What is the impact of the Covid-19 pandemic?

• Global, rapid and intense
• Crisis akin to a Third World War
• Cash frozen, wealth and employment have vaporized in few weeks
• Years of bull market gains [upwards of US$10 trillion] wiped out in few weeks
• Startups funding and M&A activities have come to standstill. Will take a while to resume
• Companies and individuals are going to hold cash – Sign for major liquidity crunch
• Banking will see more NPAs [Incl. retail] in coming years – May harden banks to lend further
• Distress signal for airlines, tourism, event management, logistics, restaurants, entertainment industries

Also read: COVID 19 – Smart survival for self and business

What are immediate risks for you?

• Cash inflow taps frozen – collections, new revenue
• Obligations clock is NOT frozen – interest, employees etc.
• Fixed Costs……
• Payment to suppliers, liquidated damage issues, force majeure issues. 
• Additional liquidity may be tough to find

What to do?

• Identify key members to make a “war-room” team to evaluate daily situation and plan ahead
• Model your risks. Make multiple P&L + Cashflow scenario. Plan for the worst
• There could be opportunities as well – we learn that Alcohol manufacturers are now making Sanitizers, Engineering Companies can make Ventilators, moulding companies can make hospital beds
• Plan for short-term and mid-term.
• Current consensus on short term is till end of June
• Long term impact will be more permanent than 9/11 – no one has a clue now. Survival (liquidity) is the only goal everything else can wait

Also read: Business continuity plan amidst COVID-19: Immediate action points

1. Conserve Cash – for Survival & Revival

• Offer cash discounts to customers for faster collection
• Freeze all your discretionary expenses
• Thorough review of marketing strategy & expenditure
• Make scenario analysis for manpower & salary – discuss pay cut/ deferment
• Hold back incentives, bonus & increments
• Postpone major expansion plans & Capex
• Discuss reduction or deferment from key vendors
• Talk to your landlord for relief in rent – best time to negotiate
• Hold enough cash to kickstart working capital cycle

2. Debt, Insurance & Government Obligations

• Consider holding back your government obligations as their cost is below CC cost
• Talk to banks for postponement of principal repayment – RBI Action is not automatic – you need to write to your bank
• Insurance Premiums provide for grace period of 30 days – but better not to avail
• Push ESIC to pay salaries for covered workers – as if they are impacted by sickness
• Explore new debt options – bill discounting etc
• Keep a headroom for collateral ready – There might be sudden demand for cash

3. Force Majeure

• Government has clarified that this incident qualifies as a Force Majeure event
• Even if Force Majeure is not in your contract, you could still invoke “Doctrine of Frustration” under section 56 for impossibility of performance
• But there are many technicalities – Get in touch with your lawyer and be prepared

4. Remodel your business

Prepare multiple P&L & Cashflow scenarios to understand risk & be ready for potential tough decisions

Cautious Plan

• Impact – short term revenue ZERO & minor operational challenges
• Action - Talk to your customers, ensure smooth supply chain & work on cost optimization

Severe downturn

• Impact – Revenue slow-down for months to come, shutting down of few BUs or products
• Action – Look for alternate avenues, temporary close operations & cost reduction is the key

Worst case scenario

• Impact – Drastic drop in revenue & greater risk of negative cash
• Action – Shutdown High Fixed Cost cost centres, plan for lean management,

5. Use time to enhance you to next version

• Leaders will have to maintain healthy state of mind – keep calm
• Develop a new hobby or learn a new skill
• You can NOT say that you do not have the time
• Use online resources to stay healthy
• Sleep well

6. Prioritise

• Reconfigure your Supply Chain
• Prepare a rapid re-launch plan
• Wake up call to go DIGITAL – has to be part of relaunch strategy
• Resources are available cheap – make use of them

7. Post COVID-19… some thoughts

• Quite possible that the end to this virus is rapid
• Hence, always be ready to hit the ground running
• Western world will behave very differently to Eastern World
• Recovery will be V shaped for India
• Aggregate demand will revive for consumer-focused industries first and will graduate upwards
• Pharma, Digital Media, Fintech, Healthcare, Consumer staples will bounce back faster
• Oil & Gas industry will be sluggish – there is now added trouble of fight for market share between producers

How can we help you?

• Access to panel of CFOs

Free access to our panel of CFOs to understand best current practices & bounce your ideas

• Engage us as your trusted partner

We will help you get your financial task plan up and running with multiple case scenario

Also read: An unprecedented challenge, also an opportunity for SMEs to do unprecedented things

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