A Guide to Crisis/Cash Management and Contingency Planning: Part 2

The following content has been generously shared with us by Timothy Thompson of FTI Consulting.

In an uncertain and rapidly evolving landscape, printers are facing daunting new challenges in a sector that was already under pressure. Printers must act now to protect employees, to prepare for business and operational obstacles while continuing to serve their stakeholders; some can be expected, many will not. The critical variable in this equation in cash. Without it, one cannot pay employees, purchase supplies or manage facilities. Having a cash cushion in uncertainty allow for your firm to have some level of flexibility in decision-making and enables you to absorb unforeseen shocks to the business. A strategy that focuses on near-term cash management will require a diversion of resources to Balance Sheet management and an acceptance that growth aspirations are put on hold for now.

For those of you who will face critical liquidity and cash management issues, here are some immediate levers that can be pulled to preserve cash that FTI has used on hundreds of engagements. Some of these suggestions are short-term, crisis management actions other are good business practices that could continue. For many of these items, implementing requires cost/benefit analysis and some risk analysis weighing longer-term strategic impact with near term liquidity.

Cash Management Levers:

  • Develop and manage 13-week cash flow reporting
  • Order-to-cash optimization; stretch payables
  • Negotiate extended payment terms
  • Hold all CAPEX, non-essential purchasing and investment decisions
  • Create consumer offers for early renewals and discounts or digital conversion
  • Enact modified spend authorizations to centralize decision making
  • Vendor consolidation; negotiate better rates for higher volumes
  • Draw down inventories to delay payments, assess associated risk
  • Stop, curtail IT development
  • Stop non-essential purchasing and investment decisions
  • Hold dividend and shareholder disbursements
  • Temporary salary reduction starting at the top
  • Benefits assessment; 401k contributions delay
  • Sell equipment, obsolete inventories and real estate
  • Negotiate forbearances, grace periods, management fee deferrals
  • Pursue lease concessions

Tactical Liquidity Management Framework:

Execution of this shift in strategy to cash preservation can be daunting.  Below is a framework that provides a playbook and rough timeline to optimize working capital and the company's cost structures.  Data driven analysis, coupled with a diagnostic assessment of an organization's people, processes, and systems, is the leading recommendation for identifying quick wins and creating sustainable performance improvements.  While enhancing liquidity management practices requires an investment of time and resources, instilling cash management discipline provides an invaluable tool to manage the business, which leads to significant cash flow improvements and facilitates more efficient working capital and treasury management.


FIGURE 5: LIQUIDITY MANAGEMENT FRAMEWORK

Quick Win Cost Reductions:

Finally, as we continue to update the industry and receive updates from the industry, we have been asked about ideas on 'how to reduce costs immediately'. Liquidity issues will vary across the industry based on numerous balance sheet and operating performance factors. Based on ideas from many of our clients and what we would address as consultants, here is a list for your consideration tempered by the situation you find yourselves.

Product | Customers

  • Obtain updated forecasts from key and recurring customers
  • Understand your customers own liquidity issues where possible
  • Modify terms for payment, deadline expectations due to staff and production window draw downs
  • Temporarily shutter any products or ancillary business lines that were barely or not profitable
  • Hold or defer all new or recently released products
  • Communicate with customers and ensure they are aware of the constrained environment
  • Reassess, stop sponsorships / advertising

Operations

  • Consider going dark in one or more facilities to consolidate work and manage costs, reduce overhead
  • Rethink production staffing and deadlines for more cost-effective schedule
  • Right-size production staffing when jobs are downsized or stopped
  • Re-think equipment staffing and shift allocations to space out employees
  • Rethink distribution schedules
  • Curtail facility and maintenance schedules
  • Delay installations, modify scheduled maintenance to either take advantage of downtime or create downtime
  • Eliminate power and janitorial for unused areas due to WfH; move quicker to remote working

People

  • Reduce or eliminate temporary labor [a COVID-19 transmission safety concern], rely on your tenured and experienced employees
  • Reduced schedules / alternating schedules for G&A and support staff
  • Re-assess sales force, provide aids for remote work and remote meetings
  • Streamline management and functions for the upcoming 'new normal'
  • As a last resort, furlough staff to manage low periods

While each business is unique, this constantly evolving situation, each consideration should be thoroughly analyzed for both their short- and long- term impacts to the business. At some point, businesses will be required to return to the new normal, which will carry its own set of challenges.

Timothy Thompson is a Managing Director in the Publishing + Digital Media practice. Mr. Thompson has more than 15 years of consulting, project management, and mergers and acquisition ("M&A") advisory experience focusing on post-merger integration and change management in a variety of industries, including publishing, manufacturing, logistics and distribution, engineering and construction services, and telecommunications.