Act-1 of the COVID crisis drew to a close with the end of lockdown and the start of “back to the (new) normal”, as we rushed to the beach and booked package holidays. Act-2 is now beginning and the prospect of new restrictions and the uncertain timing of the end of furlough present us with a whole range of new possible scenarios: will the “V-shaped” recovery continue? Will furloughs be extended, giving us more breathing space to defer or avoid further painful restructuring?
Most of us in finance teams and management have had to throw away the standard reports and models for budgeting, forecasting and analysis. We have had instead to find ways of assessing fast changing options, with analysis that can inform the right decisions, quickly.
Understanding dramatic changes
The pandemic sparked dramatic changes in working capital and profitability for many companies, as revealed in quarter two management information reports.
After lockdowns started, many firms ran down their stock levels and ran down receivables balances by default, simply because they had no business coming in. The lucky ones may even have seen a temporary boost to cash. The less fortunate were flushing beer down the drain and writing off perishables.
As economies started reopening in quarter three, many firms have been rebuilding inventories, but possibly running at a fraction of normal capacity, operating at a loss and depleting cash as they do.
Collecting receivables was a pipedream for many as some companies ceased all supplier payments until the lockdown ended – one notorious example being pub chain Wetherspoon’s. Such actions by large players have created intense working capital pressure in many firms throughout the supply chain. Large numbers will have had to request extended payment terms or credit from their own suppliers.
As we carry on through the third quarter, companies will ramp up operations further. But customers are still likely to ask for credit. Many have also been relying on government furlough schemes; VAT and tax deferrals; bounce-back loans and grants.
Your current challenge is to understand how all these factors are affecting you and your customers and what will likely happen next, especially when support schemes end.
More firms will go bankrupt. You need to understand well in advance if this might happen to your major customers, how you might help prevent it, and what to do if it cannot be prevented.
Analysing recovery performance
Our course ‘Covid recovery planning and assessing client performance during the crisis’ aims to help your managers review performance with the greater speed, efficiency and insight that you need at this critical time.
The course will help you identify good and bad planning of profit, cashflow performance, liquidity and headroom for quarters three and four. It will also help you carry out critical analysis of your key customers to help you avoid bad debts.
To do this difficult task well, you need to understand how your and your clients’ cost bases and working capital will likely change as lockdowns ease.
The course explains how to manage, analyse and forecast profit and loss and cashflow for a real company facing these challenges. It helps you review a list of remedial actions, and plan and forecast for recovery in the second half of 2020.
Real life studies
In the first session, you will develop a basic profit and loss forecast, for a real company, by breaking down costs into fixed and variable in a pre-built template. You will review the remedial levers available, including rent, holidays, redundancies, government grants and VAT deferments.
In session two, you will use an Excel template to show how lower sales and delayed or non-payments by debtors affect working capital and cash.
The course then provides actual quarter two management information and shows you how to construct a cashflow statement from financial statements. You will then critically assess management’s performance, profitability, liquidity and debt headroom against your expectations.
A key problem for mid-sized companies is assessing creditworthiness of clients in real time: Companies House data is typically 10 to 18 months out of date. Unfortunately, the credit rating firms will be equally behind the curve. Our simple spreadsheet tool and checklist is an excellent framework to help you “now-cast” for your key clients and estimate the extent of problems and credit deterioration that they will have experienced.
In session three, we introduce a more detailed Excel forecasting tool for the second half of 2020. This will allow delegates to run a range of scenarios, including “V-shaped” and slower “U-shaped” recoveries.
Delegates will run analyses and present their conclusions about liquidity adequacy, debt headroom and likely profits in a U-shaped scenario; then propose remedial action for management. This session demonstrates a consistent and practical method for benchmarking management plans against recovery scenarios.
The last session looks at how companies in other sectors, with tougher working capital positions, are faring using the same Excel tools. Again, you will analyse liquidity, headroom and profitability and present your analysis and proposals for management.
Critically, the course will help you prepare for a focused programme of enquiries and information gathering with your customers’ finance teams, and help you plan and proactively avoid the next bear-trap of the crisis – bad debts.
To find out more on this course or any of the other courses we run, please do contact us.