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COVID-19 response: Cashflow is biggest worry for Finance Directors

With the vast majority of businesses currently struggling to navigate through the current crisis, Finance Directors across the UK and beyond will be dealing with a raft of urgent concerns. From worries about short and long-term business stability to trying to maintain confidence and plan ahead for an uncertain future, the list is long. But by far the most pressing issue for Finance Directors seems to be cashflow.

Accounting COVID-19

Posted 07/05/2020

Admittedly, trading conditions have never been so tough and no one could have foreseen (never mind prepared for) the situation the world now finds itself in. Right now, a steady and stabilising response is needed to enable each business to ride out the immediate situation. After that, Finance Directors can then begin to focus on planning for a phased return to more normal trading conditions.

Minimise the financial impact and protect cashflow

For the majority, trading will either have halted completely, or slowed to a greater or lesser extent; very few are making more money than planned unfortunately. Whatever the position in individual businesses, cashflow levels will definitely not be in line with previous forecasts. The reality is nowhere near.

Payroll is obviously the biggest outgoing for a large tranche of businesses. Finance Directors, in conjunction with HR leaders) continue to make difficult decisions about whether to lay off staff or furlough them. Despite government support cover 80% of salary up to a limit, many businesses have had cashflow difficulties caused by the delay before those first government payments were made available. And it is worth bearing in mind that based on current information, the Coronavirus Job Retention Scheme is only a short-term solution (covering four months from 1st March) designed to help businesses to temporarily keep on staff when there is no work for them to do; it’s a not a long-term fix. And staff can only be furloughed if not working at all – yet many more people are continuing to work from home and therefore are still an ongoing cost.

Once lockdown restrictions begin to lift, some sectors will struggle with getting back to pre-pandemic trading levels. The aviation sector is a prime example and British Airways the latest to announce job losses for 25% of the workforce.

The other Government measures to help with cashflow such as deferring VAT payments and applying for the Coronavirus Business Interruption Loan Scheme don’t go far enough for many and Finance Directors are having to take further drastic action to protect cashflow. That includes drawing on or running down cash reserves; negotiating deferred payments with suppliers, and rationalising previously agreed and planned business projects.

Putting plans in place for a phased return to more normal trading conditions

Even though the situation is changing on an almost daily basis, Finance Directors are looking ahead at the financial impact of a gradual return to a new post-COVID 19 economic normality.

Scenario planning provides a useful tool to assess and balance business objectives and constraints as the situation evolves. Multiple factors can be taken into account including the potential for subsequent lockdowns and ongoing supply chain disruption, as well as longer-term viewpoints on revenue generation.

Modern financial software packages become particularly useful when so many variables are in play as they allow for adjustments to be made easily and offer a clear view of the bigger picture. Rolling forecasts can be completed quickly too. Bearing these factors in mind, now may well be a good time to invest in functionally-rich finance tools if needed.

Technology to support remote working has made many organisations question whether to return to exactly the same set up as before. We may see a sustainable uplift in remote working, which will likely require investment in technology to enable more robust solutions. There will be a knock-on effect on building and facilities costs which will impact the longer term financial picture.

Looking towards the future, when the business community has settled down to a ‘new normal’, Finance Directors are likely to look at cashflow with more caution than before. Financial resilience will be bolstered and frameworks built for cash management which take lessons learned from this crisis. Businesses are also likely to look again at their longer term investment plans for technology support and ecommerce revenue streams too.

For more detailed information on the specific issues facing Finance teams right now, download our free guide - Covid-19 in Business: A Guide for Finance Department Leaders.