The importance of liquidity for an organization facing difficulty is huge. Liquidity can be equated with cash, and it is sustenance, a resource to meet threats, a fuel for recovery. It is also likely scarce.
Cash is king, it is lifeblood. Cash pays for needed goods and services to ensure that the organization can continue to operate while it seeks recovery. It is also used to manage risks that appear rapidly and in multivariate form. Cash is also necessary to execute and implement a plan to reverse any decline.
Necessity and scarcity set the platform for liquidity enhancement. Husbanding resources and controlling disbursement are supported by daily and weekly cash reports. The daily report provides on the spot information concerning cash availability. The weekly report encompasses a projected period that ideally looks a few months forward.
The process of liquidity enhancement renews corporate discipline, reveals much about the balance sheet and operations, conserves resources and seeks new sources of capital. Taken together these measures provide a real chance at recovery.
Together the cash reports will:
- Provide an early warning system in terms of expected financial performance.
- Establish a basic platform that rolls forward every week clearly identifying obligation and priority, resources, and timing.
- Includes information concerning key cash drivers.
- Is used or integrated with other information to track performance.
- Ensures operating loan compliance and anticipates any changes.
- Their preparation will yield a whole host of information concerning the organization and its operations.
Together these reports provide an accurate “dashboard” with essential information concerning the organization. They also provide a platform that assists in husbanding resources allocating them by priority in a disciplined manner.
However, they are of little value in establishing control without ensuring adherence to a rigorous corporate discipline. This requires establishing a narrow band of authority for determining priority and authorizing payments.
Payment priority is a zero-sum game. Therefore, it is based upon absolute necessity or legal requirement.
With timely accurate information in hand together with a strong corporate discipline, it is important to seek additional capital. In the preparation of the cash reports all liabilities should have carefully been reviewed and verified. This should be expanded to create a new balance sheet that is accurate and reliable by:
- Visually inspecting tangible assets and verifying intangible assets.
- The latter must include A/R, patents, trademarks, leases, and interests in other entities.
- Professional valuation of all assets must reflect the current situation for the company and the marketplace for assets.
- Confirmation from all sources for current loan balances with particular attention to such things as contingent and third party liabilities.
- Verification by competent legal counsel of all encumbrances, liens, and mortgages.
The completion of a current Balance Sheet will reveal opportunities to improve liquidity through the sale or leverage of assets some of which may have been unknown. Similarly, a source of capital may be found through amendment, mitigation or increase of liabilities.
Completion of this process creates a reliable Balance Sheet and the Cash reports provide an accurate view of liquidity for some time moving forward.
The reinforcement of vigorous corporate discipline ensures control of resources. Will also set the basis for a long terms business plan and be examined in a favorable light.
The process of liquidity enhancement renews corporate discipline, reveals much about the balance sheet and operations, conserves resources, provides a platform for a comprehensive business plan, and seeks new sources of capital.
Taken together these measures provide a real chance at corporate recovery.
