In times of uncertainty such as the current ones, caused by the COVID-19 health crisis, it is vital to have accurate and timely financial information. In order to help SMEs with cash flow problems identify priority actions to ensure business continuity, we have developed this financial commandments based on the recommendations of the International Federation of Accountants.
1. Have up-to-date financial statements and key ratios. The operating account, balance sheet and calculating financial ratios, such as working capital or stock turnover, can help identify problems in a timely manner, to take corrective action.
2. Make cash forecast at 3, 6 and 12 months. Update cash flow forecasts on a regular basis and monitor them for possible future cash flows.
3. Explore whether the company has access to grants or aid for COVID-19. Determine if the company is entitled to any subsidy or public aid and their access requirements.
4. Perform a sensitivity analysis between the best and worst case scenario. Consider what would happen if sales fell by more than 15 or 20%, the impact of the loss of a major customer or how long the company could endure in losses.
5. Review purchasing policies. Review, differentiate, or degrade obsolete inventory to avoid additional storage costs and secure supplies by diversifying suppliers.
6. Explore the possibility of sales in special conditions. To reduce inventory obsolescence and increase liquidity.
7. Redefine customer billing and payment conditions. Check in immediately after the service or delivery of the product, and check credit limits for new and existing customers.
8. Update the market value of certain assets and consider selling them. Basically those assets that are not essential for the operation of the business, as well as postponing significant capital investments.
9. Analyse contracts with suppliers and renegotiate payment terms. Analyse whether contractual obligations may change due to circumstances and explore the possibility of deferring payments.
10. Ensure liquidity. Explore options for more external financing, expanding or hiring new bank lines of credit; as well as renegotiating existing debt payments with a new debt restructuring plan.