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After a series of conversations with my CFO network in response to COVID-19, it is time to dust off the 2008 modeling playbook where Cash is once again King. My modeling activities at Spaulding Ridge are quickly pivoting to all things liquidity management. Can we effectively model:

Comprehensive Scenario Capabilities

Every day is truly an adventure ” the classic base, upside and downside scenario analysis is not going to cut it for the next 6 months.

Humans are typically overly optimistic: we should have multiple scenarios that capture varying degrees of downsides.

Must incorporate external factors including additional black swan events. The virus potentially will decimate entire industries, economies, etc. We all need to be thinking strategically from a bottom up perspective, how various components of our business and market will be impacted by COVID-19.

In times of turbulence, history in not always the best guide. Tops down trend analysis is essentially worthless right now.

Working Capital

Accounts Receivable

Are we at risk of any of our major customers being seriously disrupted or even bankrupt?

Can we offer discounts to collect cash immediately?

Is our Revolver subject to a Borrowing Base, and have we considered the impact of our cap decreasing over time as our A/R ages into ineligibility territory?

Accounts Payable

Where can we stretch payments terms including having conversations with direct conversations with vendors on when they need cash?

Are government programs potentially coming online to support some of our obligations like payroll taxes, rental expense, etc.?

Who is a strategic vendor that we deepen our relationship with during adversity?

13 Week Cash Flows

We are modeling cash receipts and disbursements in a 13-week cash flow model to make sure we are timing cash precisely, especially if lumpy outflows are required at specific times in the month.

Classic FP&A models are traditionally PnL based and not cash based.  A 13-week cash flow gives a much better perspective on cash needs.

Refinancing Alternatives

There is a lot of liquidity being pumped into the banking system with rates at near zero. Now is a good time to recapitalize or restructure if possible.

Because now is a good time to refinance, do not assume banks can react quickly as they are currently overwhelmed with refinancing requests, delinquencies, and disruption while attempting to stay on top of the government’s policy.

A good look at our overall portfolio of assets is a good exercise. Certain assets might be worth more or will be deemed less strategic following this disruption. Raising capital be exiting specific business lines is an option.

Cash Flow Repatriation

Due to legal entity and tax structures, cash is often trapped in specific jurisdictions and not able to move freely between entities and countries based on intercompany transfer and international tax regulations.

We are evaluating in which bank account and country our cash balances reside and looking at our ability to move cash between banks and countries if needed without being taxed.

Some countries are offering different incentives. Can we be taking advantage of any of these based on our current structure and intercompany financing arrangements?

This is a list of various capabilities that an effective model requires in times like these. We all hope this is a temporary disruption, but a good planner is planning for all potential outcomes. If you are interested in discussing further, please do not hesitate to reach out at [email protected].