Conserving cash crucial as lockdown eases

Despite the gradual easing of lockdown across Europe, bearish businesses are still focusing on cash preservation, says Neil Robertson, executive chairman of Compleat Software.

“Nobody knows what’s going to rise from the ashes of lockdown,” Robertson says. “Everybody’s sort of sitting and thinking, ‘how many of my customers are going to come back? How many of those customers are going to come back in a financial stable state? What’s my revenue going to look like? What’s my bad debt liability going to be?’ And you can see that through the massive growth of unemployment as companies shed costs in terms of people, irrespective of the furloughing capability.

Brett Morris CFO at Olive Communications UK says his core focus is on the short-term health of the business.

“The need to respond at short-notice to the evolving shape of the lockdown meant that I initially managed Olive’s finances with a very clear focus on the short-term cashflow. It was vital to quickly pull all of the cash flow levers that were available to us and to then focus on the collection and evaluation of further financial information that could be used to effectively manage the business over the medium term,” he says.

Both Robertson and Morris are cautious of looking too far ahead, particularly as there is still so much uncertainty. That is despite the recent announcements on easing restrictions and the extension to the furlough scheme.

Robertson argues that planning for a return to work is fraught with danger and means technology will become crucial to the smooth running of business.

“We are a long way away from returning to any form of normal,” says Robertson. “There’s a significant proportion of the working population that works in office spaces, who will not want to return to an office because the physical risk of them getting to that office and then being in that office isn’t worth it.

“The challenge for the CFO in terms of lockdown is if we look at 12 months out, 18 months out, if there is a vaccine, if we do get to the point whereby we have herd immunity that is all a long way away.

“So, the decisions that they need to make are very much more short term, they need to do things now in terms of looking at the way the business operates, and then changing technologies and methodologies to reflect that,” he adds.

Morris adds that his focus is mainly on the next three months as it is too early to start looking ahead with much certainty, particularly at issues like revenue forecasting, and Robertson agrees that at this point it is a game of guesswork.

“This ability to predict what you’re going to have as [the country] opens up – it’s a guess. The further you go into those sectors heavily affected, the bigger a guess it becomes. So, I think the way that FDs are addressing this, and it’s definitely borne out by the US marketplace, is they’re just shedding costs very rapidly,” Robertson says.

As a result, he believes firms are moving into a period of “survival mode” where tough decisions have to be made.

“Taking the body as being the company, the brain says, ‘I’ve got to survive’, but to do that I need to amputate my leg because I’ve got an infection in my leg. Do I take it off at the ankle? Do I take it off the knee or do I take it off at the thigh?” says Robertson.

“The majority of CFOs, are moving to the point of saying, ‘I need to make sure and therefore I’m going to cut deep as I have to, to make sure that we are as lean as we can possibly be for the market coming back.”

All of these drastic actions are fuelled by insecurity and uncertainty, according to Robertson.

“There seems to be a very high level of insecurity because they can’t predict, and I think that’s reflected in the steps companies are taking which is very depressing,” Robertson says.

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