNDING AND REVENUE DIVERSIFICATION

In these circumstances, don’t assume the financing options you previously had available to you will continue to be available. Undertake scenario planning to better understand how much cash you’ll need and for how long. Use this opportunity to actively engage with your financing partners to ensure your available lines of credit remain available, and to explore new or additional options should you require them.

Create cash flow

SENSITIVITY ANALYSIS

Cash flow management needs to be an integral element of a company’s overall COVID-19 risk assessment and action planning in the near term. Even for companies that have not yet been adversely affected, we recommend management teams with concerns about COVID-19 actively evaluate their cash flow requirements, develop appropriate actions under various scenarios, and assess potential risks in and to their customer base and supplier network.

Accelerate accounts receivable and

EXTEND PAYABLES, INTELLIGENTLY

Accounts Receivable

Companies tend to get lax about receivables when the economy is booming, interest rates are relatively low, and cash flow is not a concern. But, as supply chains are affected and managing cash flow becomes more important, it’s worth taking a hard look at how your receivables are being managed. In the point below, we mention the strategy of delaying payments to your suppliers; don’t be surprised if your customers are thinking about doing the same thing to you. That’s why it’s important to improve the rigor of your collection processes. Focus on customer-specific payment performance and identify companies that may be changing their payment practices. Also, get the basics right, such as timely and accurate invoicing. Any errors in your billing process can lead to costly delays in receiving payment.

Accounts Payable

One way to preserve working capital is to take longer to pay your suppliers. Some companies may unilaterally decide to delay their payments and force the extension on their suppliers, especially when stuck with inventory they can’t deliver into impacted margins. Of course, such an approach is likely to damage your supply relationships. Even worse, it might deprive supply chain partners of the cash they need to maintain their operations, which could lead to late deliveries and quality problems, never mind the added strain to supply relationships. We recommend working with suppliers to establish an agreement that both of you can live with. There might even be situations where you need to accelerate payables for a critical supplier that is on the brink of failure in order to preserve the integrity of your supply chain and prevent a critical disruption.

Audit payables and receivables transactions

Make sure you’re paying the right amount for the goods and services you procure and collecting the right amount for goods and services you sell. Also, if you have the cash flow to support it, make sure you’re taking full advantage of all available discounts. On the receivables side, look for situations where unearned discounts were applied and then aggressively pursue the proper payment.

Consider alternate financing options

Depending on what your cash flow scenario planning reveals, you may also need to consider tactics to generate faster cash flow from your receivables. Aggressive techniques such as factoring your receivables, although relatively expensive, may be your best option to improve cash flow quickly. You may also consider working with your customers to offer dynamic discounting solutions for those that are able to pay more quickly (for example, discount terms can be defined in advance, and the customer calculates the appropriate discount based on a defined payment schedule). With this technique, you are essentially paying customers to provide you with short-term financing. But the cost may be substantial: a conventional “2% net 10” early payment discount translates into a 36% APR. However, if government loans or bank credits are not available, this might be one of your only options.

Convert fixed to

VARIABLE COSTS, WHERE POSSIBLE

Revisit your variable costs

In times of uncertainty, it’s generally a good idea to swap fixed costs for variable costs wherever you can–preserving your core business while increasing your flexibility on the fringes. Reducing your variable costs is often a quicker way to immediately reduce your cash outflows than focusing on your fixed costs. Of course, there are the typical variable cost-reduction levers, such as imposing travel bans and non-essential meeting restrictions (which might already be in place as a way to manage employee safety), imposing hiring freezes, and placing restrictions on discretionary spend like entertainment and training. When labor is a significant cost line in your business, consider avenues that might help reduce spend to avoid getting to a situation where layoffs are required. For example, look for opportunities to reduce contract labor and re-distribute work to your permanent workforce. Encourage employees to take available leave balances to reduce liabilities on the balance sheet. And, if necessary, consider offering voluntary, or even involuntary, leave without pay to preserve cash.

