Surface Ripples

Cash is King

 If there’s one thing that the current COVID-19 pandemic has shown, it’s that cash (or “near-cash” is definitely king.  Businesses with sufficient (let alone excess) cash or whose business doesn’t depend on customer footfall on premises (e.g. restaurants, hotels) have been able to ride out the current storm better than others.  

What has this taught me?  It’s that I need to have enough cash or “near cash” to run my business for a year at least. 

If we take an example, look at the low-cost airline Flybe. This was a popular UK-based airline providing flights in smaller aircraft to various destinations in the UK and Europe.  Unfortunately, rapid expansion and the accompanying debt service costs combined with COVID forcing passengers to stay at home took their toll and the airline went into receivership.

One of its main “hubs” – Southampton (Eastleigh) Airport, is now a “ghost airport” with hundreds of jobs lost.  

So not only were jobs in the airline lost, but support jobs in airports also fell victim.

Flybe depended on people flying and, when this couldn’t happen, their business model collapsed.  Other larger airlines are facing the same predicament.

Depending on your business, your buyers may not be able to pay you either, if they aren’t able to collect the cash needed.  In this case, you have a list of people who owe you money but can’t pay you – possibly because they’re hoarding what little cash they have to keep themselves afloat… 

Cash is king, but I also mentioned “near cash” which, for many, will be investments in bonds or equities which can be sold relatively quickly.  Some businesses to which I used to lend in my banking days also had “contingency credit facilities”, i.e. overdraft facilities or other lines of credit on which they could draw when needed, but not as part of day-to-day business.  Such facilities still have to be paid back though, so a long-term source of cash income is still needed.  Small businesses are unlikely to have the balance sheet “heft” to support such facilities in any case.

In future, We’re going to have to think a lot more about how long our businesses can survive in the face of a “business drought” – particularly if our business depends on people actually being present.  

I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website  provides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

Labels: Crisis Management, Customer Care, Financial, Leadership, Risk, Strategy

posted by William Martin @ 08:49