Managing cash flow during a global crisis
There has been much discussion about the opportunity for ‘the next pandemic’.
While it was worrying, I don’t think the majority of the global business community anticipated the level of disruption brought about by COVID-19. Recall the impact of Ebola, SARS, HIV, H1N1 or Swine Flu. They were very dangerous, there was a terrible loss of life and associated impact on people’s families, yet national economies were not shuttered, the world’s airlines were not parked and millions of people were not put out of work. In this way, the COVID-19 global pandemic is unique in our lifetime. Companies are facing an unheard of liquidity crisis as businesses are forced to close, workers are laid off, demand for goods and services drops, and associated cash flows dry up.
Cash is king
As operations shutter, business restrict activities, fleets are parked or grounded, and folks wait for the all-clear to get back to work, an old saying is truer now than ever before:
“Revenue is vanity, profit is sanity, but cash is king”.
Some folks think that this phrase was first used in connection to the financial crash of 1987, as many companies with substantial cash reserves weathered the storm far better than organisations with less liquidity. Revenues on their own demonstrate little with regard to the overall health of a business—they are merely a promise of payments to come. Profit is the anticipated revenue remaining after all costs are paid out. Cashflow—actual positive cash received by a company minus the cash paid out for materials, equipment, labour, etc.—demonstrates how healthy a company is.
Your organisation may have entered into contracts worth $200m, and correctly recorded the revenues for those contracts as booked revenue, but if 75% of your customers are unable to pay due to the impact of the COVID-19 pandemic, you won’t be able to pay your employees or satisfy your creditors with those contracts.
Cash management planning
When some something significant disrupts a company and puts their cash flow at risk, they need to act quickly with a plan to manage cashflow. Conserving liquidity without doing any long term damage to your business is the key objective. Organisations need to develop a “Cash is King” culture throughout their entire structure. Recognising the issue early, taking quick action, and utilising an organised and coordinated process will greatly assist in managing restricted cash flow in the near future. Companies need to:
- Immediately communicate to the organisation that circumstances have changed and that cash will be conserved as much as possible.
- Revalidate all cash projections and shorten internal reporting cycles to stay on top of their cash position.
- Defer all discretionary spending
- Restrict increased payroll expenditures to essential hires
- Re-evaluate all capital expenditures in light of short term cash requirements
- Re-evaluate fixed overheads with regard to reduced production and address as required
- Explore any governmental assistance available
- Review your existing payment terms with suppliers and renegotiate to as liberal terms as possible
- Discuss with lenders, credit facilities, and customers to know what to expect in the short term
- Maintain a list of possible actions to take if cash is needed and when, be conservative, and act early
Maintain a documented plan
Create a team to focus on these shorter reporting cycles. Ensure that they have visibility to all expenses and receivables. Your documented plan should encompass a shorter cycle plan that tracks each inflow and outflow of cash. This is essential to track what is happening and be able to accurately understand and provide forecasts of your cash position. Utilise models and tracking devices that are updated in real-time and tie each payment to a specific company-critical objective, whether short or mid-term.
This will allow for a week by week review of cash that is coming in and cash that is being spent to ensure that new policies are being followed and that the anticipated impact is being realized. These models can be used to “game plan” different scenarios and provide some element of planning capability when things start to return to normal. Focus as much on cash collection, where possible, as on outlays. Understand your full cash position, daily or weekly, if possible.
As the disruption begins to wane, companies need to constantly review their position and understand what is happening to the economy around them. It is critical to make sure that the recovery is real and durable before relaxing your cash management plan. Again, conservative action is better than moving too soon to remove restrictions on cash, only to have to attempt to reimpose them.
The short cycle cash flow models should assist in understanding what is happening with your customers and suppliers. Are cash inflows increasing? Is pressure to make outflows reducing? Is cash on hand growing? When these things are sustained and sustainable, then easing off the restrictions may be considered.
Remember, “Cash is King”, and it is the lifeblood of your company—everything else is just numbers on a spreadsheet. Assess how you can free cash, introduce stricter checks and balances to focus on what’s important, and model using all available data with the finance team. This enables you to stress test the financial position against all the best advice from epidemiological, Government and Banking sources of truth. Then you can make a considered and rational decision on how and when to return to normal.
