Dealing with Liquidity in the Current Challenging Financial Environment
Business owners and directors are all feeling the pressure during the current pandemic.
In particular, finance directors are having to provide advice and support that is aimed at helping businesses to survive and grow again when the crisis subsides. This is a difficult task given the unique nature of the situation.
The truth is that there are no easy answers. However, ongoing planning and forecasting is a must. Finance professionals need to be on top of the current position of a business, to a granular level. They also need to be in regular communication with directors and stakeholders. Liquidity needs to be at the top of the list when it comes to these important conversations.
Addressing the liquidity issue
Cash flow forecasts need to be a priority during this period of uncertainty. They should be run every week at a granular level. As part of this forecasting, it’s vital that the business has an understanding of its payment position including items such as payroll, payments to suppliers and bank interest. Finance directors need to work with the CFO to determine which payments are a priority for the business, thereby examining the allocation of cash.
Currently, the help that the government is providing is taking some of the pressure off. The furlough scheme is of particular significance when it comes to the payment position of a business. However, changes to the scheme are underway so businesses will need to start contributing to payroll payments in the not too distant future.
Securing cash where possible
As businesses that have so far been closed during the pandemic begin to reopen some of the financial pressure will be eased. However, finance professionals will know that it’s not going to be an easy route back for most businesses. Some will never recover.
However, business directors and their finance teams need to do all they can to maintain their organisations as going concerns.
A major part of this is securing cash from as many sources as possible. Hundreds of thousands of businesses have already applied for cash funding through the Business Interruption Loan Scheme. However, finance professionals need to diversify when it comes to improving the liquidity of a business. Examples of this are considering changing payment terms with clients or customers and offering discounts for early payment.
There is no one easy solution when it comes to securing cash. It’s important for directors to consider all options.
Monitoring cash flow and optimising the amount of cash coming into a business are obviously priorities when it comes to dealing with liquidity. However, finance directors also need to provide advice about business priorities. This helps the business determine what financial outlay is business-critical and what can reasonably be delayed.
At a time when many businesses are struggling to stay afloat, all of these actions are essential concerns for senior management and finance teams. They help a business to deal with liquidity issues at this challenging time.
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Date Posted: May 28th 2020
Posted By: Phil Scott