As the COVID-19 global pandemic causes a near shutdown in most economic activity, otherwise healthy companies could soon face cash flow uncertainties. However, proactively managing working capital through this disruption could allow your business to weather the pandemic and be poised to resume a growth trajectory when it recedes.

Companies that remain in a passive or reactive state risk misfiring on their working capital and will likely struggle to regain momentum when the recovery occurs, or even worse, become insolvent before the crisis abates.  

Your employees are likely working remotely and doing everything possible to retain customers and safeguard suppliers. While those are steps in the right direction, it likely won’t be long before liquidity becomes the overriding concern that forces action upon the company.

Below, we explain how focusing on a business recovery plan and possible restructuring can help your company prepare for the continued challenges ahead.

How can a business recovery plan help my company?

There are several fundamental actions you can take now to prepare for a return to stability and position your company and employees for a quicker recovery.

Focusing on a business recovery plan can help your company determine how to:

• Implement processes to more effectively manage your cash flow and complex financial reporting
• Restructure the balance sheet
• Reshape business models, revenue sources, and cost structures
• Plan bankruptcy alternatives or prepare for bankruptcy-related accounting issues and exit options
• Facilitate corporate finance
• Implement process and technology enhancements
• Assess enterprise risk
• Refine strategies and organization

What areas of my business will a recovery plan address?

Addressing issues head-on with a clear state of mind can help your company focus on the core pillars that improve cash flow while restructuring for an accelerated recovery.

The following categories are potential opportunity areas in which stability strategies can be developed.  

Finance and Operations

Determine which pre-forced areas of restructuring should be priorities. As you identify and work to mitigate these priorities, assess how you’ll need to realign your finances and operations.

Should distress continue, you may need to prepare for restructures or reorganizations of the business.

Restructuring

To relieve the financial distress of your operational cash position, you may need to plan for an out-of-court restructure—a process in which your company and its creditors reach an agreement to adjust your debt obligations without resorting to judicial-monitored Chapter 11 bankruptcy.

Should a formal in-court process become necessary, you’ll want to prepare to deliver financial obligations, or revitalize your debtors through legal protections and reorganization remedies.

While restructuring isn’t an uncommon process, it can be difficult and even unsuccessful without the proper guidance of a trusted advisor experienced in its complexities.

Capital Needs

Focusing on your capital needs can help position your company to raise capital as needed or prepare for a distressed merger and acquisition transaction.

It can also help prepare your business for cleanup processes and procedures related to operations.

To learn more about tapping into junior capital sources and other capital needs, read our Business Recapitalization Plan article.

Disruption Management

You’ll likely face many difficult decisions. It will be important to determine how to tackle complex choices while working to drive rapid change that preserves and creates business value.

While tools to manage challenges vary by industry, your company will need to remain nimble and communicate proactively with important stakeholders such as lenders, vendors, customers, and employees.

What documents and insights provide useful starting points for business recovery?

Just a few artifacts can help create a baseline for your working capital needs and provide insight into actions that could improve liquidity.

Areas that provide a supportive starting point include the following.

Cash Receipts Processes

Reviewing a detailed listing of your cash receipts processes can help identify:

• Sources of cash receipts to project cash sources, such as collections or cash sales
• Potential areas of weakness to determine if your collection process could be more aggressive or has pricing issues

Cash Disbursement Processes

Reviewing a detailed listing of your cash disbursements processes can help:

• Determine critical vendors and disbursements, as well as possible accounts payable (AP) settlements
• Restructure debt through payment reduction, temporary deferral, or temporary loan covenant suspension
• Review payroll to reduce noncritical positions and benefits

Financial Information

Reviewing your financial statements can help:

• Determine seasonality of cash flows for projection schedule
• Identify issues around working capital, various turnover ratios, service contract deferral, and other areas

Operations Overview

It’s important to conduct interviews with operational department heads to identify areas of potential overspending or redundancies in your operations and process improvements.

Interviewing your accounting and finance staff can also help:

• Asses billing and collection processes
• Assess cost accounting processes of manufacturer and inventory
• Review asset listings for completeness for a possible sale or refinance

What happens next in the recovery process?

With initial information provided, a business recovery analysis will construct a cash flow and working capital forecast to provide an estimate of how much runway your company has before encountering liquidity constraints.

The model also includes a sensitivity analysis projecting cash for different revenue scenarios. It will also outline various likely scenarios based on your business’ current trajectory and global events. From there, various measures will be implemented to help improve liquidity and extend the runway.

While tools and considerations vary by industry and your business’ specific needs, they can include:

• Receivables acceleration
• Vendor or landlord payment plan negotiations to extend accounts payable
• Operating cost reductions
• Headcount reduction or furlough
• Lender negotiations or line of credit initiation or increase
• Emergency capital raise via debt or equity

We’re Here to Help

To learn more about how a business recovery plan can help navigate this continued disruption, contact your Moss Adams professional or visit our Restructuring Services webpage.