Why Your Liquidity Position Is Key To Exiting Pandemic Disruption

Manufacturing

Throughout the COVID-19 pandemic, private equity (PE) firms are faced with the same unprecedented challenges as all businesses: to optimize existing investments and assets and to fully recover as the market re-opens. PE’s will have an extraordinary opportunity to acquire new portfolio companies not seen since the Great Recession. In order to capitalize, they must ensure their existing investments are secure and operating efficiently – including the supply chain and human resources for these companies.

 

CCO can help your portfolio companies recover quickly by taking the right steps to assess and maximize liquidity, reconfigure operations to adjust to the new marketplace realities, and rapidly get them back on the path to profitability. We can also help you with the significant influx of operational due diligence activity that you will likely face as targets look to exit this pandemic.

 

Our seasoned operations executives and staffing department work shoulder-to-shoulder with manufacturing companies to support the restart and help ramp up their businesses as they begin the challenging work of adjusting to growing demand and operating according to various COVID-19-driven government conditions and guidelines. For PE owners, a partnership with us can help you work with portfolio businesses to rebound from the pandemic disruptions and even seize added market share as the recovery advances. Beyond that, our expertise will put PE firms in a position to optimize the financial and operational assessments of stressed and other assets – enabling you to quickly determine whether a potential investment is positioned for desired returns.

 

Liquidity Assessment/Analysis

First, PE and business managers should start with a thorough assessment of the business liquidity position. Knowing precisely where you stand on this metric sets up key decisions on how to manage and invest available resources as the business is ramped up, including adjustments to meet existing and changing demand and customer requirements. Keep this metric up to date daily as needed.  And, ensure your cash forecasting process is robust. Stress test the model by developing multiple scenarios and develop action plans to react each scenario.

 

Start Early Internally to Manage Cash

Be diligent in collecting accounts receivable and consider options such as discounted payment terms and factoring receivables. Next, consider converting/liquidating some inventory at cost, if necessary, to generate cash. Also, consider client discounts and specials to get your products front of mind of the customers, which not only helps you but helps them through this tough time. Don’t forget to ensure your supply chain can support your ramp up. Ramp discretionary expenses slowly, while ramping value-added expenses quickly. Lastly, work with healthy suppliers to extend payments terms where possible. 

 

External Cash Management

PE managers should over-communicate with lenders early and often. Evaluate a recapitalization of your existing debt – especially given today’s low rate environment. Take advantage to lower your interest expense and cash outlay. Look for terms that provide interest-only for a certain period to help you get ramp up your operation. Work with your lending institutions to put lines of credit in place. This can help with short-term working capital to ensure you can ramp your sales until receivables begin coming in again.  The Small Business Administration (SBA) and additional government funding options have been tremendous over the past six months, so continue to explore these where necessary. However, consider the restrictions some of these loans may have on the business.

 

Manufacturing Impact

It’s important to ensure the employees are re-trained and you have the right people on the bus. Take a look at executive and team-level courses to prepare your talent for the long term after the pandemic. Use the pandemic as a tool to truly assess your talent and upgrade wherever possible since the labor market will likely not be like this for another decade. Focus on operational excellence and continuous improvement projects before ramping up to utilize the resources you do have and supplement with external subject matter experts to keep fixed costs down. Drive cost reductions and cash flow upon production ramp up. Invest in automation where payback does not affect your liquidity situation. Further, we can help your team partner with local and state economic development organizations for financial assistance to make growth capital investments in your facilities.

 

At CCO, we run at the speed of private equity! Now is the time to reassess, restructure, and restart the businesses and manufacturing operations in your portfolio. Our team will uncover what’s working, what’s not working, and what can work better. Contact us to start on your achievable workout plan today and see results in just a matter of weeks!