BlackLine Blog

November 16, 2020

Road to Recovery: Effective Preservation & Deployment of Cash

Modern Accounting
3 Minute Read

Michael Heilman

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The most critical aspect of any recovery is the effective preservation and deployment of cash. Spend too much, and the cash can run out before recovery. Spend too little, and the business may not be in a position to succeed.

Improper cash management can lead to numerous consequences:

  • Run out of cash: Overspend on the wrong resources and cash does not survive the downturn

  • Run out of resources: Spend too little and possibly lose valuable resources necessary to recover

  • End up with the wrong resources: Spend incorrectly and reduce your capacity to recover including key personnel

  • Effective loan management: Several of the government assistance programs like PPP are strict about the application of funds and conditions required for forgiveness

Effective cash management is far more complicated than a company’s standard Statement of Cash Flows or monthly cash flow projections. The Statement of Cash Flows was designed to be backward-looking, whereas the typical cash flow projections are based on general balance sheet ratios (DSOs, Inventory Turns, etc.) and normally are directional in nature on a monthly, quarterly, and yearly basis.

Understanding Projected Cash Receipts & Disbursements

During times of distress, companies must get far more granular in their understanding and execution of weekly, or daily, cash flow management. This involves a detailed understanding of the projected cash receipts and disbursements over the coming weeks.

Cash Receipts

Understand the potential cash receipts in the coming weeks with the expectation that many customers may not be in a position to meet their payment obligations.

Employee Expenses

Break down your employee expenses on a weekly basis. For many companies, employee compensation is the largest expenditure. Management of this resource is critical during the COVID-19 crisis but is also equally important for any future recovery.

At current levels, lay out current payroll needs on an employee by employee basis and understand the timing of each disbursement, including benefits and taxes.

Supplier/Vendor Expenses

Break down projected cash disbursements on a weekly basis. Understand your account payables and timing of each required payment, and project current expected invoices for typical expenses and critical expenses to keep the doors open.

Debt Payments

Understand debt payments for the 13-week period. Also, understand the available capital resources such as credit lines and government programs.

Understand Capital Projects Currently in Progress

The knee-jerk reaction is to immediately stop all longer-term capital projects. If possible, completion of some of these projects may position the company for a quicker recovery. We address this topic in Tool 5: Driving Innovation.

Join UHY at BeyondTheBlack 2020

Prioritization of Cash Receipts & Disbursements

Once the baseline is established, it is important to analyze and prioritize disbursements to stretch out a company’s current and projected available capital. Part of this prioritization is understanding the flexibility a company has in stretching out payments to key stakeholders, such as employees, vendors/suppliers, and debt holders.

Cash Receipts

While it is not farfetched for companies to assume that there will be little or no cash receipts during the pandemic, there are still customers in need of services that will be in a position to provide some of the expected cash.

Employee Expenses

Human Resource management will be one of your most critical decisions in the coming weeks. As you create your resource plan, certain questions should be addressed such as:

  • Who is necessary to keep the lights on?

  • Who can be retained at lower compensation through the crisis?

  • If you lay off or furlough employees, who will be available for rehire?

  • Who is necessary to better position the company for recovery?

  • Who can be temporarily replaced through outsourced services at a lower cost?

Supplier/Vendor Expenses

Managing key supplier relationships through this crisis will be key in determining your survival and ability to recover.

Communication, communication, communication. Now is not the time to “ghost” your vendors or suppliers. Companies that maintain strong relationships through the pandemic will be those who build the foundation for the future.

There are some hard choices to be made. Many companies will not be able to pay all vendors. Decisions on which ones to fully pay, versus which ones to partially pay, versus which ones to defer should be made in the context of the overall cash management and recovery plans.

Debt Payments

Most lenders will work with companies during the coming weeks, and to do so, lenders need to be included in the plan.

Communication is key. Properly manage any government loan programs for maximum effect or forgiveness and understand capital projects currently in process. Also, understand the short- and long-term implications of each project before making any decisions.

Sensitivity Analysis

All cash flow projections include a wide variety of assumptions. Which customers can or will pay? Which vendors/suppliers are willing to extend terms? Which employees are critical?

Even after prioritization, many companies will not have a clear path to survival. Important trade-offs need to be made.

To make a tradeoff, the company needs to understand how each moving part impacts the others. To do this, the company needs to perform a sensitivity analysis in which each cash source and use is adjusted over the coming weeks.

Effective Loan Program Management

As mentioned above, effective management of government loan programs may be the difference in a company’s survival.

If a company is fortunate enough to have received funding from the various programs, such as EIDL (Economic Injury Disaster Loan) or the PPP portion of the CARES Act, how the company utilizes the funds will not only affect their long-term viability, but will also impact how portions of the proceeds may be forgiven.

Join us at BeyondTheBlack for our session on Tuesday, November 17 at 12:30 pm PT. UHY, T-Mobile, and Sprint will share lessons learned during the integration of BlackLine in the newly merged organization.

This session is eligible for 0.5 CPE/CPD credits in the Management Services field of study.

About the Author


Michael Heilman