During the current economic downturn, companies must be extremely disciplined in managing liquidity, especially given the uncertainty around the timing and prospects for a rebound. Even if a company has applied for – or received funds – from government relief programs, including the Paycheck Protection Program (PPP), liquidity must be a priority. No one knows how long stay-at-home rules and economic pain will continue, but we do know the return to normal will be slow and the pace will differ significantly by industry and geography.
In order to best position a business to weather this crisis and maximize the opportunity for a successful rebound, Carl Marks Advisors believes management teams must focus on their cash position daily and work diligently to preserve liquidity. This means carefully tracking incoming and outgoing cash as well as calculating tax and other obligations that are being incurred, even if they are not in the queue to be paid in the short-term.
Cutting costs, of course, has been an imperative for most companies since the outbreak. Discretionary expenses have been eliminated and many businesses made the hard decision to furlough or terminate staff, postpone capital investment, or defer other obligations where necessary. Some companies are also drawing down on revolving lines of credit.
Based on our experience as operational and financial advisors, Carl Marks Advisors recommends five additional steps companies can take as part of an effective liquidity management plan: