The ripple effects of COVID-19 are still unfolding on a global scale and it is unlikely that the true impact of this pandemic can be measured until the situation stabilizes. Until such time, businesses both big and small are challenged to manage their cash flow position as their first line of defence.
Left unmanaged, even the most profitable business can rapidly become unsustainable if cash controls are weak and visibility over cash pipelines is limited. According to Datuk Johan Idris, Managing Partner of KPMG in Malaysia, having a tight grip on cash management will provide companies with valuable breathing space in times of crisis.
This is especially true for small businesses, where having cash on hand makes the difference between being operational or foreclosure. “In these unprecedented circumstances, businesses must be prepared not only to weather the current storm but also have the capacity to sail safely back to shore once the seas have calmed.
Improving cash management is one of the quickest ways for businesses to find some stability during this uncertain time, with an added benefit of reducing debt, funding growth and providing better stakeholder returns,” said Datuk Johan.
Regardless of the industry they operate in, businesses can demystify cash management by taking proactive steps to gain control over the situation. Here are seven areas for businesses to consider in order to stabilize their cash management:
1. Improve visibility of funding requirements through robust short-term cash flow forecasts.
2. Identify and implement ‘quick wins’ to generate trapped cash or preserve cash.
3. Establish tighter controls over cash and bring in cash-related KPIs; seek to reduce leakage and adapt to changing lender requirements.
4. Develop short-term tactical liquidity strategies.
5. Manage communications and interactions with relevant stakeholders (lenders, suppliers, landlords and tax authorities). An example is to build facility headroom or incremental financing.
6. Rebuild trust with stakeholders to support sustainable restructuring. Communicate with key stakeholders candidly and frequently, especially during times of uncertainty.
7. Rapidly explore alternative financing options with investors/financiers.
Businesses in Malaysia have already voiced their concerns on the impact to their cash flow in complying with the Movement Control Order (MCO) implemented by the Malaysian government in March. According to a recent survey, around 33.3% of SMEs stated they only have enough cash flow for March, while 37.8% can only sustain up to Apri.
The recently announced Prihatin and Prihatin Plus packages will offer some welcome cash flow relief for businesses and SMEs. Start-ups will also benefit from future incentives, ensuring that nobody is left behind. Businesses should take the opportunity to identify which incentive is most suitable for their needs and how they can best utilize them or consult with someone who can.
Datuk Johan added: “This started as a health crisis, which quickly evolved into a global financial crisis at a speed and magnitude we have not seen in our lifetime. Businesses need to anticipate and prepare to manage its ‘cash squeeze’ and competing cash flow demands. Having improved visibility via robust cash management and forecasting procedures could be the deciding factor on whether the company comes out of this situation intact.”