Financial Resilience-Overview

The impact of covid 19 dramatically highlighted the importance of financial resilience. Strong Financial Resilience requires businesses to adapt their financial frameworks to deal with a much more volatile environment in which profitability, cashflow and access to funds are experiencing simultaneous pressure.

There are 3 key elements in creating financial resilience in your business:

1. Cash Management and Stress Testing

At the time of writing in mid-2024, in spite of the current high-level of uncertainty in the world, which increases the importance of accurate and timely cash management & forecasting, many businesses are still not taking action to improve their capabilities.

The current environment requires companies to have the capabilities required for both understanding their current cash position and how much cash they may require in the short to medium future.

Even for cash-rich companies, the potential benefits of accurate cashflow forecasting are numerous.

At the time of updating this document, some businesses that were healthy Pre Covit-19 were still under financial pressure, with staff members contracting covid 19 taking time off work whilst they are still infectious or unwell, and severe staff shortages as the level of unemployment is at record low levels, and with inflation at record high levels meaning their cost base has increased significantly.

The uncertainty and disruption, they are experiencing means they are also having to update their cashflow models frequently, in some cases revising them weekly, and making sure that they will have access to sufficient funds available to meet their short-term financial commitments.

To implement the above quickly, medium and large size businesses have been forming Agile Multi-Disciplinary teams, including talented people from functions such as IT, Admin, HR, Legal, Media and Communications, Finance and Operations.

The Agile team should still be focused on managing and upgrading their cashflow models to deal with the uncertainty and disruption that is showing no signs of resolution any time soon!

If you don’t have the required resources currently available in-house, you might consider bringing in a financial expert to set up your cash forecasting process and to train your finance-team to manage it going forward.

Small businesses with limited manpower resources should also consider bringing in a financial expert to set up their cash-forecasting process and to train your team to manage it ongoing.

Financial stress testing is about identifying the areas of vulnerability in your business so plans can be tested to address them in a timely and proactive manner should the need arise.

This will allow you to determine the length of time your business can trade under different scenarios and give you time to engage with key stakeholders (shareholders, regulators, banks & any other potential sources of funds) to negotiate outcomes.

2. Liquidity & Financing

Ongoing uncertainty over demand and supply chain resilience is creating liquidity pressure across the business.

Your Agile Team will need to evaluate funding strategy options, including existing lenders and other sources of capital in order to meeting your funding needs in the time available.

You should continue to engage regularly with other key stakeholders to keep them informed of any potential short-term funding concerns and maintain awareness of any changes to interim funding and payment alleviation options supported by government.

3. Financial Crisis Response & Contingency Planning

Businesses in immediate cash crisis must take steps to preserve cash balances by restricting payments to only the most business‑critical vendors as they mobilise contingency plans

If insolvency looks unavoidable, carry out contingency planning to decide the insolvency strategy most likely to protect value for creditors.

Directors should consider their duties in a financially distressed situation, the duties owed by directors’ shifts from shareholders to creditors. Personal liability and disqualification risks should be considered.

Strong Ongoing Financial Resilience will require businesses to adapt their existing financial frameworks to deal with a much more volatile environment in which profitability, cashflow and access to funds are experiencing simultaneous pressure.

To support the cash position and forecast the key underlying ratios should be available to the executive team. The key ratios would vary from business to business but would typically be:

• Current Ratio: Current assets/Current liabilities
• Quick Ratio: Current Assets-Stock/Current liabilities
• Accounts receivable days
• Accounts payable days, and
• Inventory day

An ongoing process should be in place to manage these factors and they should be regularly reviewed by top management.

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Last Updated April 2025