The CEF has published a Decalogue of advice for Spanish companies to face the current crisis. With this Decalogue, which is titled “The ten things that a company shouldn’t do in time of crisis”, the CEF aims to point out mistakes that the companies should avoid in a recession.
Juan Jose Pintado, the CEF finance professor, has been the head of this work, participated in the drafting of various professors and experts also economic CEF.
These ten tips are aimed at the companies of our country and contain a series of recommendations that companies should consider. These ten “red flags” that are grouped into various categories within the economy, funding and liquidity of the company. “The outlook and economic prospects have deteriorated dramatically in a very accelerated. At present in proliferating threats and challenges for enterprises, we must emphasize that the most serious aspects have to do with liquidity and the various financing needs. “Points out Pintado”
The ten things that a company shouldn´t do in time of crisis
- Deny the impact of the crisis: Even in the case of companies that apparently have not yet been affected by the crisis, the economy’s communicating vessels will end up provoking branching of the impact. Therefore, even if only in partial aspects, the crisis will eventually affect almost all companies in the country.
- Being extremely cautious: The forecast of cash in the short and medium term is vital to the operation of the company in the circumstances in which we find ourselves. Companies should neglect neither income nor expenses. It is important to closely monitor market developments and sales.
- Neglecting communication. In times of crisis it is especially necessary to properly manage communications with those around you: customers, suppliers, management, employees and stakeholders. Total silence can be as negative as an indiscriminate release of information. You have to manage both internal and external messages, keeping people informed of developments which affect the organization as well as the measures that are being implemented in relation to them. Only then can we neutralize the negative effects of rumors and inaccurate information.
- Not balance the costs and revenues for each scenario: It is important to estimate “Maximum and minimum risk” situations, to provide for the possible contingency actions in each. Different categories of possible actions must be designed, redefining the goals to try to minimize any possible negative consequences of the crisis.
- Ignore budgets and debt: Depending on the flexibility available, the costs should be adjusted in the company’s profit and loss forecast, and strict compliance ensured. The existence of losses, particularly in the case of multinationals, increases the risk of business closure. Much of the effort has to be focussed on getting the financing or refinancing necessary to achieve the company’s financial balance. Especially for SMEs, working capital financing, the “day to day”, is fundamental.
- Neglecting the delegation of decision-making: Faced with uncertainty, many decisions previously delegated or automated, should be examined and perhaps centralized again.
- Continue “without question” investments and projects in progress: It is necessary to reconsider the projects in progress or planned, keeping in the freezer those that will not improve short-term results or billing. Since we are in a different scenario, review the validity of the estimates made before the period of crisis.
- Neglecting potential market changes: The prevailing situation and worsening expectations cause a rapid and continuous change in the patterns of behavior of the agents involved in the market. This requires being constantly alert to the changes occurring in sales, and the reactions of competitors. The faster the company’s response to changes in the market, the better you can plan strategies to re-establish the business.
- Over-react: The crisis is a delicate situation, so hasty decisions should not be made. Moderation should be imposed. Massive reductions in staff are as unwise as indiscriminate hiring.
- Not anticipating possible scenarios once the crisis is over: There is a post-crisis situation and we must think about it. The businessman has to imagine how the sector might be left, and rethink the search for new markets and products for when the crisis ends.