In this time of uncertainty, one of the hottest topics in the “war rooms” of some of the biggest companies is cash. More specifically, it is finding cash in order to be nimbler during what every economist is predicting as a COVID-19-related downturn.
There are several ways you can obtain or retain cash in a down market. You can reduce overhead and expenses and retain the cash you have on hand, or you can draw down on bank lines to put cash on your balance sheet. There is, however, another way to obtain additional funds, and that is by monetizing owned assets.
What makes the most sense is typically a combination of cutting expenses where you are having operational inefficiencies and disposing of underutilized assets or refinancing owned assets.
In our current environment, my advice is to evaluate everything to ferret out inefficiencies and uncover hidden cash. Pet projects that secured funding when times were good now need to be put on the back burner. Today you must cast a critical eye toward identifying the difference between the “must haves” and the “nice to haves.” Things that you must have are the only things you should focus on during this current economic trial.
You can start by looking at your existing assets. Do you have underutilized assets that you can dispose of today allowing you to lop of that expense and putting more cash back in the company?
The pandemic is allowing many businesses to see their blind spots — areas where they didn't even know they were being inefficient. Working from home has put into question the need for large office complexes and has exposed that, in some cases, the lack of technology and automation can be a big hurdle. For example, the physical processing of checks has become much more difficult as many firms have sent back-office people home to work. Now might be the time to look at how automation can help streamline your accounting procedures.
The evaluation has to go deep into your spend. Look at every nickel spent and determine if it helps with revenue generation. Ask yourself if your typical sourcing practices are sustainable in this environment, and are you protected from supply chain disruptions?
You want to evaluate all aspects of your business and make data-driven decisions so you can come out of this downturn stronger and leaner than when you went in.
One way to be strong is to have cash on hand. As we all know, banks lend money based on two things: cash in the bank and your current revenue stream. They are looking at operating-ratios and repayment capability. For many businesses, the revenue stream has already slowed to a trickle, or it will soon. Unless you have strong balance sheet (with lots of cash on it) you will have difficulty securing credit to help you cover fixed costs until your revenue returns to its normal level.
In my next blog, I am going to talk about sale and lease back as a way to increase your cash on hand.
