Value preservation in (di-)stressed and crisis situations

One effective cash conservation measure is to defer non-essential payouts, such as dividends, bonuses or certain vendor payments. By delaying these expenditures, companies can preserve cash in the short term and redirect it towards more critical operational needs. It is important to communicate openly with stakeholders about the temporary nature of these deferrals, ensuring transparency and maintaining relationships.

To improve cash flow, companies can negotiate early payments from customers in exchange for small discounts or incentives. Offering customers a discount for immediate payment can provide an incentive for them to settle outstanding invoices sooner. This measure helps enhance liquidity, reduces outstanding accounts receivables and ensures a steady inflow of cash during a crisis.

Intensifying efforts to collect outstanding receivables becomes imperative during a crisis. Companies should strengthen their collection processes, follow up with customers on overdue payments and consider renegotiating payment terms with those experiencing financial difficulties. By diligently pursuing outstanding receivables, organisations can recover cash that may otherwise remain tied up and improve overall cash flow.

During a crisis, it is essential to scrutinise and prioritise investments. Non-essential or discretionary expenditures should be postponed until the financial situation improves. This includes deferring new projects, expansions or investments in non-strategic areas. Rationalising and carefully allocating resources to high-priority initiatives helps preserve cash and ensures that funds are directed towards essential operations.

If a company has subsidiaries with surplus cash, repatriating those funds can provide an immediate cash injection, particularly during a crisis. Aligning intercompany loan agreements, revisiting transfer pricing arrangements or leveraging foreign exchange opportunities can facilitate the repatriation of cash to the parent company. However, it is important to consider potential restrictions on capital exports and tax implications.

To mitigate the impact of a crisis, organisations must quickly identify and implement cost reduction strategies. This may involve eliminating non-essential expenses, renegotiating contracts with suppliers, optimising procurement processes and eliminating low-value activities. Rapid cost reduction measures help businesses to maintain liquidity, improve their financial position and adapt to changing market conditions.

During a crisis, companies often need to streamline their operations by addressing excess capacity, headcount and spending. Assessing and eliminating excess capacity contributes to aligning production capabilities with market demand and optimising resource allocation. Similarly, reducing headcount through strategic workforce planning and restructuring allows organisations to align their workforce with business needs, resulting in increased efficiency and cost savings. Furthermore, scrutinising spending across all areas of the business ensures that financial resources are allocated to critical activities that deliver the highest value.

During a crisis, companies may find it necessary to dispose of underutilised or non-core assets to generate immediate liquidity and reduce financial burdens. Selling assets that are no longer integral to the business can provide a quick injection of funds and help realign the company's strategic focus. Alternatively, repurposing assets to serve a different purpose or exploring alternative uses can unlock value and generate new revenue streams and/or cash flows.

By entrusting non-core or non-strategic business processes to external service providers, organisations can leverage specialised expertise, access advanced technologies and benefit from economies of scale. Outsourcing allows companies to enhance flexibility, focus on core competencies and gain a competitive edge while reducing costs associated with in-house operations.

Automation plays a pivotal role in operational restructuring, enabling companies to streamline processes, reduce costs and enhance productivity. By automating repetitive and manual tasks, organisations can minimise human error, improve efficiency and free up resources to focus on more strategic initiatives and value-generating activities. Automation also enables companies to scale operations quickly, respond to changing market demands and achieve cost savings.

When facing a crisis, organisations should proactively engage with their lenders to renegotiate financing arrangements. This may involve modifying repayment terms, adjusting interest rates, extending loan maturity or securing additional credit lines. Renegotiating financing arrangements can alleviate immediate financial burdens, bolster liquidity and provide breathing space to implement other restructuring measures.

To enhance their financial position, companies may consider raising new debt or equity. This can be achieved through various means such as issuing bonds, obtaining loans from financial institutions or attracting new investors through equity offerings. Raising new debt or equity infuses the company with much-needed liquidity, strengthens its balance sheet and helps restore confidence among stakeholders, in particular other investors.

Companies with pension or insurance liabilities must address these obligations to alleviate financial strain. This may involve restructuring pension plans, renegotiating contribution arrangements with employees or retirees or looking for insurance coverage alternatives. By taking such measures, organisations reduce financial burdens.

In times of crisis, businesses can explore government programmes aimed at providing financial support, grants or subsidies. Governments often introduce initiatives to assist struggling corporations, particularly during economic downturns or extraordinary circumstances. Companies can apply for financial aid programmes to support their restructuring efforts, retain employees or adapt to new market conditions.

Business development and M&A activities can help companies navigate longer-term corporate crises by allowing them to seek strategic partnerships with or even absorbing stronger or complementary organisations. A well-planned merger or acquisition can provide access to new markets, technologies, expertise and financial resources that may be crucial in overcoming a strategic crisis. M&A transactions can also facilitate the sharing of risks and costs, leading to improved resilience and competitive advantage.

During corporate crises, bringing in new strategic owners or partners can inject fresh capital, expertise and managerial talent into the organisation. This provides companies with the financial stability, industry knowledge and operational support required to weather a storm. Besides tangible contributions, new owners also lend confidence and credibility to other stakeholders, helping to rebuild trust in the business.

In times of crisis, companies may consider divesting non-core assets or selling underperforming business units / subsidiaries to generate much-needed liquidity or to focus their resources on core operations. Rapid divestitures help in streamlining the business model, reducing debt and realigning the company's strategic direction. This allows organisations to free up cash flow, enhance agility and regain financial stability amidst a crisis.

If the aforementioned operational, financial and strategic measures do not yield the required results and companies consequently face a severe crisis including distress or insolvency, it becomes imperative to explore solvent or insolvent transactions to safeguard stakeholder interests. If solvent transactions, such as debt restructuring or refinancing aimed at reorganising the company’s financial liabilities or recapitalising the business (as described in the previous section) are not feasible, insolvent transactions, including liquidations, receiverships (such as the Swiss debt moratorium, “Nachlassstundung”) or insolvency proceedings, are available and serve to maximise value for stakeholders, especially creditors, in such situations.