Review insurance policies &

BUSINESS INTERRUPTION COVERAGE

Companies should understand existing business insurance policies and the coverage they have in the event of a significant business disruption. Such insurance generally covers losses arising from disruptions to a business’s customers or suppliers. However, the breadth of coverage can vary significantly by insurer policy, industry sector, and geography. In addition, due to the insurance losses from the SARS epidemic, some insurers have included specific exclusions for losses arising from epidemics and pandemics, which you’ll need to understand if this is the case in your policy.

Leverage new

TAX CREDITS & EMPLOYER BENEFITS

Leverage all the new tax and employer benefits to conserve cash and receive tax credits for employees who are on sick/medical/family leave. In addition to the forgivable loans available to businesses, the CARES Act provides many significant tax and unemployment benefits that will help businesses and their employees during the crisis.

Capital Management

ACTION PLAN

ACTIONS

ActionWhoWhen
Review the Stimulus Funding Programs with your leadership team and financial advisors to determine which program fits your needs.
Review the 10 Benefits for Small Businesses to learn about programs that can help you help your business during the crisis.
Apply for Stimulus Funding Programs that meet your businesses needs. Utilize the playbooks and action plans we’ve created for each of the Stimulus Funding Programs
Cancel all long-term capital investments that don’t deliver short-term ROI.
Explore how your existing assets could be used to generate alternate revenue sources
Contact your financing partners to ensure your available lines of credit remain available, and to explore additional finance options
Create cash flow sensitivity analysis with 0, 25%, 50%, and 75% of your revenue
Review receivable collection process and focus on customer-specific payments
Establish an agreement with your suppliers if you need to delay payment
Responsibly delay payables and accelerate receivables transactions to manage cash flow
Convert fixed costs to variable costs
Review insurance policies & apply for business interruption coverage
Research and leverage all the new Tax & Unemployment Benefits
  • Review the Stimulus Funding Programs with your leadership team and financial advisors to determine which program fits your needs.

  • Cancel all long-term capital investments that don’t deliver short-term ROI.

  • Explore how your existing assets could be used to generate alternate revenue sources

  • Contact your financing partners to ensure your available lines of credit remain available, and to explore additional finance options

  • Create cash flow sensitivity analysis with 0, 25%, 50%, and 75% of your revenue

  • Review receivable collection process and focus on customer-specific payments

  • Establish an agreement with your suppliers if you need to delay payment

  • Responsibly delay payables and accelerate receivables transactions to manage cash flow

  • Convert fixed costs to variable costs

  • Review insurance policies & apply for business interruption coverage

Funding Programs Comparison

PPP

EIDL

MSLP

Eligibility500 or less employees
In business Feb. 15, 2020
500 or less employees
In business Feb. 15, 2020
15,000 or less employees
$5B revenue or less
Loan AmountLesser of $10 million or 2.5
times average monthly payroll
Up to $2 millionUp to $25M – $200M
Term2 yearsUp to 30 years4 years
Interest Rate1%3.75%LIBOR + 3%
Deferral6 months (interest accrues)1 year (interest accrues)1 year (interest accrues)
Prepay Allowed?YesYesYes
Can Be Used ForPayroll, benefits, mortgage interest, rent, utilities, other debtPayroll, benefits, accounts, payable, other expensesReasonable efforts to maintain payroll and retain workers
Refinance Debt?Yes for EIDLNoNo
Collateral Required?NoFor loans over $25,000No for new loans, existing collateral remains same
ForgivenessYes, if 75% spent on payroll costsYes, for $10,000 advanceNo
Guarantee RequiredNoneNo for loans under $200KGood financial standing
ApplyFDIC BankSBA.govFDIC Bank
ProsEasy application
Loan forgiveness
No risk for bank to approve
30 years at low interest
Easy application
No collateral
Low interest
Low risk for bank to approve
ConsNot forgiven if don’t use
75% for payroll or reduce headcount
Over $200K may require
collateral
No forgiveness
No forgiveness
Collateral of existing loan
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