Time is of the Essence!
With the number of COVID cases rising nationally, we are starting to see another wave of COVID mandatory shutdowns. It is critically important to plan for the shutdown on your business to preserve enterprise and shareholder value. With most businesses, this means implementation of loss minimization and preservation of cash strategies. It is important to consider both operational and financial impacts and take decisive action to minimize losses and maximize cash. Specifically, the following operational considerations should be evaluated:
|Review and update COVID safety protocols||Consider a hiring freeze and payroll reductions|
|Summarize the effects of the March – April Shutdown||Review changes in business processes|
|Consider a freeze on non-essential purchases||Supply chain communications and stretch-outs|
|Determine status of government assistance Programs||Update financial and cash flow plan|
COVID Shutdown and Recovery Assumptions
The first step in preparing a COVID shutdown forecast is to determine proper assumptions. Our experience with the first round of shutdowns was used for our plan. Key planning assumptions are the length of the shutdown, availability of vaccines, and the shape and timing of the recovery. Reasonable planning assumptions for a forecast are listed below:
- Eight-week shutdown – (December 2020 – January 2021), workforce working from home
- Five months recovery period – (February – June 2021),
- Full recovery in 3rd quarter of 2021
- Stretching out non-payroll accounts payable outstanding by 30 days, decreasing accounts receivable days outstanding by 15 days
- Expenses and capex minimized for 8 weeks and subsequent increases tied to revenue increases
Prepare COVID Shutdown Cash and Financial Forecast
Time is of the essence in preparing this forecast, so the plan will be “Top-Down” rather than “Bottom’s-Up”. The initial step in preparing your plan is establishing a revenue forecast. The first shutdown can be used as a guide to estimating revenue. The second step is to determine the impact on operations. Human capital, facilities and supply chain logistics must be analyzed. Finally, once the revenue forecast and operating assessment is completed; headcount, payroll, other expense, working capital and capital expenditures can be forecast. If a company has a line a credit, an estimate of availability and loan covenant compliance is necessary.
Expedited operational and financial planning is required to properly navigate the pandemic. This requires a change in traditional financial planning paradigms. C Squares Solutions is currently managing this process for multiple clients. We prepare, implement, and communicate the COVID plan to Boards, management teams, bankers, Private Equity Investors, and other stakeholders.
C Squared Solutions provides fractional CFOs and COOs in nearly all industries. Give us a call and to discuss your concerns.