CORONA news: What to do in the crisis
30. March 2020
First of all, the most important thing in any serious crisis is not to waste time trying to find the perfect solution, but to quickly and decisively implement a solution that makes 80% sense. Based on our extensive experience, more companies became insolvent in pervious crises because they reacted too late, not because they reacted the wrong way. The relevant timescale is “days and weeks,” not “weeks and months”. Every day costs money, money that will be missing at the end of the crisis when you are looking to get your company back on track. This sounds trivial, but it is not. Too many managers are simply too afraid of making mistakes. In acute crises, however, the desire to avoid mistakes has to take a backseat because no one can know a priori what is “right” or “wrong.” What companies really needed is a credible manager who can win trust by implementing strategies consistently and acting with integrity.
A. Secure liquidity in the short and medium term (absolute priority):
Draw up short-term liquidity plans every single week and update them continuously (the Pareto principle also applies here, because speed is important). This involves:
• listing secure income and unavoidable expenses for the next 6 (or even better, 13) weeks;
• deferring all other expenses (until their significance is weighted);
• examining how (even seemingly unavoidable) costs can be reduced without jeopardising emergency operations; e.g. through furloughs and part-time work, tax deferrals; and
• suspending all investment decisions immediately, ready to re-evaluate them at a later date later based on your plans for the next 12 months or so.
Develop month-by-month liquidity plans for the next 6–9 months, based on realistic assumptions, as explained below under “B”.
Prepare documents to apply for liquidity assistance loans and/or bank guarantees (KfW, state development agencies, etc.) using your crisis plans as a basis. All funding programmes provide grants and loans via banks – and banks need more time in a crisis to approve applications and disburse funds because they are overrun!
Contact your banking providers and, if necessary, credit insurers, as soon as you can. Unfortunately, we have observed that most banks are only approving loans to existing business customers. This is important to note because the emergency funding programmes all require banks to assume (some) of the credit risk.
B. Operative measures:
Determine which activities are really indispensable to keep the company afloat in the short term and to implement your crisis measures (e.g. management, some accounting and IT employees, some sales personnel to maintain contact with customers, caretakers/cleaners, etc). In view of the risks of contagion, if possible, set up two separate teams for each of these functions and ensure that they do not meet face-to-face but take turns in the office.
Determine which indispensable activities can only be performed in the office and which can be done from home.
Distribute the (presumably limited) equipment needed for employees to work from home.
Send employees who are not needed on compulsory leave until the furlough payments start to arrive. Do not let them sit around at home pretending to working, because you may well need your employees later in the year, and wouldn’t want them all to take vacation then.
Ensure that your company’s management and decision-making bodies agree on a realistic working hypothesis and develop a new plan based on their input. If you are an industrial company, you should have a clear idea of when your sales channels will open up again and when your suppliers will be able to deliver. If you are a service provider, you will need to consider how your services harmonise or conflict with the pandemic response, because some services may not be required again until adequate supplies of effective medicines and vaccines are available. You should also make sure that your working hypotheses are clear and realistic for third parties – such as funding agencies.
Put together a project team with one representative from each key business area and ensure they provide you with regular updates and who maintain communication with the other employees. If necessary, involve external advisors (tax advisors, labour lawyers, etc.).
Work with your project team to identify the measures that will be required to implement your working hypotheses.
Draw up a timetable and update it at least once a week.
Your project team, however, should not be a classic working group; management must lead and give instructions.