COVID-19: Managing Your Liquidity and Cash Flow

There is no doubt that our economy will undergo major upheavals in the next months. Businesses will have to make important decisions to adapt to either the loss of consumer confidence, a change in consumer habits or the management of risks characterized by the COVID-19 pandemic.

Although liquidity has been available in the money market for several years, the liquidity crisis we are facing does not affect the availability of funds, but rather the ability of businesses to generate positive cash flow.

As in any situation where consumption habits are retracted, this generalized slowdown, whether it is weak or moderate, will have a sufficiently significant impact for businesses to take precautionary measures, particularly for small businesses, which make up 97.9%[1] of the Quebec economy. Such measures includes :

• Temporary layoffs;
• More structured inventory management;
• Tighter management of accounts payable and accounts receivable. 

Measures to Limit the Impact on Cash Flow

Faced with any situation where the loss of confidence and changing consumer habits are at the forefront, it is important for entrepreneurs to plan for sound financial management of their business in order to smooth out any difficulties that may arise in the short term.

Some of the things to expect are :

1. Having an effective communication plan with customers, suppliers and employees to reassure them of the continuity of operations;

2. Since a company's cash flow is at the heart of all these issues, it is essential for any entrepreneur to properly evaluate, on a basis of at least 13 weeks, cash flow forecasts with competent professionals in order to :

• Discuss with your banker all the issues related to the conversion of tangible assets into cash and maximize the lending value in the case of a line of credit granted by a financial institution;
• Make the appropriate choices to defer certain payments, either capital and/or interest payments with the agreement of short-term or long-term creditors;
• Consider all possibilities offered by public institutions to defer, without penalty or interest, amounts that may be owed to government authorities, taking into account that these same amounts will eventually be owed and that they benefit from a priority (deemed trust) in favour of public authorities;
• Check government assistance programs with your respective financial institutions, Investissement Québec, BDC, Financière agricole du Québec, Farm Credit Canada and other public corporations.

Plan Ahead in Order to Further Minimize Liquidity Crises

There also are slightly more drastic measures to protect you against possible liquidity problems. However, to ensure the success of such processes, whether they consist of a notice of intention under the Bankruptcy and Insolvency Act or protection under the Companies' Creditors Arrangement Act (debts totaling over $5,000,000), a preliminary plan must be prepared with specialized professionals. This critical plan will minimize the impact on all of the company's partners and clients and ensure a transition that could be subject to an accepted proposal under the terms of the aforementioned laws.

An entrepreneur’s worst enemy is a lack of planning. Faced with isolation, you still have to fulfill your obligations, including various reports to the authorities. We encourage you to consult the right specialists in order to implement all the measures required to maximize inputs and minimize expenses.

For 25 years, BCF's mission has been to support our local businesses. We understand the issues you face and our Corporate finance, banking and securities team is available to help you benefit from the resources at your disposal and minimize the financial impacts of the COVID-19 pandemic. Please do not hesitate to contact Claude Paquet, co-head of Banking and Financing Law Group, to assist you with respect to the applicability of the new measures announced.

[1] Key Small Business Statistics - January 2019