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Act now to recover: Important steps to protect cash

Over the last 20 years, we have witnessed many uncertainties that disrupted the business landscape, with the most recent being the ongoing COVID-19 pandemic. Given these disruptions, most businesses have some first hand experience of what to expect during an economic crisis and the steps that need to be taken over the coming months to kick start the recovery journey in the wake of COVID-19.

In the first blog in our “Act now to recover” series, we mentioned that businesses need to focus on four critical value levers that are equally important for business recovery. These are: Operational Restructuring, Cash Optimisation, Financial Restructuring and Strategic M&A Mechanisms.

On the road to recovery, businesses tend to focus on growing revenue and cutting costs. However, if we are to learn a lesson from all these economic downturns and market uncertainties, it is that businesses should double down on their cash management efforts. It is important to understand that your cash position is visible and accessible and will eventually look after itself.

In such situations, it’s not easy to foresee the impact of delayed cash flows on the business. We don’t know when and how consumers will start spending again, and businesses that were hit hard by the travel ban and nationwide lockdowns are starting from an income base of virtually zero. With a second and third wave and new strains of the virus, the spending levels of pre-COVID-19 may not be reached again for several months or years.

That being said, businesses need to take note of the five important steps below to protect their cash:

  1. Make cash everyone’s business. It’s important that people from all areas of the business understand how the business decisions they make have a direct impact on cash and liquidity. Everyone in the business should always strive to protect cash and be aware that cash outflows are enforced as soon as they commit to a payment or sign a contract.

  2. Commit only to what is absolutely necessary. The timing of cash outflows should be kept in mind when negotiating any contract. Businesses need to know all the options available to them to slow or even stop cash outflow. Can it be arranged to pay large bills at the latest possible time? Can employees cash incentives be substituted for time off?

  3. Cash forecasting is not just for finance experts! Part of building a cash culture is getting everyone involved, even in forecasting. Since many decisions made by people in the business affect liquidity, you need to involve them in forecasting right from the beginning. Build your forecasts from the bottom up

  4. Scenario Modelling 2.0. No business is a generic business. The pandemic has imposed different recovery profiles on individual businesses within sectors. This needs to be considered and reflected in scenario modelling. The ways in which our behaviour has changed and the decisions made to support the most vulnerable should be taken into account in scenario testing and modelling.

  5. Explore your options. Understand what can be done from a cash management perspective. Identifying trapped cash, optimising working capital, managing supplier payments and cash pooling among other areas all play a role.

Businesses need to start building a cash culture and not just highlight cash as a metric. They need to build cash awareness through their entire organisation so that everyone evaluates every decision from a cash perspective.

 

By taking these five important steps to protect cash, and considering our recommendations on launching an operational restructuring programme, how to maximise your liquidity, and the five key questions to consider in conversation with your creditors, organisations will be on their way on the journey to value preservation and, ultimately, value creation.

Look out for our next blog in the “Act now to recover series”, where we examine the Financial Restructuring pillar.

Contact us

Mo Farzadi

Mo Farzadi

Business Restructuring Services Leader, PwC Middle East

Tel: +971 4 304 3228

Anthony Manton

Anthony Manton

Partner, Business Restructuring Services, PwC Middle East

Tel: +971 04 304 3100

Mihir Bhatt

Mihir Bhatt

Business Restructuring Services, Director, PwC Middle East

Tel: +971 50 900 9471

Kabir Dhawan

Kabir Dhawan

Senior Manager, Business Restructuring Services, PwC Middle East

Tel: +971 5 4793 3263

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