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Minimizing the Effects of the "Induced Coma" on Your Company's Next 18 – 20 Months
Navigating the 80% Economy: Working Capital and Liquidity in the Pandemic Age
What have we learned from "Pandemic Experience" during the last 90-120 days?
That the unimaginable can become a reality.
Planning horizons can disappear in an instant.
Flexible technology needs to be in place and working.
Adaptive leaders, managers, and teams matter.
Operational and administrative flexibility and resilience matters.
Your access to customers and their access to your products and services is vital; Back and forth communication needs to be effective, efficient, and continual. Ecommerce needs to become a reality and web pages need to produce revenue.
Fear and chaos are real, they are disruptive and limit possibilities.
"However good our future research may be, we shall never be able to escape from the ultimate dilemma that all our knowledge is about the past and all our decisions are about the future."
Source: Ian Wilson , January 31, 1975
Planning and scenario based modeling helps a company prepare for its future with more confidence.
What is scenario based modeling?
During a period of uncertainty how should you plan? Since uncertainty can never be completely eliminated, to some extent, uncertainty will always exist. Scenario based modeling examines a “range” of possible futures and through the preparations of financial projections of each possible future case, a most probable case of the future is developed and leads to a scenario that can be planned to. (Source: Ralston & Watson (2006) The Scenario Planning Handbook.)
The Reality: You are still in the game and your Company is an active participant
Past challenges which most of you have lived through and survived:
The death of primary steel production and a shrinking of manufacturing.
The crash of the “Dot Com” bubble in the late 1990’s.
911 Terrorist attacks and the longest and most costly war in American history.
The Aids Epidemic
The development of the internet, the evolution of ecommerce and mobile technology.
The redefinition of how we shop: “The Mall”, “Main Street”, “The Big Box” and Ecommerce.
The development and shrinking of the 3rd World.
The partial shutdown of the global economy – the “Self Imposed Coma.”
Purpose and Goal of This Conversation
To examine your company’s progression through the next 6 – 24 months with a focus on:
Liquidity
Working Capital
Will your company be economically damaged?
If yes, what will the damage be and what can be done to mitigate and minimize its affects on your business’ net income and ultimately, its value?
Will your Company be damaged during the next 6- 24 months due to the pandemic?
Will your customers and clients have the same purchasing habits (process and amount) in the future?
How would an economic environment where 35% of the households have 20% less to spend affect your business?
How has, or how will your supply chain be impacted?
The stimulus has increased the Federal deficit, how will it be paid for? Will the tax cuts of the Trump era be reversed? What impact will increased taxes have on your business?
Will all your customers and vendors survive? What will be the impact?
Will your Company be economically damaged during the next 6- 24 months due to the pandemic?
Is there a possibility of an autumn or winter pandemic shutdown? How would your company react to another economic shutdown in late 2020 or early 2021?
Will your company’s collections slow? Will uncollectable AR become an issue? How will your business be financed if its working capital is negatively impacted?
Which of your customers may be financially stressed or troubled? What is this risk and its impact on your company’s budget?
Will your cost of goods sold and general operating expenses increase due to pandemic related expenses and the loss of productivity related to social distancing and other preventative practices?
Will your Cap X, especially for technology be impacted?
What will your future look like? What variations to your current business model could materialize? Why be surprised?
We propose developing three quantitative financial models: worst, probable, and best case. You would weight the results and create a “most probable projection” model to plan to.
We propose developing a qualitative situational model. For example: The catastrophic destruction of your business’ primary facility due to a catastrophic event.
What are the action points that need to be completed to ensure the continuity of your business in the case of a catastrophic event?
Debrief!
Celebrate your survival and debrief your staff. Discuss what went well and poorly. In the future, what would you do differently? What preparation would have made the situation less stressful? Allow a time for your employees to decompress and share their thoughts. Do the same thing with your key vendors? Discuss how the past 90 days affected their world, be personal and listen well.
Discuss the situation with your vendors. Let them, know how they performed. Provide them feedback and ask how they are changing their business model in the future.
Discuss the situation with your customers. Did you meet their expectations? From their perspective how could your company have performed better?
Were there signs that a problem existed? Did anyone see them? Were you looking for them? What are you going to look for as a predictor of major challenges in the future?
Suggested Action Points
Immediate Actions
Review your insurance policies – Do you have a Pandemic Play? Civil Authority Clause?
Review your Accounts Receivables – Are there any AR accounts at risk of being non-collectable? Make a deal get the money. Will payments most likely slow?
Review your inventory. Liquidate obsolete and idle inventory. Review safety stock and adjust safety stock to mirror supply chain risk.
Get lean: adjust expenses to the most probable case budget. We suggest being proactive.
Increase communications with your vendors and customer base.
Where reasonable, aggressively build a backlog. Be willing to sacrifice margin for volume in the short term. Remember it is difficult to regain lost market share, so keep as much of it reasonably possible during difficult times.
Longer Term Actions
Convert the organization’s variable costs to fixed costs where possible; Sublet to minimize employee count.
Identify and protect those “must have employees.” Train a back-up and have a two deep capacity HR plan for any key positions.
Assess your current technology. Is your data protected? Is “out of the office” work immediately available to employees? Make the necessary investments in technology to ensure seamless transitions in and out of the office.
Use social media more effectively. Geo-fencing, targeted messaging. Are your customers available to you and are you available to your customers?
Develop a vibrant Ecommerce business: adjust to any changes in customer purchasing patterns.
Invest in automation where possible – Reexamine Cap X.
Suggested action points continued
Minimize customer and supplier concentrations.
Examine your loan covenants and expand credit lines if possible.
Extend your supplier payments. Stretch your payments where possible. The impact of a single day’s extension can be substantial.
Review your Company’s credit policies. Minimize credit risk, the risk of a non collectable as early as possible, at the time of the order.
Realize that your banker’s world has been very chaotic.
Summary
The current pandemic resulted in a “self imposed” economic coma. This is different from an unanticipated coma. We believe this presents the opportunity for proactive clients to adjust their operations, rethink their strategy, look for opportunities and march forward. In many cases to simplify their business models. There will be opportunities and the strong will be able to take advantage of them.
While previous downturns have provided fiscal and monetary stimulus, the current period of distress has seen an un-paralleled amount of stimulus monies. This should result in a quicker recovery across most industry segments.
However, nobody knows how the consumer will react, what purchasing habits will be different in the future and how they will affect your business.
Summary Continued
We suggest asking this question: What is preventing our company from providing the services and products our customers want, at the competitive price necessary, at the time they want it, to the quality specification required with as little effort as possible? The answer will influence and be the basis of your strategy into the future.
Eliminate waste, do things correctly the first time, and think out of the box. Every asset whether physical and human must yield a positive return. How can more be done with less? Get lean but remain strategic.
Emphasize the balance sheet!
Never waste a crisis.” -Winston Churchill