Tips for Dealing with the COVID-19 Economic Downturn from an M&A Advisory Firm

Tips for Dealing with the COVID-19 Economic Downturn from an M&A Advisory Firm

It can be tricky to know what to do with your money in turbulent times. There is a great diversity of opinion on the topic. Often the experts disagree dramatically in terms of how to best navigate troubling economic times. The simple answer is that there is no precise roadmap, but there are savvy steps that you can take. We’re going to review some of those ideas in this article.

In the recent Divestopedia article, “Cash Forecast Excel Tool: In Tough Times, Cash is King,” author John Carvalho, President and Founder of Stone Oak Capital Inc., an M&A advisory firm, had a range of insights and advice. Carvalho doesn’t mix words when he states that we have entered difficult times.

He noted, “We’re witnessing a global economic shut down that has never been experienced in human history. Business owners will unfortunately suffer, but past recessions can provide guidance on how to survive.” Learning from the mistakes of the past, and the mistakes that others made, is a good way to protect yourself moving forward,

Carvalho’s main advice is to “cut deep.” He cites an experienced entrepreneur’s statement from a 2008 conference on the state of the economy. The entrepreneur noted, “I never regretted cutting too deep in times like these.” In other words, preserving cash and rebuilding later is the most prudent course of action. He also points to a message from Sequoia Capital which echoed these sentiments.

The Sequoia Capital message to its portfolio companies was essentially a guide to how to survive this economic downturn. Some of key highlights in the guide included adapting quickly, making cuts, reviewing salaries, becoming cash flow positive ASAP and “spend every dollar as if it was your last.” Carvalho believes that now is the time to opt for much shorter forecast periods, such as weekly versus quarterly.

From Carvalho’s perspective, now is the time to make “cash king.” To help companies do just that, he has created a weekly cash flow tool for excel. His article outlines the 4-step process of how to use the excel tool. After using the tool, Carvalho advises that users ask themselves a series of cash related questions designed to get them thinking about their forecasted cash balance, what their largest weekly expenses are, and what happens if revenue and cash collection worsens.

While acknowledging that the economic fallout of the COVID-19 pandemic is unprecedented, Carvalho ends on a positive note. It is important to remember that while there is a degree of unknown and chaos resulting from the COVID-19 pandemic, there will also be a recovery and opportunities that result. The key is to carefully analyze your cash flow and think through every aspect of your business carefully.

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