Companies of every size and in every industry--both private and public--are facing one of the most challenging business environments in history. Contributing to the turmoil: unprecedented levels of market volatility, declines in consumer confidence and spending and a new presidential administration.
During this, time, finance leaders--especially those at privately held firms--must take a hard look at their firm's situation and then take action to balance short-and long-term needs.
While the economic conditions are daunting, there are some key areas of focus to consider.
Be obsessive about your liquidity and scour your balance sheet. Given the current credit situation, finance leaders should focus on managing working capital, converting assets to cash and obtaining an accurate understanding of potential write-downs and write-offs.
It is also critical to have a 13-week cash flow forecast, tracking and regularly updating the "forecast" to perpetually keep it running one quarter ahead, reflecting new information as it is gleaned. This gives your firm future visibility that is vital during such volatile times.
The refrain" cash is king," is more germane today than ever. Now is the time to collect accounts receivable in a timely manner and begin managing the timing of payable disbursements.
Recognize that this problem also impacts key customers. Once a customer gets behind, it becomes difficult to catch up. Reach out early--and often--to have frank conversations with customers, amend payment terms, reflect current assessments of their credit-worthiness and attempt in all ways to "work with them."
First, however, make sure that they are, in fact, a profitable piece of the firm's business and worthy of flexibility.
Plan and plan again. Given the financial landscape, this is another area where normal business processes should be modified. Plan to reforecast quarterly throughout the year.
A survey of business conditions late last year by Tatum found that 30 percent of finance executives planned to create quarterly budgets through 2009 In addition to a quarterly profit plan, create a separate bank budget--and make it very, very conservative.
This is different than a quarterly cash forecast. That's because one relates to liquidity while the profit-planning re-forecast is used for operational-planning purposes and, perhaps, for incentive plan measurements. The risks are great now and being very thorough in planning will help minimize surprises.