Making It Happen
A few dos and don’ts that management should bear in mind during a liquidity crisis:
Do
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Announce problems early and honestly to all relevant stakeholders.
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Build and monitor a reliable rolling liquidity forecast.
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Develop an action plan early on to demonstrate control of the situation.
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Empower managers to look for potential to extract cash in their areas from the bottom up.
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Maintain regular and open contact with external stakeholders.
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Be honest with employees and involve them in the process.
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Perform financial restructuring in conjunction with operational restructuring.
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Always prepare for the worst: in a crisis situation the worst case is always the real case.
Don’t
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Ignore the situation hoping that things will turn themselves around.
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Look for profit instead of liquidity: avoid paying early for cash discounts, and collect value adjusted receivables rather than keep your write-offs down.
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Throw good money after bad: accept sunk cost rather than continuously burn new cash.
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Forget to include an additional buffer for peaks in cash requirements in your liquidity forecast: there will always be unexpected events, and most will hit you.
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Stop spending and investing completely: do not risk a complete breakdown of operations.
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Look for perfect solutions: take a practical approach, and react quickly to avoid rumours spreading and a domino effect.
- Page 4 of 4
- Previous section Rolling Liquidity Forecast
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