Ever heard of ‘a Black Swan’ event? By now it is clear that the COVID-19 health pandemic falls into this description as it is typically an unpredictable event that goes beyond what is normally expected of a situation and has the potential to lead to severe consequences. Black swan events are usually extremely rare, while their impact is severe. Their occurrence, in hindsight, appear to be obvious.
In the weeks and months to come, the efficacy of our national government’s risk adjusted strategy will be key in the protection of both of lives and livelihoods.
From a business operations perspective during this time, the saying that “cash is king” is now more true than ever before. In a recent survey by Statistics SA 42% of businesses expressed doubts that they have the financial resources to continue operating through the COVID-19 outbreak. Entrepreneurs and management teams should consider a few key areas as they seek to stabilise and preserve their cash reserves.
Assess the potential short and medium term implications of COVID-19 on cash flow, modelling worst case scenarios and sensitivity analyses in order to understand how the movement between different risk levels could influence your business. Test the capability of reporting available in your business and improve where possible. Now more than ever, real-time information and reporting will be key.
Follow the logic of the often overlooked cash flow statement that forms part of your financial statements. Cashflow is influenced primarily by operating activities (income and expenses), investment activities, and financing activities. Therefore if you expect to earn less during the current pandemic and thereafter, you have to spend less or raise more funding. Here are a few practical options to consider:
Managing the key stakeholders in a business can be challenging, especially in a stressed scenario as interests would probably be conflicting. Real-time information and clear communication is key. Remember to understand the position of the stakeholder first and foremost when communicating to ensure you proactively manage their expectations.