As everyone has probably learned by now, crises can occur unexpectedly and suddenly in the form of a global shock. Start-ups and especially their financial organisations will have to be prepared for unexpected extreme situations in the future and have to develop a finance playbook in response. If the shock occurs suddenly and hits the business model hard, the finance team must be able to act quickly. Here’s some food for thought for developing your own playbook.
These goals are important now
In case of a crisis, the primary goal is to ensure that your start-up can survive the crisis. This overall goal hold true for all start-ups. On the way to achieving this overall goal, each start-up has to set and achieve their own individual sub-goals. For example: protection of employees, stabilization of the value chain, a close communication with suppliers and customers, discussions with investors, updating financial planning and securing liquidity to ensure the continued existence of the start-up. Because as sales are collapsing suddenly and massively and no financing round is about to be closed successfully, cash holdings will fall quickly.
Prepare your start-up for different scenarios
A lot of extra work is being put on the financial organization during a crisis. It has to update its financial planning on an almost daily basis and has to carry out tons of sensitivity analyses in anticipation of crisis developments in various scenarios. It should also start this work as soon as possible, even if the first scenarios are still being developed in a rather casual manner. How to approach this?
It is best to start with sales revenues and carry out sensitivity analyses with scenarios for slumps in sales of varying degrees. This should also include asking the critical questions. For example: How will your customers and partners behave in the crisis, how will their needs change and how will this affect your start-up’s business model? What to do if the crisis lasts longer than 6 months? And what to do if you lose, for instance, 50% or 90% of turnover for this period? How can your compensate at least a part of the revenue losses with regard to the cost side and how do these measures affect your liquidity? In which areas can you make cost savings without endangering the fundamental sustainability of your start-up?
We have to be ruthlessly honest about the situation. In this situation, there is no need for whitewashing, but a clear willingness to think, plan and communicate even in worst-case scenarios. Because, depending on the occurrence of one of the planned scenarios, deep cost savings may have to be made – and as quickly as possible. Of course, nobody likes to hear such messages. This makes convincing crisis communication all the more important. Because if hard cuts have to be made on the cost side, they must be communicated in a transparent and comprehensible way.
Conclusion
Especially in crisis situations, it is important to run through a wide range of possible scenarios to prepare your start-up accordingly. A prepared finance playbook can help to get started quickly with effective actions and to provide information that serves as valuable support for tactical and strategic decisions of the start-up management. It should not be forgotten that especially in crises whose end is not clearly foreseeable, the situation for one’s own start-up must be reassessed daily and one’s own actions must be adjusted accordingly. Every start-up faces its own challenges, and we would be happy to support you in overcoming them.
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