Financial advice to deal with business management in a COVI situation

The pandemic situation we are experiencing has several characteristics, which make the economic and financial management of any company difficult.

We are facing a new and unknown situation, which requires a great deal of analysis and urgent action. It is well known that a good situation analysis does not go well with emergency decision-making, for this reason, we will try to give action guidelines for this complicated situation.

First of all, no one will take away from us having to carry out a situation analysis, we must be clear about what our variable costs are and what our structural costs are. In the same way, be clear then how is the billing necessary for our company's break-even point.

Secondly, we must do a "stress test", that is to say, simulate our operating account, with a drop in income of at least -50%, and see what losses we would generate annually in this new situation.

When we are clear about this value of possible annual loss, it will be when we will try to regulate costs, and subsequently look for the necessary financing so that the company can save a calendar year in this new simulated situation.

Regarding cost regulation. We will drastically minimize the variable costs of purchases, regulating them at half of the billing. If the situation improves, we will again increase the volume of purchases, but the initial decision must be to minimize it.

Next, we will try to contain fixed costs, by talking to their suppliers, or by implementing the Covid measures for Ertes (rents, staff costs, etc...), at least 3 months in advance.

Having achieved this new cost situation, we will recalculate our operating account with the corresponding decrease of -50% of sales. If we are in a situation of breaking even or above, we will start the plan, without going into debt, this would be the most interesting thing to not generate debt, but with a strategy of temporary cost containment. But in the event that the operating result comes out below the break-even point (losses in the simulation, even with the reduction of costs) then we will have to ask for the financing equivalent to the loss result that ensures that we can maintain the company for a year.

After a year, we all hope that the sales situation will be reactivated, surely new drugs will have emerged to contain the evolution of the virus, and even a vaccine will be provided to part of the population.

This will cause a regularization of the assets, which will allow us to pay back our debt, and also be able to regularize the cost situation.

Regarding financing, we will have a clear idea of ​​the optimal amount to finance, with the simulation process explained in this article. Knowing this, we will have to go to several financial institutions, at this moment, they all have options for ICO loans for working capital, payroll payment, bill payment, etc…

In conclusion, we must be aware that we must regularize the costs in the new situation, before asking for financial resources. If we limit ourselves to asking for financial resources without a regularization of costs, we can enter a spiral of increasing debt that greatly increases our financial costs, and comes to make the company financially unviable. Therefore, the amount to finance must be optimal, and always after a study and adaptation of the costs.

Marc Ortega Torres
Consultor Financer
marc@oddpartners.com