16. Business financial approach to this global crisis

Chapter 16


by: josavere

For obvious reasons, the financial executive must be a facilitator and objective support of the company for decision-making in the midst of a global crisis such as the one that occurs with so much human pain, as a consequence of the COVID-19 causing the crisis of the year 2020, whose impact is so serious that, without any doubt, we can affirm that it will change many patterns of human behavior and as a consequence will have a great impact on the economic aspect and consequently on the administration of the business.

Colombia, recently admitted to the OECD (Organization for Economic Cooperation and Development), which is equivalent to a certificate of quality of public policies and opens doors to institutional investment funds; it has international recognition for its traditional behavior honest debt; much political stability; free trade agreements with the main economies of the world, which gives it the ability to predict the rules of the game for exports and foreign investment; with great power generation capacity; the tradition of respect for foreign investment; inflation highly controlled by a Bank of the Republic independent of the executive, as occurs in countries with advanced economies; Immensely respectful of the freedom of the press and of different opinions and classified as an investment grade country, it must exploit these advantages to boost its economic recovery.

Because it is a general problem, we must diagnose the particular case with great care and make all the pertinent decisions, and then focus on the sector worldwide and see how we can integrate to become part of the solution, always remembering that human resources are the most important and that the first principle of life is health.

You should start, keeping calm and the maximum state of happiness that circumstances allow, with a rigorous analysis of the effect of the situation on cash flow, which is done by comparing the initial and the resulting projection, including the repercussions by the effect of the phenomenon in question and presenting it with all the rigidity as critical as it may be. Based on this model, a meeting should be held with the entire executive team, until everyone becomes aware of the situation and accepts the figures.

The model, which must classify cash outflows into: a) fiscal, b) labor, c) operating, d) suppliers e) financial and f) owners, becomes the basic tool for periodic meetings to control decisions that are taken oriented in accordance with the guidelines of the presidency.

Nowadays, with the electronic sheet or programmatically in Excel, the operational part is very easy. The real difficulty arises in the premises for its preparation and for disciplining the entire organization and making him understand that cash flow is the true measure of liquidity and that its projection becomes a guideline that requires a lot of application to obtain the full benefit. that can be achieved with its use.

The ideas that are approved in these meetings must be specified in the expected effects with the cash flows, a variable that becomes the true support of acceptance, as the cash situation improves until we find the strategy that allows us to overcome the crisis, which becomes the maximum objective in the short term and gives us the basis to start looking for recovery alternatives in the medium and long term.

The organization's president is responsible for exercising the effective leadership that brings to fruition the rescue operation he designed with his entire executive team, whom he must keep empowered according to his style and with periodic control, supported by his board of directors.

Meanwhile, assuming with faith and confidence the plan drawn up for survival - the responsibility of the entire group - the revised financial equilibrium point must be calculated, according to the cost of capital, calculated as a dynamic concept, resulting from the decisions made in salvage alternatives.

The financial executive must take full advantage of government aid, the banks with which it operates, those that it can obtain with its suppliers and with some clients to improve cash flow, in addition to all the decisions at its disposal in relation to accounts by collect, inventories and other working capital accounts aimed at improving EBITDA.(ability to generate cash)

Thinking of the medium and long term, in addition to the Command Board, it must prepare, based on global sector indicators, discussion bases with the presidency for more far-reaching decisions such as capitalizations, divisions, mergers, acquisitions, purchases and even the sale of the company.

To structure powerful decisions, financial theory has developed models such as the sector growth matrix, multiple correlation, , managerial costs, the holistic model of financial analysis, the valuation of intellectual capital, etc., which serve as the basis for decision making.

The recovery plan must be structured according to the new guidelines, knowing the production capacity and its level of occupation, bearing in mind the guidelines that will govern the companies of the future, seeking simpler structures to reduce fixed costs to a minimum, facilitate domestic work, use outsourcing in everything related to distribution logistics and look for mechanisms that facilitate the level of happiness of the workforce.

For decisions after the rescue plan, it is recommended as a project evaluation model, to use INCREMENTAL CASH FLOWS, with a lot of concentration on feasible alternatives to maximize productivity as a strategy to face the stiff competition that will most likely be presented as a consequence of the economic conjuncture with inflation, caused in part by the liquidity that will necessarily have to be injected worldwide.

In the case of SMEs and medium-sized industries, it is highly recommended to analyze the problem at a group level and, when appropriate, use integral alternatives that involve multiple operations, using the divisions; Absorptions, and Mergers; Securitization and in what it touches, La Fiducia. In these cases the union institutions must exercise the leadership that corresponds to them to present to the governmental entities true alternatives of solution, accepting the seriousness of the problem and becoming real engines to mark the recovery keeping in mind the changes that are looming in the very short term in the focus on economics and very specifically on business administration.

See Cash flow
Click to accede to the Tool

<<Prev Chapter

Copyright © 2020