Social Distancing, Communication & Cash Flow
Some good news first? Yes, there is light at the end of the tunnel, but it is a long tunnel. Make sure you have a 90-day plan so that you are proactive and are not a DiTHs (deer in the headlights). With some decisive actions, you, your family, your community and your company can survive and even thrive on the other side of this crisis!
In this post, we are covering two 90 day plan guides for Social Distancing/Communications and Cash Flow Management that might be helpful. Those of you that have been through a crisis or two are dusting off old plans/memories of best practices and some of us are going through it for the first time. There is no perfect plan, but inaction is our biggest threat.
I Community: Social Distancing & Communication
This seems contradictory to both practice Social Distancing while communicating, but that is why it is so critical to get it right. First some more good news! As of today (March 19th), New Zealand and China are both experiencing a decline of new cases.
Some best practices are coming out of New Zealand. They only have a few new cases this month as citizens come back from other parts of the world and only a total of 28 cases with NO signs of community spread. By contrast, the US went from 1 case to over 5,000+ in the same time period. It is amazing to look back at the New Zealand response from Jan 24th through today from a public health, testing, social distancing, and containment perspective. The way their community responded is a model. Clearly, New Zealand is a best practice on how not to end up where the EU and the US are today, and how we all can contribute to stopping the virus going forward. Also great resources on the New Zealand Min of Health page, clear, easy to read, informative! This virus can and will be stopped.
Stay vigilant with Social Distancing and put all 9 points of a weekly communication practice into action for the next 90 days and we will get through this together!
Communication 90 Day Plan — with employees, clients, investors, and lenders
1. Communicate daily with your employees. Employees will be looking to you for leadership during this highly uncertain and scary time for them and their families. Schedule regular and ongoing updates to (1) key/most important people and (2) full employee team.
2. Be conscious of your tone and consistency during this crisis, balancing calm with a sense of urgency — you will have to make and communicate decisions with limited information on an extremely short time frame. Doing so while remaining visible, calm, caring, and engaged is critical to preserving confidence with employees, customers, vendors, lenders, investors, and other stakeholders.
3. Be transparent and quick to relay any information about employee exposure and your consequent actions. This is necessary to maintain trust with your employees. It is also critical to encourage everyone to have a shared responsibility. If an employee is sick or exposed, have a plan on how you will deal with this situation if you have not already had to deal with it. Fostering a supportive and trusting relationship with your team is more critical than ever. You can build trust with how you deal with this situation that will build your culture for years to come, but one misstep can also destroy trust when you need it most. Be open about the stress you have and make it clear that everyone is experiencing it in similar and different ways. Your team needs permission to find healthy ways to reduce stress and communicate more openly.
4. Keep your Board in the loop — plan a weekly update and check-in call with your Board.
5. Maintain an open dialogue with your lenders — call and speak with your lenders this week and stay in close touch with them. Considering asking for an interest-only loan for the rest of the year. Stay abreast of government programs and regulations that will help your lender help you.
6. Check-in with your suppliers to understand likely delays — extend payables where possible (see above). Consider ordering or purchasing additional mission-critical supplies (depending on cash need/use).
7. Communicate with your customers — prioritize customer communication based on the size of customers and/or potential opportunities to expand relationships during this time.
8. Outward-facing messaging, such as statements regarding “open for business” and steps being taken added to the company website.
9. Reduce Communication complexity & anxiety: try standardize on the platform and communication methods you use internally and externally. Ie. if most of the company uses Google and GoogleHangOuts (GHO) for video communication — standardize that for your weekly or daily stand-ups. If your team can’t find or communicate easily it has the same effect as no communication. Find ways to connect and destress ie Friday video stand-ups in pajamas or bring your kid or pet! Make sure everyone can access two-way communication.
9. Have a weekly Comms checklist of key stakeholders that you check every week — have you communicated all your stakeholders this week (employees, customers, shareholders, lenders, etc) and have you been consistent. Once you put this into practice, you will be surprised how empowering it becomes for you and your community.
II Cashflow — Suggested 90-day plan for 18 month Cash management
Over the past weeks, we have gotten together with our community to help navigate the next 90 days.
