Managing Pandemic Financial Impact on Your Business.

Within the last three months, businesses have been deeply impacted by the pandemic situation around the world, the big corporation scrambling to understand how to handle such unprecedented events, CFO’s working hard to simulate scenarios with complicated financial models. These corporations have the resources needed, and they have the experts to iterate all the different possibilities and what actions to be taken on each different situation that they are facing. How about the Small Medium Enterprises (SMEs), the mom and pop businesses, how do they respond and handle these crises? We hope this article can help SMEs’ to find the lighted path to manage their business in this complicated time.

We know that Cash is King in business, and though the concept is simple and seems fundamental and logical (common sense) but in reality, managing cash is not as simple as it sounds, even more so during this time. In this article, we hope to bring ideas that might be useful to manage your business during this pandemic. During a crisis such as this, companies may face the following conditions below and some ideas to navigate those conditions besides the common action to be taken in all three conditions, massive reduction of non-essential expense and operation cost.

Condition 1: Good Cash Reserve but Low Revenue / Sales.
You have managed your cash flow well and have kept the right level of cash reserve for such a time like this. Although this condition is better, compare with the other two situations, but you should not let your guard down, with very low sales due to lockdown and supply chain disruption around the world your cash reserve may run out faster than your estimated time.

Some ideas you can do in Condition 1:

  1. Brainstorm with your team how to increase the channel of sales for your products, maybe it’s time to take your sales activities from offline to online. This time could be the perfect time to build your e-commerce shops.
  2. Make your business essential, and this could be an excellent time to put a creative hat and launch a new product or service in the essential categories that can be delivered either online or offline.
  3. It’s the best time to be selective about your customers, streamline your operation to support only the best of your customers. If you support the wrong customers that do not pay on time and giving you a lot of troubles, your good cash reserve can deplete even faster.

Condition 2: Low Cash Reserve but Good Sales / Revenue.

This condition is typical in businesses with credit term extended to their customers, or project-based business model where the order received is executed in progress and payment usually come with credit terms. In this case, sales are still at a reasonable level, but account receivables may be substantial. During a crisis, as everyone is fighting for cash, businesses are trying to keep afloat, and supplier payment will be the significant portion to be delayed and not paid.

Some ideas you can do in Condition 2:

  1. Put special team to work on the AR issues, provide an additional discount if your customer willing to change the payment terms and pay you early, the priority now is not to maintain the level of profit but to get as much cash as soon as possible.
  2. If you have been thinking about Employee stock options, this could be the right time to implement it to reduce your employee compensation cost, and you could offer to reduce the salary for your employee in exchange for the ESOP.
  3. Discuss openly with all your team on how to stand united together by trying to keep everyone’s job intact, the possibility of employee’s financing with an agreed interest to be paid for the portion of salary delayed.
  4. Increase your activity with your bankers, shareholder, or potential investors to your business for bridge financing, and it can be in the form of a straight loan or convertible loan or any other scheme that can work for the related parties.

Condition 3: Low Cash Reserve and Low Sales / Revenue.

This condition typically happened when business is in hyper-growth and monitoring is not correctly in place, and thus a major unprecedented event like the covid19 pandemic can wipe out the business within weeks or even days as there is a significant loss of revenue due to lockdown and cash collection is extremely difficult especially when customers are in the market impacted deeply by the crisis.

Some ideas you can do in Condition 3:

  1. Aggressive reduction on operational cost, including the cost of headcounts.
  2. Re-negotiate payment conditions with your customers.
  3. Raise funding from shareholders, investors, principals, or even long-term suppliers.
  4. Collateralized your assets like properties to get additional cash.

All three conditions are not an easy condition to handle, and entrepreneurs need to put their creativity cap on and think out of the box to overcome this difficult situation. Not only to overcome the difficult situation they are in but to see and identify the massive opportunities that arise from this crisis.

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