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Protecting Cash Flow in Uncharted Times

This article appeared in the April 2020 issue of MiMfg Magazine. Read the full issue and find past issues online.

Nobody currently knows the duration or severity of impact the COVID-19 pandemic will have on the economy or their company. The events of the last several weeks have caused great disruption for our employees, customers, supply chain and many other key business components. The resulting cash flow impacts for individual manufacturers will be varied and far reaching. After almost 11 years since the great recession ended, we may find ourselves again in unfamiliar territory, needing to draw on the strength of muscles not used in a while to protect our cash flow. Following are suggestions to project and therefore help protect your cash flow in the ever-increasing choppy sea of unknowns.

Dealing with uncertainty

Starting with what is known is the best way to begin projecting the future. First ask what is today’s picture of liquidity for your company? Then layer in other cash inflows and outflows adjusting for the impacts of COVID-19, starting with the most and moving to the least predictable variables. The range of projection outcomes will continue to grow as you move down this path but focusing on the most predictable variables first will help keep your momentum as you move through the process.

Don’t dwell too long on the unknowns. Pick a range and move on if the degree of uncertainty is high. Document and communicate your assumptions to assist in modifying future projections. Calculate different projections based on the range of possibilities but limit the number of projections to a few most likely versions that you can focus on. Continue to clarify the most important unknowns to further refine projections when that information becomes more predictable.

This is a team effort

If this sounds daunting for one individual on your finance team or your one-person finance team to handle, it certainly is. This is business-wide not a just finance issue. With so many variables potentially being upset in such a short period of time, manufacturers will need to draw on the expertise of the entire management team to narrow the range of uncertainty when projecting cash flows. It is vital to extend conversations involving employees, customers, sales, supply chain and operating expenses to also ask how does this impact your cash flow? I recommend regularly scheduled discussions to address how company actions and external factors impact cash flow.

It is every bit as important for the finance function to know if sales and marketing are planning a major shift in product mix, as it is for the operations or people-related functions of the company. How these decisions impact purchasing, customer relationships, etc. all affect cash flow. Making a company-wide commitment to the continued conversations and sharing of information impacting cash flow is key to maintaining meaningful ongoing projections for decision making. By working together to close the gaps on the many unknowns, cash flow projections and the company’s plans to protect its cash flow will begin to be executed with substantially less uncertainty.

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Premium Associate MemberManer Costerisan is an MMA Premium Associate Member and has been a member company since October 1976. Visit online: manercpa.com.

About the Author

Dennis TheisDennis Theis, CPA, CVGA is the certified value growth advisor for Maner Costerisan. He may be reached at 517-886-9537 or dtheis@manercpa.com.