Everything is changing rapidly. Companies need to create new business plans, update business procedures & establish the financing that allows them to evolve.
In the past few months, everything has changed. It is easy to forget how quickly this has happened. What we thought the future held in February changed in March and then changed again in April. It has continued to change every day since.
To adapt to the rapid change, the first mission was to implement safety protocols to protect employees and comply with new government mandates. Companies were racing to keep up with the day-to-day changes and manage operating costs. After employee safety and operating costs are addressed, it may be time to take a closer look at financing. Companies should work with their accounting experts and their TD Representative to re-evaluate their current credit facilities and any new financial needs.
1) Factor In The Ever-Changing Circumstances
Day-by-day change has been the name of the game for the past few months, but now it's time to build a longer-term plan. Companies should plan further ahead than they think they need to. This includes allowing more time than usual for functions to happen. Store openings may be delayed, credit underwriting and processing might take longer, and many companies are working with slower shipping speeds and backordered inventory. As stores re-open, keep in mind that new safety protocols may limit foot traffic and plan accordingly. Consumer confidence might also not recover immediately, which could further cut down on customer traffic. Also consider regional differences in re-opening schedules and the possibility of having to close other stores should health officials recommend such action.
2) Have A Rolling 13-Week Cash Forecast
You may want to consider creating both a best case and a worst-case scenario, keeping in mind that reality will likely be somewhere in between the two. This approach will enable you to continue re-evaluating this plan as circumstances change.
It may also be helpful to have your accounting team create a weekly cash forecast that looks 13 weeks out and roll it forward each week with new learnings and revised assumptions. Once this plan is in place, companies may be able to evaluate their financing needs.
3) Delay Non-Essential Spending
Cash in hand is the most liquid capital there is. Companies may want to review capital expenditures and to determine ways to save. Consider whether to defer non-essential capex as a way to preserve capital and provide more flexibility in the months ahead; and determine appropriate time for investing in new stores, renovation or equipment.
4) Invest In E-Commerce
Next, companies may want to consult with their accounting experts to analyze their cash forecast to see where they might be able to reduce or eliminate any drain on cash. Many retailers are seeing slow inventory turnover due to brick-and-mortar store closures. This can impact working capital and cash conversion cycles. E-commerce may allow for sales that can't take place in-store, and some companies can fulfill online orders from their in-store inventory. If there is the option to ramp-up e-commerce selling, this may be a great time to do it. Doing so may help sell in-season inventory and may strengthen revenue streams. Demonstrating a strong revenue stream outside of brick-and-mortar sales may better position some retailers compared to others more reliant on in-person sales.
5) Manage Your Balance Sheet
Balance sheet management includes addressing the size of existing credit facilities, types of financing utilized and preparing plans around any upcoming maturities over the next 6-18 months. All of these are key topics to discuss with your lenders and professional experts.
Keeping expenditures down while maximizing revenue and diversifying revenue stream will help when looking to secure new financing. The ways to do this vary by industry and company, so companies should evaluate their own unique situation and come up with the best plan for them.
6) Leverage Existing Assets For Additional Liquidity
Liquidity is key to having flexibility during the pandemic period and maintaining business viability until commerce returns to more normal patterns and levels.
One approach to unlock liquidity is by leveraging existing assets. Asset-based revolvers are a reliable option to access working capital, offering flexibility and competitive pricing. Employing inventory, accounts receivable or other assets can help bridge companies through the pandemic period.
If companies own real estate or equipment, they may be able to sell these to a real estate investor or equipment company in a sale-lease back transaction converting assets to cash in exchange for a manageable monthly payment. This may help boost cash reserves while helping both increase and extend your liquidity.
7) Talk With Your Accounting Experts and Financial Representatives
The key here is to access options to endure the pandemic disruption. Working with your accounting experts and financial representatives to find liquidity will help, as will re-evaluating any capital expenditures that were planned. Refinancing existing loans and talking with commercial landlords about flexibility with lease payments can also help companies manage through the current environment.
The past few months have been extremely challenging, and companies have had to adjust rapidly to a set of almost unimaginable business conditions. While the future is uncertain, the one constant is change. This will not last forever.