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The pandemic has exposed all of us to increased uncertainty. Let’s explore scenarios associated with cash outflows using the example of cash inflows above. In light of this variability, it might help to begin thinking about three simple levels of possibilities. There is likely a fixed level of payroll needed to operate a business, with the difference representing the discretionary component. For example, payroll may feel more like a fixed expense, but unfortunately, realities of furloughs or layoffs mean there is a portion of payroll that can be discretionary. What amount of discretion is available to manage cash outflows? Some cash outflows may be hard to classify as either required or discretionary.Variable expenses are likely affected the most, but there may also be opportunities to adjust or defer some fixed payments (eg, some loan/lease agreements may allow for periods of deferment or rent holidays). For some, the ongoing pandemic is increasing costs (eg, investments in technologies to support a remote workforce) while there may be decreasing costs for others (eg, lower interest expenditures). How is the current business environment affecting cash outflows? Current conditions likely affect major cash outflow categories differently.It will be important to associate related inflows and variable outflows in the analysis. It is also important to highlight those that are variable so we can link them to what drives their variability, such as costs that vary with sales. Fixed expenditures are at least more predictable. Pinpointing the fixed cash outflows, particularly those required by law or contract, can help management focus on those that need to be funded first. What expenditures can be categorised as fixed or variable? Some cash outflows are fixed, such as debt and interest payments, rent, and IT service centre fees.Most organisations must fund cash outflows related to payroll, inventory purchases, materials, supplies, core services, essential repairs and capital improvements, financing charges, taxes, etc.

What are the most significant types of cash outflows for our organisation? Compared to cash inflows, the number and variety of cash outflows can be significantly greater.

Next, break down cash outflows into the major categories that can help business leaders focus on these questions: So, it might help to think about three levels of possibilities: “worst case,” “OK-but-not-great case,” and “reasonable, hopeful case.” For example, payments from some customers may be delayed, affecting the timing of receivables collections. It may be difficult to determine exactly how each source might be impacted in 2021 by existing economic and other market conditions.

How is the current business environment (the pandemic, ongoing national elections, social unrest, etc.) affecting each of these core sources of cash? Business conditions may affect each of the core sources of cash differently, and it is important to consider where those differences might be most severe.

For example, different types of customers (eg, commercial, consumer, government, etc.) might affect cash inflows in different ways. Within each of these categories, there may be subcategories that might be important to consider separately. For others, investment income, contributions, or government funding provide significant cash for the organisation.

What are the core sources of cash for our organisation? For most organisations, sales of products or services are the main sources of revenues (and ultimately cash inflows).

Start with cash inflowsĪs we think about sources of cash, it might help to think through these questions: In this environment, finance leaders should consider taking a number of steps to obtain a better, more comprehensive view of organisational cash flows. COVID-19 and other 2020 events have affected almost all aspects of most organisations, making it challenging to pinpoint all potential variables that might affect cash inflows and outflows simultaneously. Revenues that were once fairly predictable are no longer stable or even present, and organisations trying to navigate the crisis face previously unseen costs.

The pandemic, combined with global trade tensions, ongoing political elections, continued social unrest in some countries, and other risk drivers, has put tremendous strain on most organisations. COVID-19 has taught us that a single event can trigger a cascade of risks affecting all aspects of an entity’s operations. As we look ahead to 2021, we have a better appreciation of the fact that emerging risks can quickly disrupt business models and strategic plans.