The magazine Economía 3 has published an article by Álvaro Benítez, Consulting Partner at Kaizen Consulting Vlc. “How to Weather the Financial Crisis and Not Die Trying” explains the essential and basic financial measures to take right now, presenting them as physical training routines. The author warns: “if you follow these routines, when you come out of this crisis, you’ll look GREAT, as if you’d been going to the financial gym (or at least maintain the shape you had).”
You can read the full article in the online edition via this link. Below, we reproduce the points Álvaro Benítez recommends in Economía 3 to survive the financial crisis:
1) Focus on one thing, just one thing… THINK LIQUIDITY
The first thing you must do is learn to take care of your money. In crisis situations like the current pandemic, you need to think short-term: monitor liquidity and do not waste it. Remember that the main cause of business failure is lack of liquidity. If your company or business enters a prolonged liquidity crisis, it could lead to a solvency crisis, which is even harder to overcome.
Sell everything unproductive, unnecessary, outdated, or slow-moving inventories, manage collections and payments properly (especially speeding up collections), reduce stocks, and ultimately reduce operating fund needs as much as possible to generate liquidity.
2) Evaluate your current financial situation… GET A CHECK-UP
In the economy, as in life, it is advisable to get a check-up from time to time, and now it is essential if we want to avoid an “emergency surgery.” We must scrutinize our financial health so that, at the slightest symptom, we can promptly find the right treatment. To do this, analyze the strengths and weaknesses of your company or business (liquidity, debt, solvency, margins, profits, break-even points, leverage, etc.), conduct a thorough review to see where we stand, what needs correcting, and what requires special attention or care. Ask yourself: How long and how well can we endure if this crisis lasts longer than expected?
3) You need an income and expense budget and a cash flow budget… YOU NEED A ROADMAP
It is crucial to work on implementing a budget, as it will allow us to organize and manage our finances, anticipating various scenarios that might arise.
With a budget, we can establish a relationship of income and expenses, payments and collections, creating a monthly plan that allows us to make better strategic decisions and know in advance where we are headed, whether we have profits or losses, what money we will have, and what money we will need.
Currently, we must work with budgets under different scenarios (pessimistic, neutral, and optimistic), make them flexible, constantly review them, and learn to quickly adapt to market realities. Without knowing where we are going, we are lost… we need a roadmap, a path to follow.
4) Minimize expenses and eliminate everything superfluous that does not add value… SAVE
The budget will allow you to analyze and review all your expenses, those in your company or business. Identify which are dispensable, which are not so necessary. I know it is difficult, and everything seems necessary, but we are in “trench” times.
We must rationalize consumption and hold teams accountable for saving (involving the entire organization), but above all, we must try to reduce expenses that do not add value and seek to generate higher margins or, at least, maintain current margins (as long as they are considered acceptable).
5) Improve the efficiency and effectiveness of the resources we have… MAKE THE MOST AND IMPROVE WHAT WE ALREADY HAVE
Competitiveness is related to the efficiency and effectiveness of resources, continuous process improvement, integrating new technologies into these processes, reducing costs, establishing quality control systems, eliminating inefficiencies, rework, and losses. In general, it involves implementing everything that improves efficiency, adds value, and makes us more effective. Work on improving what we have and making the most of our infrastructure and resources.
6) Learn to properly structure your debt… HEALTHY INDEBTEDNESS
Rationalize your debt and seek financing that fits the needs of the company, measure your repayment capacity and your debt level.
Address restructuring and eliminate short-term high-debt pressures that could affect liquidity and business continuity.
Debt “per se” is not bad; it can even be a good lever for growth and surviving this crisis. But beware! Bad debt can be the beginning of the end.
