Cash Management During Coronavirus

Published

Every day, Insight Partners works alongside ScaleUp companies to support their growth. Our backing occurs in robust as well as turbulent economic times.

Insight’s industry-leading team of software operators, Onsite, has developed a series of best practice responses to help CEOs ensure Business Continuity and allay the impact of COVID-19. Leaders for product, tech, marketing and sales work alongside CEOs and CFOs to preserve cash, extend runway and respond to new market circumstances.

6 Steps to Cash Management

  1. Determine demand impact and liquidity needs: Understand your liquidity position (months of cash runway) and the impact to your demand – develop new budget and reforecast real time.
  2. Drive liquidity into the business: Understand the full breadth of options and find ways to inject cash into your business until things are more certain. Hand break all spending.
  3. Prioritize short term needs to ensure long term success: Right-size cost structures to position you down the line. Re- evaluate innovation and product dev priorities.
  4. Prioritize spending to preserve cash: Cash is king. Ruthlessly prioritize all money going out the door including delaying payables, renegotiating contracts etc.
  5. Aggressively manage to a new and nimble plan: Monitor your cash position relentlessly and make corrective actions whenever necessary.
  6. Be ready to adapt as situation unfolds: The situation is evolving. Build a model that allows you to iterate on the plan as new information comes to light, and know the thresholds at which additional actions need to be taken.

How does this situation change my business objectives for the next 3-6 months?

Current liquidity needs and forecasted impact on demand will determine how you prioritize spending and resource allocation through the crisis. Managing to your specific objectives will help see the business through, and set you up for long term success.

Considerations:

  • Determine cash needs based on budgeting scenarios, assuming significant drop in demand (20%, 30%, 50%) over the next 3-6 months
  • Reforecast 2020 budget taking into account mitigating actions to reduce expenses and increase cash
  • Adhere aggressively to the new budget with regular reporting to inform corrective measures
  • Determine clear thresholds to trigger additional spend reductions
  • Adapt the plan to account for the latest information and its impact to the business

What costs reduction activities are “no regrets” moves?

All cash out the door needs to be justified in a critical liquidity position. Some expenses will be necessary to keep the lights on, whereas others are better suited to a higher growth environment. Practically assessing all costs to determine what is truly mission critical will provide security down the line.

Considerations:

  • Freeze all non-essential hiring
  • Cancel all travel and/or training that is not operationally-critical
  • Consider consolidating or centralizing organizational functions
  • Review and renegotiate any contracts/agreements (e.g. rent, phone, datacenters, hosting services) or evaluate lower cost vendors
  • Pause/furlough contingent workforce
  • Freeze marketing/advertising selectively
  • Identify and stop any non-critical discretionary spending (e.g.consultants)
  • Extend payables with suppliers to preserve cash
  • Analyze ROI of any new investments and postpone any that do not meet adequate threshold to focus on core business

How do I inject liquidity into the business with constrained demand?

The crisis will have a significant impact on demand over the next 3-6 months. It is important to be realistic about incoming cash expectations and leverage all resources at your disposal to maximize the stability of your liquidity position through the crisis.

Considerations:

  • Consider drawing down credit lines to bolster cash balance
  • Improve collections processes and strengthen focus on collecting Aged Receivables
  • Revise billings process to include deposit or partial up-front payment rather than invoicing after implementation
  • Triage payables, and slow roll payables
  • Empower sales to close deals by going on the offensive with pricing, packaging, and product
  • Frontload sales with controlled volume or term discounts to create a sense of urgency
  • Allocate sales reps to quick-win prospects and avoid cash-strapped industries (e.g.,travel,hospitality)
  • Look to turn fixed assets to cash where feasible
  • Ensure maximum availability and ability to move cash (e.g., pool bank accounts, pull cash from different countries, etc.)
  • Proactively engage with lenders and shareholders to problem solve potential issues as the situation persists
  • Extend payables with suppliers to preserve cash
  • Analyze ROI of any new investments and postpone any that do not meet adequate threshold to focus on core business

At Insight, an investment goes beyond capital. Our pattern recognition, data and software expertise are at the core of a CEOs essential toolkit. We’ve been in your shoes. We use our best practices to help you “see around corners.” 

  • Insight Partners, ScaleUp Software Investors

    Insight Partners is a leading global venture capital and private equity firm investing in high-growth technology and software ScaleUp companies that are driving transformative change in their industries. Founded in 1995, Insight Partners has invested in more than 400 companies worldwide and has raised through a series of funds more than $30…