This article was contributed by Joe Kenny is Vice President of Global Customer Transformation, ServiceMax
Marketing matters: from IBM to Kyndryl
Prior to joining Kyndryl as Chief Marketing Officer, Maria had a 25-year career at IBM, most recently as the tech giant’s CMO where she oversaw all marketing professionals and activities across North America, Canada and Latin America. She has held senior global marketing positions in a variety of disciplines and business units across IBM, most notably strategic initiatives in Smarter Cities and Watson Customer Engagement, as well as leading teams in services, business analytics, and mobile and industry solutions. She is known for her work with teams to leverage data, analytics and cloud technologies to build deeper engagements with customers and partners.
With a passion for marketing, business and people, and a recognized expert in data-driven marketing and brand engagement, Maria talks to Business Chief about her new role, her leadership style and what success means to her.
You've recently moved from IBM to Kyndryl, joining as CMO. Tell us about this exciting new role?
I’m Chief Marketing Officer for Kyndryl, the independent company that will be created following the separation from IBM of its Managed Infrastructure Services business, expected to occur by the end of 2021. My role is to plan, develop, and execute Kyndryl's marketing and advertising initiatives. This includes building a company culture and brand identity on which we base our marketing and advertising strategy.
We have an amazing opportunity ahead at Kyndryl to create a company brand that will stand apart in the market by leading with our people first. Once we are an independent company, each Kyndryl employee will advance the vital systems that power human progress. Our people are devoted, restless, empathetic, and anticipatory – key qualities needed as we build on existing customer relationships and cultivate new ones. Our people are at the heart of this business and I am deeply hopeful and excited for our future.
What experiences have helped prepare you for this new opportunity?
I’ve had a very rich and diverse career history at IBM that has lasted 25+ years. I started out in sales but landed explored opportunities at IBM in different roles, business units, geographies, and functions. Marketing and business are my passions and I landed on Marketing because it allowed me to utilize both my left and right brain, bringing together art and science. In college, I was no tonly a business major, but an art major. I love marketing because I can leverage my extensive knowledge of business, while also being able to think openly and creatively.
The opportunities I was given during my time at IBM and my natural curiosity have led me to the path I’m on now and there’s no better next career step than a once-in-a-lifetime-opportunity to help launch a company. The core of my role at Kyndryl is to create a culture centered on our people and growing up in my career at IBM has allowed me to see first-hand how to prioritize people and ensure they are at the heart of progress in everything Kyndryl will do.
How would you describe your leadership style?
I believe that people aren't your greatest assets, they are your only assets. My platform and background for leadership has always been grounded in authenticity to who I am and centered on diversity and inclusion. I immigrated to the US from Chile when I was 10 years old and so I know the power and beauty that comes from leaning into what makes you different from other people, and that's what I want every person in my marketing organization to feel – the value in bringing their most authentic self to work every day. The way our employees feel when they show up for themselves authentically is how they will also show up for our customers, and strong relationships drive growth.
I think this is especially true in light of a world forever changed by the pandemic. Living through such an unprecedented time has reinforced that we are all humans. We can't lead or care for one another without empathy and I think leaders everywhere have been reminded of this.
What’s the best leadership advice you’ve received?
When I was growing up as an immigrant in North Carolina, I often wanted to be just like everyone else. But my mother always told me: Be unique, be memorable – you have an authentic view and experience of the world that no one else will ever have, so don't try to be anyone else but you.
What does success look like to you?
I think the concept of success is multi-faceted. From a career perspective, being in a job where you're respected and appreciated, and where you can see how your contributions are providing value by motivating your teams to be better – that's success! From a personal perspective, there is no greater accomplishment than investing in the next generation. I love mentoring younger professionals – they are the future. I want my legacy as a leader to include providing value in work culture, but also in leaving a personal impact on the lives of professionals who will carry the workforce forward. Finding a position in life with a job and company that offers me a chance at all of that is what success looks like to me.
What advice would you give to your younger self just starting out in the industry?
I've always been a naturally curious person and it's easy for me to over-commit to projects that pique my interest. I've learned over years of practice how to manage that, so to my younger self I’d say… prioritize the things that are most important, and then become amazing at those things.