We shared with you back on November 10th last year about our concerns that this downturn could be very large and long-lasting and 50X bigger than the 2008 great recession “A 50x scale would impact every economic sector in every country on the planet. 50x the losses of the dot-com bust would mean $250T in equity losses — as a point of reference, it is estimated the total cost of the 2008 Global financial collapse by just the US government bailout was as much as $29T caused by only subprime US mortgages”. We did not know what the catalyst would be but had real concerns about what was likely coming at all of us economically and the need to prepare ASAP. This is a Mainstreet and not a Wallstreet problem this time and global governments are taking decisive action to try and mitigate the length and severity of the economic impact of the pandemic. However, our concern remains that this will be at least 6–18 months of economic impact for all of us to navigate.
Most of you took our post to heart, and we are encouraged that our companies on average have 21 months of cash runway, we think this very prudent and as we posted back on November “When times get tougher, the companies that will perform the best are those with agile founders who diligently pursue capital-efficient growth and have prepared a real path to profitability. Companies like Shopify, Atlassian, Pinterest, and MongoDB all came out of the great recession of 2008. That’s why BreakawayGrowth Fund is proud to have partnered with some of the sharpest teams across North America, to help them build their businesses the right way. Keep your finger on your unit economics, an eye to profitability, and more than anything else, keep your powder dry.”
But, more than just warnings we wanted to share a guide we are working on how to operationalize the cash flow and communication best practices. We don’t claim to have all the answers and know that this crisis requires a community response for us all to navigate successfully. We talked about a number of these ideas at the last community meeting, but thought it might be helpful to translate this into a guide.
The guide is intended as a checklist of considerations for managing cash flow and liquidity during the rapid economic deceleration we are currently in the midst of. Recognizing the fluidity of the current macroeconomic and health situation, we have a suggested 15 point plan on managing cash through the next 90 days.
90-day action plan for 18 month Cash, liquidity, and cost management
Consider the following cash management measures to ensure you have a minimum of 18 months of cash runway and keep a dynamic weekly dashboard of what the key cash flow inputs are for your business. How many of the 15 below have you actioned?
1. Extend payables — have the discussions now to defer/extend payments with vendors and landlords. During these early days, parties may be willing to extend flexible terms. If you hear “no,” keep asking. Conversely, prepare to be on the other end of this conversation.
2. Draw full cash amounts from lines of credit — maximizes cash cushions. Consider asking for an extension of your line of credit.
3. Ask your lenders to defer principal payments, wave covenant tests for 2–3 quarters, and wave excess cash sweeps, particularly ones that are likely coming due with the completion of year-end audits — consider asking your bank for some or all of these, regardless of if you think you will need it.
4. Revisit seller notes, if applicable — review terms, identify issues and establish a communication plan coordinated with Board and counsel.
5. Accelerate your receivables — likely difficult (given many will be trying to extend payables) but still try. To aid in this, consider asking new customers for a deposit or partial payment upfront; send invoices early and more frequently; focus on collecting past due accounts, and make it as convenient as possible for clients to pay.
6. Build a daily and weekly dashboard of revenue and cash — institute daily bank reconciliations and daily cash checks between the CEO and finance team (weekly with Board?). Illuminates cash activity and mitigates the potential for unauthorized/fraudulent payments and surprises on cash position.
7. Revise forecasts and stress test cash flows weekly — build detailed 13-week (1 quarter) and 26-week (1/2 year) cash forecast and update it daily, if necessary, or weekly. Focus on cash management and covenants. Know exactly what levels of business performance will trigger a default or liquidity crisis.
8. Discuss deferral of tax distributions, where applicable, with your Board.
9. Plan for the need for a cash infusion — begin the conversation with your investors now if you foresee there being a possibility of needing to raise additional equity over the next 90–120 days. Set up the legal framework and have a discussion with your Board about what that would look like. Be prepared to act on it quickly if needed, but make sure to have all relevant analyses, information, and plans ready to go so your board and investors can digest and act quickly.
10. Make decisions over the coming few weeks on which of your team (1) to lay off, (2) to furlough (temporary leave of absence, unpaid), and (3) to retain (“A/B/C”). Prepare yourself to make hard decisions fast in the coming days.
11. Put a freeze on non-essential spending. Prioritize expenses that keep you operational — mission-critical — and generate revenue. De-prioritize investments.
12. Identify what can be cut immediately versus potentially cut if the current state persists.
13. Reassess costs and renegotiate prices with vendors/service providers. In the current environment, everything is renegotiable.
14. Consider across the board compensation reductions — even if simply a deferral of salary to be repaid after recovery.
15. Stay abreast of Federal, state, provincial and local new government programs, regulations, and laws regarding sick leave, family and medical leave, unemployment insurance/support, etc.
We hope this post was helpful, and know we have missed some things, so please let us know your thoughts on how this post can be improved.