PwC offers pointers on cash management in uncertain times

With the pandemic introducing hefty challenges and extreme uncertainty to many Canadian businesses, PwC Canada offered some working capital and cash flow management strategies – including scenario planning, cash conservation, and tax relief.

Scenario planning

In a rapidly shifting environment, the consulting firm highlights the importance of running multiple scenarios to stress test one’s financial position. Companies should review their business model, examining how customer demand and buying habits are being impacted. They should also dig into their inventory and procurement to understand issues with demand fulfilment and the impact of factory shutdown scenarios.

Companies’ cash flow forecasts should be tied to regulatory, market, and economic scenarios and updated with new information such as social distancing and key economic data such as jobless claims. They should also integrate analysis of the impact of measures such as social distancing on business performance thus far.

PwC recommends a three- to five-year cash forecast to understand longer term implications, updated at least monthly, as well as a rolling 13-week cash flow forecast tied to receipts and disbursements, updated weekly. 

Levers for cash conservation

The firm recommends setting up cash management offices with key members from finance, accounting, and operations, while upskilling the organization to a “cash culture”-imbued one.

Companies should prioritize future spend based on operational necessity, and negotiate with suppliers to stretch days payable outstanding, and if required, discounts and deductions. On the other side, they should bolster collection strategy by reviewing prepaid expenses and identifying risks of being honoured; sending out bills promptly and monitoring receivables on a strict schedule; and exploring government stimulus options.

PwC advises that companies look into their global inventory flows, assessing vendor risk and aligning it to demand planning, while ensuring a protocol for inventory reallocation – such as shifting products to e-commerce channels.

Cash enhancement

Organizations should be evaluating their cash flows for savings opportunities. They should look at bank accounts for idle cash or other liquid assets; uncover opportunities for payroll savings such as cutting non-salary compensation (e.g. parking passes) and deferring obligations (e.g. RRSP matching); negotiate with landlords on rent holidays, amendments to lease agreements, and reductions in common-area fees; and defer, delay, or reduce capital expenditures.

Tax and non-tax relief

The Canadian government has rolled out a number of measures to address the Covid-19 crisis. These include the $2000 CERB, a deferment of the individual tax return filing deadline to June 1, 2020, and funds to businesses affected by the crisis. PwC recommends examining tax opportunities which could generate or conserve cash, such as assessing previous refunds, prior and future tax instalments, debt deductions, and foreign exchange losses.

Working with lenders

When approaching lenders for relief, organizations should know that they’re asking for (e.g. debt service holiday, covenant relief) and have a plan for repayment and recovery ready. PwC also advises coming prepared with scenario analysis and cash forecasting – that is, knowing what the money will be used for and for how long.