From XU Magazine, 
Issue 23

Protecting cash flow right now: Advice from a CFO

Controlling cash flow is more important than ever right now. Catherine Birkett, CFO at GoCardless, the global network for recurring bank-to-bank payments, shares her experience and advice for businesses of all sizes...

By now you’re saturated with information about COVID-19. I don’t need to set the scene with words like “unprecedented”. Simply put, If it wasn’t before, cash flow is now a top priority for businesses. Although the crises I lived through at Interoute were different they were still significant, be it the telecoms crash of the early 2000, or the financial crisis of 2008. Both gave me relevant experience for managing cash-flow when unexpected macro events occur.

What I’m sharing below are what I consider essential cash flow considerations for every business right now, to give them the best chance of surviving this crisis and thrive in the long term.

1) Slow down and think with a level head

Before you move ahead, it’s critical you get yourself in a clear, objective state of mind. It’s completely understandable to feel panicked and uncertain right now, but you need to do everything you can to temper those feelings before you can make the best decisions for your business.

If you make knee-jerk decisions right now, you could be dealing with long term consequences well after this crisis has passed.

Now, first understand that this crisis affects different businesses in different ways. Some businesses - Zoom being one example - are even seeing increased demand right now. What you shouldn’t do is look at the demise of another business and adopt a doomsday mindset about your own.

Focus on the information you have that matters - the leading indicators of your business’ revenue, and historical trends, are invaluable right now.

Remain open-minded and be willing to be flexible with everything going forward. Part of that is accepting that these are extreme circumstances we’re all in right now, and as a result you may need to take extreme measures.

2) Diagnose the impact

Calculate your current cash position, then analyse your cost base. You need to be forensic about it. It’s going to be painful but look at every single cost - don’t overlook even the smallest costs, because they add up. Ultimately, you need to identify all discretionary spending right now. This is an exercise you should do as a management team.

Part of this is identifying every role that is essential to your business right now. It’s possible you may need to make redundancies. And while I’d recommend them as a last resort, unless you’ve mistakenly over-hired, remember that they are the better alternative to your business going under. If your business goes under, everyone loses their job.

Understand your working capital position, looking at both your debtors and creditors. Identify which of your existing customer base is at-risk due to this crisis - are any likely to be unable to pay you? One thing I must mention here is I do not recommend considering delaying your payments to creditors. This has a negative knock on effect on the economy at large.

Bridging the gap from diagnosing the impact into taking action is scenario planning. Considering the uncertainty of this crisis right now, you can realistically only plan six months ahead - although that’s not to suggest you should ignore the longer term health of your business. Of course, when planning these scenarios make sure you do plan realistically - your business is unlikely to continue operating as usual, so ensure you include a plan for a (reasonable) worst case scenario. Expect for that plan to be reality, and anything better than that will put you in a position of strength.

Also, when undertaking these activities, don’t feel like you have to go it alone. Get external advice - leverage your network to speak to those with expertise, and even just others going through the same as you.

3) Take short term actions

Freeze all of your discretionary spending, and impose approval limits on essential purchases.

Make it easy to get paid, and offer your customers payment methods that give you greater likelihood of being paid on time. Bank debit (Direct Debit in the UK) is excellent for that, and our product here at GoCardless enables businesses to take bank debit payments easily and cost-effectively.

You should also take advantage of public funding, such as the furlough scheme put in place by the UK government.

When it comes to employees, it will likely make sense to pause hiring and revisit your approach to salary adjustments right now. You may also consider temporarily cutting salaries across the company.

If you’ve explored all other cost-cutting avenues - and I’d strongly recommend you try everything else first, including furlough - and you simply can’t continue with your current employee base, approach everything you do here with compassion. Be transparent and explain to your employees all of the measures you’ve taken before coming to this. Engage in a dialogue with them - you may find that their circumstances have changed now, and alternative arrangements like reduced hours may work for both you and them.

4) What to prepare for in the medium term

While there is this initial, critical six month period up first, you need to remain aware of the medium term.

One of the mistakes you must avoid making now is cutting back so much to survive the short term, that you prevent your business from reaching a stable recovery beyond that.

What you can do to help this is be acutely aware of your runway, and forecast a very conservative revenue plan. If you couple this with a mindset to react quickly and adapt to changing circumstances, you’ll set yourself up well.

When it comes to your operations, by the time we reach six months from now, you’ll want to have identified any inefficiencies in your order-to-cash cycle, and address them with simplification or automation. Make sure you carefully measure the impact of changes you make, so you’re actually making the cost savings you anticipate.

When it comes to your customers, you really want to have protected valuable customer relationships so they can remain in the medium term and beyond. Keep in mind they’re likely struggling now too, so where they can’t make full payments, consider offering them instalment plans. Our product here at GoCardless can help you facilitate that very easily. Where you have a small customer base, you can tailor your plans on an individual customer basis, but where you have a large customer base, this becomes a vastly more complex and costly task. Instead, if you have a large customer base, decide on one approach and apply it equally to all customers.

I wouldn’t recommend offering discounts, as that sets a precedent that can be difficult to recover from.

The medium term is also where the benefits of building goodwill with your employees will show. If you had to let go of otherwise excellent employees, you give yourself a far better chance or rehiring them if you treated them with compassion during the short term. On the other side of that coin, if you didn’t treat your employees with compassion and build up that goodwill, those you retained during the short term may be inclined to leave you once the job market starts to recover.

One of the best ways to help build this employee goodwill, as well as customer goodwill, is to communicate well. Don’t rush comms during this period - spend enough time to ensure your message is clear, transparent, and compassionate. You’ll naturally need enough time to work out your plans before you communicate them down, so don’t be afraid to let your employees know that - be transparent and tell them you need time to figure out what the best next steps are, that you don’t want to rush and get things wrong, and that you’ll let them know what’s happening as soon as you’re confident in the plan.

Another party you should treat with clear and transparent comms right now are lenders. If you’re repaying a loan and are going to struggle to make those payments, speak with the bank. They’re going to hate not being told more than you coming to them to figure out a plan that works for the both of you. Plus, considering the circumstances right now, banks are likely to be more flexible and enter constructive discussions with you. Ultimately, they don’t want your business to fail.

Why leave it there?

Made for recurring payments, GoCardless is Xero’s UK Financial Services App of the Year 2020 and New Zealand App of the Year 2019. Find out how payments can put your business in control of its cash flow

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