CASH FLOW AS A DECISION-MAKING TOOL FOR THE UNCERTAINTIES OF COVID-19

Although the first case of COVID-19 contamination was confirmed on 26.02.2020, it was in the second week of March/20 that Brazil, after the increase in the number of cases, the first confirmed deaths and the monitoring of the serious situation in European countries, realized the seriousness of the situation and decided to take the first measures. Although it was possible to estimate the evolution of the pandemic, based on the curve presented by previously infected countries, the truth is that the scenario is one of uncertainty about the future, and this has generated fear and even a feeling of panic, in in some cases, in the population. The official prognosis, which has been repeated by the Minister of Health and local officials, is that the “peak” of contamination will occur at the end of April/20 and, conservatively, by August/20 the situation will be, in a certain way, resolved. However, what has worried businessmen and employees, in those who have a relationship with small and medium-sized enterprises (SMEs), is the great difference between the estimated date for the “peak”, in April/20, which is already in some way specified, and the South normalized situation in August/20. It's four months! Unfortunately, hardly any SME has enough working capital to sustain its activities, even at a slowed pace, for so long. Fixed Expenses such as Payroll, Utilities, Rent, etc., continue to exist, even if a factory operates only on one shift or a restaurant operates through deliveries Delivery. According to a study by J.P. Morgan, recently published, SMEs in segments such as Bars & Restaurants, Retail and Maintenance Services are available to sustain their activities for only 20 days, if the flow of receipts is completely interrupted. The Prudent Businessman, who is able to remain calm even in critical moments like the current one, has invested a lot of time and energy in recent days to talk to customers, suppliers, financial institutions and, in particular, his employees. He is using this period to simulate different scenarios, using the Cash Flow tool, to make a good risk assessment before making any decision, especially the toughest ones. As the Chinese proverb would say, “expect the best, prepare for the worst and enjoy what comes”. Thus, preparing for the worst, the Prudent Entrepreneur must have the capacity to design different Cash Flow scenarios where, depending on each sector, there is, for example, an abrupt increase in default, which tends to occur since a situation is critical not only for their company, but also for all stakeholders involved. Or a possible reduction in revenue, not only related to the absence of new sales but also to cancellations of sales that have already occurred. Finally, through Cash Flow, he will be able to assess the main impacts, and, consequently, what cash exposure the company will have, for example, by August/20. Based on the scenarios defined in the Cash Flow, the Prudent Entrepreneur may, during this period, seek alternatives to contain or eliminate possible cash exposure, through initiatives such as meeting with his main creditors, in order to verify alternatives for delaying payment or raising new funds, deferring the payment of non-essential expenses, such as new hires and taxes, suspend any investment in productive capacity expansion, marketing or other initiatives that may have been planned, etc. This Entrepreneur will periodically review the Cash Flow scenarios, as new facts related to the COVID-19 pandemic are released and, especially, to Performance of your company to indicate which of the scenarios envisaged tends to be realistic. As this is a moment of extreme uncertainty, where it is not known how long the Quarantine period will last, it is not recommended that the Entrepreneur make all the decisions at once, especially those that can greatly harm the performance of his company after the crisis, such as the termination of contracts with essential suppliers, dismissal of professionals, etc. The Prudent Entrepreneur is able to remain calm and execute the contingency measures, already predefined in the Cash Flow scenarios, as long as he has confirmation that they will be the same necessary. He is not slow in decision-making, but he knows how to adapt to different scenarios as necessary, and not abruptly. In periods of economic instability, especially the most severe ones such as the current one, where uncertainty prevails, the Prudent Entrepreneur knows that Cash Is King, and that the best way to have greater control over cash is through the Caixa.ps Flow tool: As explained in the article ORGANIZATION AND PLANNING IN PERIODS OF ECONOMIC INSTABILITY, several measures have been announced by the Government, Central Bank and Financial Institutions to enable some initiatives mentioned in this article to become feasible and give impetus to SME cash flow.ARTICLE WRITTEN BY RICARDO SILVA — PARTNER OF FC PARTNERSGo to our site: http://www.fcpartners.com.br