NSCA is deeply engaged with the helping integrators manage and lead through the COVID-19 pandemic. Our goal is for 100% of our member companies to survive this situation. This situation and the current state of your company is not your fault. The industry had never seen such strong overall health indicators as we were seeing just a few weeks ago.
Today, widespread business and facility closures – along with service interruptions – can make the mission-critical work we do nearly impossible to predict. The vital services we provide will still be needed, and we will undoubtedly come out of this crisis at some point. In some cases, companies may have to rebuild or restructure; others may experience little disruption to revenue streams or workforces.
The financial instability that follows in the wake of a crisis can threaten survivability of even the strongest and largest companies. Cash flow and liquidity are a major focus for near term. Today’s realities could discourage even the most solid organizations and most experienced leaders. You may be forced to consider reducing personnel costs, decreasing or delaying non-essential activities, or taking other drastic measures to keep your organization afloat.
Leadership during times like these requires a realistic look at current fiscal states and a willingness to seek and share solutions across the entire organization. Holding true to your mission and core values will guide you toward thoughtful, compassionate, and effective decisions.
To help, NSCA offers a few simple financial tools and creative approaches to navigate otherwise impossible choices. When you’re faced with an unprecedented challenge like this one, your ability to provide adaptive, creative, and considerate financial leadership will be more crucial than ever.
1. Financial Tools Focused on Immediate and Future Action
Your cash position is so important. As hard it can be to remain cash positive in times like these, your estimates on cash burn rate must be bluntly realistic. Stick to what you know is certain – not what you hope will be. Then use the truth of what you see to form strategies that fill funding gaps and/or cut costs.
Simply put, a negative bottom line translates into a cash shortage. No one wants to see trouble coming, but identifying it quickly allows you to do everything possible to push it further into the future. Under normal circumstances, cutting expenses or raising additional revenue could solve cash-flow problems. In this case, however, we don’t have historical data or seasonal benchmarks to use based on sudden closures, restrictions, and cancelled projects.
Take things one day, one week, and one month at a time. While your estimates for the immediate future will be your most accurate, you’re better off running your cash forecast out as far as 12 months. This is not divide-by-twelve math, however; you can’t simply take an annual figure and assume you’ll receive or pay out an even amount of cash each month.
Instead, you must consider when exactly each bit of revenue is received as cash and when each bill must be paid. Even in normal circumstances, not all revenue or expense items land in the exact month we predict.
You need to see short-term and long-term views. The measures you take to counter the initial shortfall may be too little to make a difference if you’re facing a far larger shortfall just six months beyond.
2. Revenue-to-Expense Matching Measures
You have revenue levers and expense levers – use them both. Your revised cash projection should include only sure sources of revenue that you know are on the horizon. Because the financial impacts of this crisis are universal, you’ll want to be in very close contact with key clients. Your ability to plan effectively depends on the accuracy of your revenue estimates. Make conservative assumptions based on work-in-progress and backlog compared to the earned revenue periods anticipated previously.
Once you have a reliable picture (which will change daily) of your upcoming revenue streams, you can look for ways to bend it in your favor. If you’re rock solid on payments from predictable sources, such as service contracts and managed service agreements scheduled more than a year out, one strategy is to approach customers about an incentive to pay early. While the earned revenue can’t be taken, the cash may be used to fund your operations. Though many of your regular customers may face financial stresses of their own, never underestimate their willingness to help if they can.
Another way to stabilize is to ask clients with current projects to release schedule restrictions from your contracts (the basic principles of force majeure clauses could become a talking point). During times like these, you can be certain that your vendor partners and customers are aware of the extraordinary circumstances.
If asked directly, most of your vendors and clients would consider themselves partners and can become champions of your organization’s long-term survival. Sharing the truth about your situation may offer an opportunity to expand and deepen your relationship – and get them to speed up or slow down to best fit your schedule. Taking a “we’re-all-in-this-together” approach to business and partnerships improves the chances of stabilizing.
3. Inventive Strategies & Regulatory Limitations
Unless you hear differently, be sure to consider each of the strategies presented above within the context of wage and hour laws, as well as unemployment regulations, particular to your state. In some states, reducing employee salaries or hours may trigger special labor requirements or unemployment eligibility concerns.
At the same time, state and federal agencies are adapting to the crisis as well. There may be special programs available to you and your employees that extend unemployment benefits or offer other financial relief in response to the crisis. Forgivable bridge loans are being discussed, which may make it more beneficial not to reduce staffing levels. Knowing the details of employment regulations will help you decide which, if any, of these creative approaches are right for your organization. –Chuck Wilson, NSCA Executive Director