Cash matters. So does scenario planning

Views with Acuity: Insights to Build Resilience (April 16)



I’ve had many discussions this past week with colleagues, friends, and clients in leadership positions in firms that range in size from small businesses to multinational companies.

The good news is this: to a person, each is laser-focused on cash flow and the importance of cash flow in making it through the COVID crisis. The bad news: for nearly of them, cash flow is not a positive topic of conversation.

So yes, survival right now is job #1. We're all thinking about ways to preserve cash, access government funds, and negotiate payment terms and bank loans. But, while survival may seem like an all-consuming task, someone in your leadership team also needs to chart the next steps while still bailing out water from the boat. 

That’s why the practice of scenario planning is so crucial. Even though forecasting accurately in these circumstances is almost impossible, scenario planning forces leaders to think deeply about markers, red lines and cash – when to preserve it and when to deploy it.

Stay safe, stay positive.

Joy



Country Acuity Advisors - Insights


  • Resilience - think differently: Organizations need to worry less about correct forecasts, and worry more about the art and skill of scenario planning. Resilient organizations - the ones best suited to weathering storms like this - have been doing so for ages. If you haven’t engaged in this exercise recently, now is exactly the time to do so. And rather than expecting a knight in shining armor to give you THE forecast, think through a few outcomes to identify where to find your firm’s red lines, danger spots, and opportunities to shine.

  • Manage currency risk: With huge uncertainty about the recovery, acurate currency forecasting can be a fool’s game. But there are smart steps that firms can take to manage currency risks. Buy credit and trade insurance, especially if your exposure is meaningful. Work with a trade finance broker or your country’s export credit or promotion agency.  If you are in a country for the long term, approach currency risk like you would a long-term stock investment, which may ease your worries about the ups and downs.

  • SME’sit’s all about the last mile. Let’s not forget how crucial SMEs are,  and just how many SMEs (99% of ALL businesses across the OECD) there are. As the outlook for SMEs moves from bleak to bleaker, it is heartening to see that governments around the world acting to support SMEs. That said, even the best-intended plans can fail flat if SMEs have to jump through hoops to get the funds. There are lessons to be learned from examples in Canada, Switzerland, Germany and Singapore where risks are being shared through schemes such as guarantees and government influence over the financial system to boost lending. More of this is needed.

  • Political risks will rise: The COVID-19 crisis is laying bare the strengths and weaknesses of structures, governments, and leaders. Political risks can manifest as lockdowns wind to a gradual close. When they do, pent-up anger, frustrations with governments, a lack of economic opportunity and worries about food on the table can lead to a toxic combination. Bottom line: political risk will be a VERY crucial topic for the next half-decade, at a minimum. Organizations need to be ready with plans for how to mitigate risks and navigate uncertainties in crucial business environments.



Three Things To Read this Week to Build Resilience


  • Calls for sovereign debt relief are mounting. Is it a wise idea to consider fixes, such as the debt restructurings that took place after the second world war, to spur an economic recovery once we have rid ourselves of the scourge of COVID-19? An increasing number of mainstream voices are saying yes. Read more (Financial Times, April14)

  • A Global COVID-19 Exit Strategy. The COVID-19 pandemic poses an unprecedented threat to both public health and the global economy. Only by ditching nationalist rhetoric and policies, and embracing stronger international cooperation, can governments protect the people they claim to represent. Read more (Project Syndicate, April 9)

  • Why We Keep Getting the Lessons of the Spanish Flu Wrong. Lessons from that pandemic crowd the op-ed pages. Books about the contagion climb the best-seller lists. Lawmakers in Washington spread the comparison like slaps on the back. On one level, it's a healthy impulse: Historical perspective helps us appreciate the scale of today’s disaster and the extraordinary response it demands. Yet history—particularly the glib, unexamined kind—can lead us astray as often as it illuminates. (Politico, April 5)



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