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Covid-19 and Working Capital: Bringing Working Capital Management Together

Part 4 of a 4-Part Series

Responding to the financial impact of the Covid-19 shut down and disruption requires a firm, unemotional response at a time when that is most difficult to achieve. In this series of articles on working capital management, Focus Management Group is addressing techniques and approaches for managing each of the components of working capital, and then bringing all that analysis together in a working capital cash flow forecast. The first three articles addressed accounts payable, inventory, and accounts receivable.

In reading these articles, it becomes clear how intertwined businesses are with each other, and how each aspect of cash flow management affects the other parts of the business. The tools one business considers when managing its own accounts payable, are the tools its vendors will use when managing their accounts receivable. And so the circle of interrelationships grows.

Because all businesses have experienced some level of disruption and uncertainty, the hard core approaches to working capital management taken in the past will require additional planning and finesse as the economy returns to business.

To return to business, each company is going to need a weekly cash flow forecast that encompasses the hard work of planning and forecasting accounts receivable cash inflows, inventory needs and ability to generate cash, and accounts payable outflows. This planning comes together in the weekly cash flow forecast, including roll forwards of components of working capital.

While the cash flow model deals with cash inflows and outflows overall, it is most accurate when the direct drivers of working capital are forecast via roll forwards of accounts receivable, inventory and accounts payable. Even if the company does not have an asset based lending structure, in this current environment, every business is best served if it operates with that level of discipline.

We identify these planning tools that drive the cash flow as:

  • Accounts Receivable Planning and Management Tool

  • Customer and Product Profitability Tool

  • Accounts Payable Planning and Management Tool

Next Steps

This level of planning can seem monumental, but it is extremely important now. We all have to manage cash as closely as possible, but also provide a roadmap to the return to new normal. Employees, customers, vendors and bankers will all be happier with a roadmap that outlines what will happen. The initial work to develop the roadmap, and utilize these planning tools, can be overwhelming. But, once implemented, if these tools become part of the company’s planning structure, success should be maximized.

We are ready to help companies work through their cash flow forecasting and develop their roadmap to the return to new normal. We are able to work with companies to build their working capital planning skills, culminating in a weekly cash flow forecast with regular ongoing budget to actual reporting.


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