Financial resilience can be defined as the ability to weather financial shocks. With the onslaught of Covid-19, companies globally are facing major disruptions to their operations and many have had their financial management systems tested to the hilt. Caribbean companies, operating in fragile open economies highly susceptible to external global shocks, are not exempted. The time is right for the regional private sector to build and strengthen their financial management systems against shocks to become resilient companies.

Project & Protect Cash Flow

The adage ‘cash is king’ reflects the importance of cash flow to the overall fiscal health of a business. It comes as no surprise that during these unprecedented times, SMEs are reporting cash flow problems. While it is a good practice for companies to do annual projections, a critical lesson emanating from this period is the importance of planning for worst case scenarios. Doing so can help in being strategic and proactive to mitigate against lower cashflow levels ahead of crises. Have you considered how your business would function should a steady income stream suddenly be taken away? Or perhaps, what would it look like if you had to discount products or services?

Several measures exist to help companies manage cashflow. Consider the frequency with which your company pays employees vis a vis your customer payment terms. If your business allows customers a 30-day payment window while paying staff weekly, the business can begin to experience a cash deficit especially if customers are also late on payments.

Additionally, companies that incur upfront costs when pursuing business opportunities (e.g. an agro-processor fulfilling a new order) should consider asking for advance payments to cover raw materials and inputs. Another important cashflow consideration is to rethink major capital expenditures during times of crises. However, in cases where such expenses are unavoidable, hire purchase options or low interest loans can preserve cash for business operations.

Many businesses would have experienced lower sales revenues during national lock downs. As such, applying for an overdraft could be a temporary measure to sustain business continuity. Of course, your company should assess its current level of indebtedness to determine whether further debt would do more harm than good. Planning strategies for maintaining cashflow in periods of emergencies is a requirement for building financial resilience.

Know your numbers

During times of crisis it is critical to have a “finger on the pulse” of the business; companies must know their numbers. This is paramount for nimble decision making. A company’s nimbleness is dependent on its ability to ascertain real time data quickly from accounting systems and to interpret those numbers to help reduce costs, increase margins, and provide intelligence that can be used to drive sales.

When a company knows its numbers, it becomes easier to make pivotal decisions such as accelerating receivables by sending timely invoices or following up on past accounts due. Financial data can also trigger decisions around negotiating vendor payments to reduce cash outflows while increasing working capital. Some vendors may be willing to extend their usual terms given the current situation. Of course, one great reason why a company should have up to date financial data is to maintain good relations with banks or other funding sources especially during times of crises. The key to reliable and timely financial data lies in the updating and maintenance of financial management systems. In other words, keeping your input of data up to date will strengthen your ability to make key real time decisions.