Surviving in the crisis times – some practical thoughts

We all live through a crisis or two or sometimes more in our careers. 

Government decides to default on its obligations. Entire country loses its savings, accountants learn to explain and report hyperinflation. 1991, then 1998. Russia.

Trillions in assets become worthless. They actually were existing on paper only, but who knew. Entire systems become nationalized, bailed out. Business empires gone. 2008. Worldwide. 

Resource we are mining drops by 20% in one year. Analysts say it’s a short-term correction and it will come back. Resource prices drop by another 50%. And again. Coal. 2014-2016. 

COVID… well, no one heard of it one year ago. The world is doing business, shaking hands and having parties in Zoom, damage is still adding up and the timing for economic recovery is shifting with every forecast we hear. 

So, what can businesses do to be able to better sustain difficult times?

Here are some thoughts from my practice. Most of them are common sense and please do not tell me you have heard all this before. I know. 

1) Set up to be lean. 

Take good care of core team, do not build empires.

People that treat business as their own, are competent and passionate, will help make sure you get through. 

Outsource everything that can be.

Do not wait and hope – act to be better than cost champions in your field. Critically review your costs and cut, cut, cut. Keep the core, convince the team to multi-task, leave only the activities that support business continuity. 

2) Do not spend the money you do not have. 

You may be onto a great prospective area in the early days of the business, and it may look like it will be the world’s or industry’s next huge thing. 

If plan is to go all in with every study possible in a hope that some white knight will come out and fund the next step– don’t rush into it. You will not be able to bank your excess stock, or prepaid expenses, or equipment purchased for some future project before it’s determined feasible and you have it funded.

You will spend time looking for funds, and you will be in a much better position to negotiate without tons of unpaid liabilities hanging over you.

If for whatever reason you haven’t been able to control the build-up of work on a project – cut. Stop work, put things on care and maintenance right away. 

3) Manage your cash. 

Revenue and profit may look great. Sometimes there is a huge gap between revenue generation and cash hitting the bank. 

While generating revenue is important, it is equally important to ensure that cash related to it comes in as early as possible.

Use payment incentives for early receipts from customers. 

Know the credit standing for your main customers. 

It is equally important to balance that with time you have to pay your suppliers and contractors and maximize the coherence between receivables and payables payment terms. 

Sometimes spending more and having credit from a supplier helps immensely.

Re-negotiating the existing credit terms is key if you see your business running thin on future cash flow. Do it as early as possible. 

4) Control capital spend. 

Evaluate the buy/lease and buy/outsource and if the benefit is marginal or non-existent do not invest in physical assets. Use a service or a rental/lease solution if available.

Do not gold-plate. Use cheapest (all-in costs) alternatives available, as long as they are certain to cover you for the period when you can reliably predict the cash flows. 

5) Open credit lines and work on funding when you do not need it. 

Working with any investor or a bank takes time for them to understand your business and go through internal decision making. 

Having the corporate data room and clear and concise business plan, making sure you can competently answer any question (how ever lame it may appear) coming from the bank’s analysts is extremely important. 

Have more than one bank credit limit, with varying degree of flexibility in terms, and as caveat-light as possible.

Showing a realistic plan that is building up step by step, without any ‘hockey sticks’ in your revenue plans is important. No banker will take a case that he can’t reliably explain to the credit committee.

The plan you present should show clear stages and timelines, with fund drawdowns aligned to those and debt service covered, with 10-15% cushion for any risks.

6) Know the government incentive programs and potential tax concessions and exemptions that apply to your industry/geography. 

These appear from time to time, and, especially if you operate in an area or geography that has political support – you may be able to work out some concessions or tap into the funds allocated in government programs.

Government response in COVID was varying in degrees of bureaucratic efforts required to receive the support funding, therefore maintaining awareness and contact with the government may be useful. 

So, to sum it all up, my advice is:

• Be lean and maintain the core team

• Cash is king

• Plan ahead

• Maintain capital discipline

• Have a plan that is stress-tested and updated regularly

• Plan for crisis in the good times

• Know where to go for support

Hope this is a useful collection of thoughts for those who read in to the end. 

Any views and opinions greatly appreciated.