The liquidity challenge that the recovery phase of the COVID-19 crisis poses is hard to underestimate. Social distancing, the availability of testing/treatment and potential ‘bumps in the road’ will all weigh heavily on business confidence and the wider economic environment.
Businesses of all shapes and sizes will be required to plan, model and pull a range of operational, financial and strategic levers, but in doing so must also consider the capital structure implications of these actions when facing up to a new reality.
The changes that businesses have made during the lockdown period have been nothing short of incredible, as companies across the UK have radically adapted their processes to keep our essential infrastructure functioning or placed their operations into effective hibernation in a matter of hours. The process of managing cash burn during this time has been, in some respects, relatively straightforward – aided for many businesses by a range of Government support. As the UK has transitioned into a recovery phase businesses will need to consider how to adapt for an even more unpredictable economic environment. Different bridging strategies might be capable of funding a business through the recovery phase, but they could have vastly different balance sheet implications for the longer term.
Other key considerations when modelling cash flow
most of which will be difficult to accurately model and/or require regular reappraisal
The recovery phase could be long and may come with an increased funding requirement. How can you adapt the shape of the business to a new future and can you generate or preserve cash strategically during the process?
The path toward the ‘New Reality’ is likely to look very different depending on the sector the business operates. Do you have a clear understanding of how the business and its capital structure will look? Will it be a business that you, your Board, your staff, your trading partners and your financial stakeholders can move forward with in the long term?”
The restaurant chain
The industrial distributor group
The family business