• Why is good cash flow planning so important?
• How can I improve my liquidity position and financing mix?
• Why is it useful to consider external counseling?

An abrupt decline in turnover, as we currently experience, has a more significant impact than separating the wheat from the chaff. Traditional indicators such as liquidity, solvency and profitability go deep into the red, so deep they seem to be losing all meaning. While rent, repayments, staff, energy, fleet… continue to weigh, the inflow of cash dries up.

Still, a dramatic drop in sales can make you think you are spared the worst effect of the crisis: shrinking sales decrease your need for working capital, putting you in a favorable liquidity position. Don’t be fooled, this is only temporarily. It’s an illusion to think your company is out of the danger zone. Once turnover picks up, the need for working capital will increase rapidly. It is important to use new insights and to carefully draw up cash planning in the short and medium term and to develop some scenarios. Use all the expertise you have at hand to protect your company professionally, because nobody knows the twists and turns are coming next and how long this crisis will last. How do you proceed?

Start with a thorough analysis and revision of your financial plan and cash plan:

• Try to get an accurate overview of the impact this crisis has on your cash flow planning. What does the fall in turnover mean? How do your fixed costs evolve? Are there any exceptional costs? When will your debtors pay? How much room for manoeuvre do you have on banking lines, credit insurance, supplier credit…?
• Create scenarios. Worst case and best case scenarios. On the short and middle term. No one knows how long this crisis will last and when we will return to normal sales levels.
• Once you have completed this exercise, you will have a better view of your needs which allows you to draw up an action plan. Different options and scenarios can be weighed. If you go to an external party (investor, bank or other financing) to raise extra funds, it is important that you prepare a good financial plan and presentation file. Let qualified experts guide you in this process.
• Implement the action plan. A good plan is a combination of actions taken in parallel, following a strict schedule. During and after the implementation, it is key to keep an eye on every aspect of it in order to make changes if needed.

Measures to improve the liquidity position and financing mix of your company

• Take advantage of the support measures. The government is throwing some financial lifebuoys to help companies brave this severe storm. If your company is obliged to close down, you can claim a one-off nuisance premium of 4000 euros. For every day compulsory closing after April 5, there is a compensation of 160 euros. If your company hasn’t closed, but you are faced with a loss of turnover of at least 60 percent compared to the same period last year, you are eligible for a one-off compensation of 3000 euros. Loan and credit repayments are deferred for repayment and there’s the option to put employees on temporary unemployment Covid-19.
• Make use of the fiscal options. There are three options for the social security contributions: postponement of payment, reduction of payment or exemption from your social security contributions. For VAT returns, withholding taxes, corporate and personal income taxes, there is a delay to meet your obligations. You could also consider a payment plan for tax debts.
• Contact your bank in time. The aid plan for companies in need includes a guarantee scheme of 50 billion euros for new loans and six months of deferred capital and interest payments, free of charge. The extension of the PMV guarantee scheme worth 100 million euros, helps you to stop by your bank to find financing for working capital.
• Plan your debtor management. Follow up on outstanding bills, knowing that customers will consider paying later. Talk to your biggest customers and don't wait for payment terms to expire. Your goal should be to ensure that invoices will be paid on time. In the worst case, you will identifiy payment problems in time which allows you take appropriate action.
• Invoice on time and increase the frequency by sending interim invoices.
• Consider credit insurance as a protection against debt losses. One in four bankruptcies are caused by the bankruptcy of a customer.
• If you have a credit insurance: check whether the allocated limits for exceedances are still justified.
• Reasses the position of vulnerable debtors. Lower the internal credit limit, shorten payment terms, consider retention of title and other safeguards.
• Consider factoring as financing and follow-up of outstanding debtors. You receive the advances when sending invoices, whether or not combined with risk coverage and follow-up of the debtor portfolio. The financing follows your turnover and outstanding debtors. There are different forms of factoring. It is possible to finance incoming invoices (reversed factoring) or to work completely confidentially (undisclosed factoring). Some parties give the opportunity to finance some selected debtors or to finance part of the stock.
• Consider sale-and-lease-back to (re)finance fixed assets. This way you free up resources or you can spread existing repayment schedules over time. It is important to be able to present a plan regarding the repayment capacity.
• Temporarily defer the payment of dividends or interest on subordinated loans.
• Discuss delivery and payment terms with your main suppliers. If necessary, switch to another supplier with better conditions. Make the most of the credit your suppliers give (whether or not through credit insurance).
• Review your stock position. Perhaps the stock position you hold is too large. Temporarily suspend orders and review the purchase policy.
• Supply chains, especially in China and Italy, have been seriously disrupted. Focus on the most critical products and suppliers. Buy goods with sound margins and a high turnover rate, so that they are not in stock for too long.
• Look for operational improvements. Save on costs and review investment plans that may be delayed
• Consider attracting investors (private equity, private investors, venture capital...), subordinated loans (PMV, LRM, Capital@rent...). By strengthening equity through capital or subordinated loans, you will not get only money, but banks and other financiers will also provide easier (additional) credit.
• Consider selling assets or parts of your business in order to create cash.
• If it all goes wrong, consider debt restructuring and protection against creditors through WCO procedure.

Why is it helpful to consider external counseling?

• In this crisis, you need to be able to switch quickly and to make use of all opportunities. As is often the case, it will be the most resilient companies that emerge best from these trying times.
• It is important to make a good analysis of the current situation and use all options. There are many options, but they differ per company and are not always sufficiently known.
• There are many funders and investors, but it is important to evaluate the right financing techniques and approach the right parties to present a professional file and financial plan. Access and insight into an extensive national and international network of solutions are key success factors.
• With a strong and well prepared case, you enter negotiations strongly so you can compare and negotiate different (financing) proposals.

For more information about Corporate Finance, please visit Moore Global Corporate Finance.