With the disruption these days cause by COVID-19, we all live unprecedented times. The new environment has put a strain on our personal and professional life, making everything seem so surreal. The problems of yesterday have been completely wiped out by a new, more basic concern: how to survive? And if at individual level, the message is quite simple: stay home, for the companies this task is way more complicated.

So, this is an attempt to gather as much info to compile a “heat map” for the companies, a response framework to navigate these difficult times. These are some recommendation of action for short and medium term.

Part 1 – Reassessment of financial standing
Determine impact of late collections:
– analyse pool of clients to understand degree of dependency (% of sales)

– apply stress scenarios to extend collections with 30-60-90 days and calculate impact on cash (no of days extra x company’s yearly turnover / 365 = extra need of cash)

– apply probability scenarios for clients going out of business and not paying at all and calculate impact on cash

Determine potential of late payments:
– suppliers: attempt to renegotiate payment terms – in mirror with the cash pressure from clients (positive impact on cash = no of days extra x cost of goods sold / 365)

– state debts: apply for postponements

Assess the bank financing
– understand which credits are committed and which are uncommitted, i.e. can be withdrawn by the bank (NB! Overdrafts, credit lines, credit cards are usually uncommitted)

– understand which are the contractual responsibilities and what happens if your company is breaching financial ratios imposed (penalties vs. default)

– approach bank with alternative scenarios to discuss keeping existing lines and not accelerating debt payments

– prepare to offer extra collateral as a sweetener for the negotiation with the bank

Active cost management:
– postpone as much the scheduled investments which are not critical to the survival of the business (i.e. change of premises, change of office equipment, change of cars, refurbishments, etc.)

– postpone costly launches of new products, unless they will have an immediate proven contribution to the business increase

– decrease spending overall, unless critical: i.e. marketing, event organizing, salary increases, bonuses, new employees etc.

Active shareholder contribution:
– postpone shareholder payments or dividend distribution

– seek for additional shareholder contribution (in kind or to provide collateral for bank financing)

– seek for additional funding from shareholder (if available)

The impact of current crisis will most likely be felt for months and even years to come, however if companies will move quickly to understand their strengths and act on their weaknesses, they will manage to also see opportunities. The recommendations in this article represent an important first step—one that could minimize damage. A follow-up article will address in a few days the remaining critical areas: supply chain, markets, products and employees.

2. Review of supply chain
Draw and understand the industry supply chain:
– understand who is upstream

– understand own company importance in the chain:

% of revenue of the supplier generated by sales to your company
can suppliers switch to other clients easily and replace you
can you renegotiate contracts without fear of being cancelled
can you secure your need of supply to avoid disruption
Understand who is upstream and dependencies of direct suppliers from other suppliers
– location of suppliers

– which are their dependencies, can they easily switch

– what are suppliers with potential delivery problems and what is the probability of that

– calculate potential impact of supply disruption

Understand alternative supply sources:
– actively seek for new suppliers, to mitigate disruption risk

– use your position as a new client to attempt to negotiate better terms or secure supply

3. Review of markets
Draw and understand the industry supply chain:
– understand who is downstream

– understand own company importance in the chain:

*degrees of concentration / % of sales to clients

*can your clients switch to other suppliers easily and replace you

*can you renegotiate contracts without fear of being cancelled

*can you secure your sales to avoid disruption

Understand alternative markets:
– where are your opportunities in terms of potential shortenings of supply chain – companies buying from longer distances, etc and whom can you replace

– actively seek for new markets, to mitigate disruption risk

Understand the need for physical presence for your sales:
– % of sales on and off line

– elaborate strategy to move online: start with simple deliveries and grow from there

4. Review of Products
Determine importance vs. degree of customer satisfaction:
– understand your product importance for your customers

– address the degree of satisfaction, try to improve it, not to push for features that have no customer value

Understand customer value:
– what is the solution you are trying to solve

– what are features that are used and what is not used by the customer that much

– decommission products / features that prove are not important and focus your resources on what could make a difference for your business

What are alternative products:
– how easily your products can be replaced

– what is your unique value proposition

– how can you change and adapt your products to be better suited for online

5. Employees
Protect your employees:
– increase % of work from home

– where work from home is not possible, minimize de impact of public transportation

– organize in shifts, to avoid too much contact

– provide for simple health check-ups at work

– provide for sanitary environment

– set up regular calls to keep the flow inside and between teams

– communicate constantly on the strategy the company is taking to minimise disruption

– communicate on the impact on their activities and themselves as persons

– be transparent with the challenges you face and engage your employees to find together alternatives to overcome the tough times

– understand that the new way of working is hard for everyone to adjust, some are more at ease with technology, some are lagging behind

– together with your IT department, assist employees for a smooth implementation of home office

– respect working hours – it is easy to send lots of information and be online with meetings all the time, but allowing for some breathing time is important

Lastly, understanding own environment, strengths and weaknesses is key to identify opportunities. Given the magnitude of current crisis, we should expect fundamental changes in the ways of working, trade routes, distribution chains and consumption habits. The way companies of today will be able to understand and anticipate the customers’ needs of tomorrow will make the difference for survival.