Maximize Incident Response Effectiveness: Financial Readiness

by Tom Uva

This article is part of a larger series of posts related to assisting mid-market companies in maximizing incident response effectiveness. See all parts of the series. 

During periods of adverse operating conditions, such as the COVID-19 pandemic, a company’s financial readiness and stability are of critical importance.  While there are “standard” practices all well run companies employ, some of these are much more impactful in the context of crisis management.  When formulating and executing the Financial Readiness portion of your Incident Response (IR) plan, the Operational and Technology experts at Elliott Davis would like to help accelerate your response efforts by sharing our expertise, cross-industry experience, and observations of working with other mid-market companies facing the same set of challenges.

Our intent is to provide you with “thought triggers” and give you simple, practical guidance for a starting point to create and/or refine the Financial Readiness portion of your IR plan.  We recommend your IR Financial Readiness plan consider the following items and incorporate the ones which make sense for your specific scenario.

 

Do Don’t
 

 

 

 

Perform a fact-based assessment of the company’s financial position.

Create a new baseline P&L scenario/reforecast with supporting financial models (cash flow, B/S, etc.).

Create 3-4 alternative scenarios predicated on adverse sales, supply chain, and operational assumptions.

Evaluate working capital needs under various scenarios.  Determine options and actions to be taken if there is a gap between needs and availability.

Create/improve your 13-week cash flow model if you don’t have something you have a high degree of confidence in.  You need this information like you need air to breathe!

Pursue financial backstops, identify defensive options and pursue those which make sense.  It is better to have it and not need it….than need it and not have it.

Identify potential government financial assistance and/or work with your banking partner(s) to have options available in the event of lost revenue or restricted cash flow.

Identify your expense reduction opportunities and place them into three tiers (A/B/C).  For each line item: Estimate reduction amounts, how soon the reduction could be realized, the level of risk it would create and who is responsible for executing the reduction and capturing the savings.

Assume your existing financial operating plan will be adequate and represent an accurate view of the coming weeks/months ahead.

Assume you will only need to get through the next 2-8 weeks.  Build models for a 6-12 month event horizon.

Delay in keeping financial partners and key entities informed appropriately.  Unlike wine, bad news does not get better with time.

Fail to actively monitor cash and working capital availability.

Get lackadaisical when it comes to accounts receivable.  Be prepared to have the right people, skills, and customer knowledge to focus on collecting payments.

Forget to review the company’s insurance posture, engage with your carrier(s) and fully understand what your protections are and where you have exposure.  (E.g. business interruption insurance).

Let your SG&A expenses go unchallenged.  If you experience top-line decreases, you will likely need to make other adjustments.  If you assess that probability as being medium or high, start that work now!

 

We Can Help

If your organization has concerns about continuing operations, developing and implementing an incident response plan, or is working to determine the best way to serve its customers and employees, the Operational and Technology experts at Elliott Davis can help. We have a team of experts with the deep practical experience and expertise necessary to help you actively manage through this unprecedented series of events and keep your business moving in the right direction.

Tom Uva is located in the Greenville, South Carolina office of Elliott Davis and leads the firm’s Management Consulting Services practice.  He has nearly 30 years of extensive, high-quality experience in multiple industries where he held Senior Leadership roles such as: VP of Business Optimization, Chief Information Officer, and VP of Operations. Tom is also a faculty member at both Clemson University and Syracuse University, with graduate-level practices at each institution.   If you need assistance or have any questions, please contact him at tom.uva@elliottdavis.com or fill out the form below.

For more helpful resources to navigate COVID-19, visit the Elliott Davis COVID-19 Resource Center

 

 

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