Some subset of The Owl’s Nest readership has had practice counseling clients in distressed situations where business turnaround has been the objective. Though the COVID crisis represents a unique challenge, one of the tools common to turnaround specialists is as relevant to today’s global business crisis as it is to routine turnaround necessitated by poor management.

When a mentor asked me many years ago whether I knew the Golden Rule, I ventured, “Treat others as you would have them treat you?” “Not now,” he corrected. “The man with the gold rules.”

Cash is king in times like these. The good news is that most entrepreneur clients know the truth of this statement: You’ll have to do no convincing. But what most entrepreneurs do not know is that what is crucially essential to prudent decision-making in times of distress and rapid change is a thirteen-week cash flow. (The magic of 13 is that there are thirteen weeks in a quarter.) Such a financial statement may be used by the business owner as her primary flight instrument to make decisions on course, altitude and destination as she navigates turbulent times.

Unlike static, forward-looking cash flow statements in business plans which many have encountered, a thirteen-week cash flow is a dynamic, working statement updated weekly to provide the business owner with the most current information regarding cash availability, combined with the most reliable, real-time estimates of what will happen next week.

Though the process begins with thirteen weeks of forecast, at the close of each week, the projection for the week just ended is compared to actual results for that week, and all ensuing weeks’ data is adjusted based upon the reality just experienced. The successful utilization of such a tool will demand of your clients excellence in leadership, management organization, and information gathering. Virtually all functional areas of the business will require consideration in the development and management of this important financial statement.

For instance, cash entering the business may come from three primary sources: equity, debt and collected revenues. Equity is easy to determine, as it typically represents a decision on the part of ownership. Debt availability requires some element of management and information resource, however, as debt availability is often a function of accounts receivable generated during the period and inventory on hand. Generation of accounts receivable from sales adds to most companies’ borrowing base and, conversely, collection of accounts receivables reduces borrowing base, but increases cash on hand. Being able to estimate from week to week this ebb and flow with some degree of accuracy will help the business owner anticipate likely cash inflows at the end of the ensuing week.

As is true in good times, sales will typically drive results in a business during distressed times. The process of soliciting weekly information from sales representatives in the field and having the information work its way up the channel to be incorporated, weekly, into generation of the thirteen-week cash flow will require an intensity of management on a daily basis that is not typically called for in normal times. Accurate sales projections, in addition to informing a prediction of cash inflows in future weeks, will also inform raw material purchasing needs, which in most organizations represent a major component of overall cash disbursements.

One skilled in preparing and using a thirteen-week cash flow to manage on a week-to-week basis will view each of these components (and others) as cogs in a complex machine which can deliver the type of information needed to make prudent decisions about many matters: extension of trade credit, payment of account payables, headcount matters, procurement and inventory control, vendor and banking relationships, and more.

Now is the time for professionals to run towards their clients. If you, like many during this time of grave uncertainty, feel impotent to offer clients constructive advice, offer this guidance. Your clients’ CPA will be able to help. Workout attorneys are also intimately familiar with the process. You will be providing your anxious clients a means, not only to make the types of dramatic decisions which will be called for moving forward in an informed way, but also, a means of achieving a small element of control in an environment where uncertainty abounds and the reality changes rapidly.

Our national economy and most of our clients will survive these turbulent times. The style of management called for to produce, maintain, and manage the thirteen-week cash flow will instill a level of discipline in those clients who are successful in implementing such a control, and will serve them well—now and when we exit this period and return to times of normalcy.

Accordingly, this crisis presents both challenge and opportunity for the trusted advisor to deliver real, sustaining, value.

Until next time…
The Owl

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