Open Dialogue Is the Key to Weathering a Financing Crisis
The global emergency and economic downturn are posing serious financing challenges to many companies. The best way to weather this crisis is to take an active and open approach to avoiding and dealing with the fallout of these challenges.
The first thing on any company’s to-do list should be securing liquidity. Many companies are preserving their cash assets and looking to cash in whatever assets they can.
Many companies are also taking a hard look out outgoing cash flows. Excess costs are being eliminated and planned investments are being postponed. A simple but good piece of advice is to pay close attention to your invoicing and maintain a rapid circulation of invoices, as this can help reduce your credit loss risk. You can also negotiate with your financiers on postponing loan payments.
When in the middle of the storm, it is important to still try to take a long view. If ever there was a time to analyse your company’s financing agreements and how they will be impacted by changes in your operating environment, it is now. As your top priority, I would advise checking what kind of financial covenants are in your loan agreements—and whether you will be able to comply with them. Depending on your covenants, 2–3 bad months now could continue to cast a shadow well into next year.
Maintaining an open dialogue with your financiers will improve your company’s ability to make it through this crisis. When your financiers have a clear picture of situation, it will be easier for them to see any problems in advance and agree on what to do. Maintaining trust is the key.
It is important to remember—just as in the financial crisis—that trying to hide things helps no one. If you were already having trouble in your business, you have to face up to that and resist the urge to fold them into any problems caused by the coronavirus pandemic. The few weeks of experience we’ve now had has already proven that this is the best way forward.