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Recovering from COVID-19

Updated: Sep 21, 2020

Emerging from the COVID-19 Pandemic Stronger


September 2020

COVID-19 has turned the world upside down and middle-market businesses have been severely affected. Many historically profitable and growth-oriented companies are facing financial and operational challenges for the first time. They continue to grapple with suppressed demand and uncertainty, leaving more questions than answers. As these businesses look to recover from the coronavirus pandemic, they need to be focused on tangible actions that will carry through to the world’s “new normal.”

The Keystone Group has nearly 30 years of experience helping companies improve profit and cash flow. While the COVID-19 pandemic is certainly a unique problem, the strategies and methodologies used to address it are similar to the ones Keystone has successfully employed to help hundreds of companies.

Every business has been affected by COVID-19 differently and will have a unique path to recovery. This article will address a few of the most common challenges businesses are currently facing:

  1. Managing Liquidity

  2. Forecasting Demand Under Uncertainty

  3. Scaling Costs

  4. Reimagining Business Practices

With the adoption of a few useful tools and a flexible business strategy, businesses have the opportunity to not only survive the pandemic but emerge stronger than before.

Please note, this article is focused on financial and operational recovery and will not be focused on workplace health and safety.

Client Example...


The pre-COVID economy brought tremendous growth for a technology-enabled manufacturer servicing high-end retail. With double-digit year-over-year revenue increases, the company’s largest challenge historically was keeping up with demand. Then COVID-19 swept the nation. Most customers shop the company’s products in-person at retail outlets and malls, many of which were forced to close for weeks or months, resulting in an 80% decline in Q2 revenue year-over-year. For the first time in its history, the business had to direct its attention towards conserving cash. How will the company ensure sufficient liquidity until revenue recovers?


In the wake of COVID-19, many businesses that have been historically healthy are now facing unprecedented financial challenges. The highest priority is often managing liquidity and ensuring sufficient cash flow.

The first step to managing liquidity is visibility. Constructed on the basis of cash inflows (e.g. collection of A/R, equity infusion, debt issuance, etc.) and cash outflows (e.g. payroll, rent / utilities, manufacturing costs, debt interest and principal payments, etc.), a 13-week cash flow model provides visibility into a business’s forecasted net change in cash. The value of a 13-week cash flow model goes beyond visibility: it drives decisions. Businesses should use this model to make decisions in the near-term and the long-term:

  • Given my sales and receipts this week, which suppliers can I afford to pay?

  • To what type of payment plan can I realistically commit?

  • By how much do I need to reduce operating expenses to ensure sufficient liquidity?

Cash flow models expose any cash deficits the company is expected to experience over the coming quarter. To prevent a shortfall and improve its cash position, businesses can pull a few levers beyond reducing costs such as improving working capital and restructuring debt obligations.

To improve working capital during low demand periods, reduce material purchases and work through inventory that is already on hand. Aggressively collect A/R and be sure to keep an eye on invoices at risk of becoming ineligible. Finally, implement payment plans with vendors and customers alike to reduce cash flow uncertainty – just be sure to only agree to plans that the company can realistically follow-through on.

Consider negotiating with the company’s lenders to relax covenants, adjust collateral eligibility, or restructure the loan. With transparent and frequent communication, lenders will be more likely to work with the company. Being realistic and open with stakeholders helps them help you.

Emerging Stronger...


Maintaining a cash flow forecast and using it to drive business decisions is good practice even in a non-distressed operating environment. By continuing to use and refine a 13-week cash flow model as the economy recovers, businesses will be able to make smarter, more proactive decisions. Use the 13-week model to prioritize capital expenditures, monitor cash disbursements, and investigate significant variances to forecasted net cash flow.


Client Example...


As a manufacturer of sporting equipment and apparel, the seasonal nature of team sports causes volatile demand in even the best of circumstances. With upcoming seasons in jeopardy, it is difficult to predict how top-line revenue will be impacted for the foreseeable future. This not only creates uncertainty around the company’s profitability and cash flow, but it complicates planning decisions such as inventory purchases, capital expenditures, and hiring. To further complicate matters, the bank is asking for a revised forecast to understand its own position. How can the company make intelligent business decisions when future demand is so uncertain?


When a company cannot confidently rely on a single financial forecast, scenario analysis can be an extremely useful tool. A good starting point is to create a best-case, likely-case, and worst-case scenario for monthly revenue. Look at sales trends on a customer and product basis to identify micro-level trends. Hold regular meetings with the largest customers to get a pulse on future purchases and ask them if a purchase forecast is available. Understand what “knowns” or “givens” exist to help minimize some of the moving pieces.

With the revenue scenarios identified, the next step is to plan how expenses and balance sheet amounts will be adjusted in each scenario. In addition to direct labor and material costs, evaluate the need to adjust back-office SG&A costs based on varying sales levels. Do not forget to forecast key balance sheet accounts such as cash, A/R, inventory, PP&E, A/P, and debt. Each scenario will likely lead to different working capital trends and investment decisions. These will be especially important if the company utilizes an asset-based loan.

Build an integrated, three-statement model to understand how each scenario will impact the company’s overall liquidity and resulting financial covenants. Translate the scenarios identified from a monthly financial model into a 13-week cash flow format to understand how liquidity may be affected in the near, medium, and long term. If liquidity becomes a constraint in any scenario, brainstorm what actions need to be taken to improve the company’s cash position.

In general, a company should identify enough scenarios to feel 95% certain that actual sales will fall somewhere in-between. By having a concrete plan of action for these widely differing scenarios, including having identified triggers for when to take various courses of action, a company can feel confident in its ability to react to uncertain demand.

Emerging Stronger...


The ability to react to uncertain demand is predicated on maintaining a flexible supply chain. This is especially important when dealing with international suppliers who are more susceptible to government restrictions. Evaluate how the company’s supply chain will function in each scenario identified and be sure to have contingency plans in-place if a major supplier is disrupted.


Client Example...


Few industries have been hit harder by COVID-19 than airlines. At one airline parts supplier, sales are down 70% year-over-year. The top commercial airlines have unilaterally cancelled orders and delayed payments, and the expectation is that air travel, especially high-margin international travel, will be slow to return. Furthermore, the timing of this return is completely uncertain. The immediate impact coronavirus had on the company forced it to take aggressive cost-cutting measures early on. The continued uncertainty and volatility of demand will necessitate additional proactive and reactive cost measures. How will the company adopt a nimble and flexible cost structure?


With reduced revenue and complete uncertainty of when demand will return to pre-COVID levels, companies have been forced to make difficult, and often painful, decisions. Many companies have already implemented cost reductions across the board – from labor to T&E to capital expenditures. Ideally, companies are shifting to a more variable cost structure. Reducing fixed costs and relying more on variable costs will allow companies to scale with demand and maintain sufficient levels of profitability and liquidity, even when demand is low.

As the economy recovers, companies must continuously monitor demand levels and scale costs accordingly. Expenses, including labor, material, overhead, and SG&A costs, should be forecasted for each revenue scenario identified in the demand forecasts. Be realistic about what costs are required to support each sales scenario, and proactively plan how the company will prioritize adding back costs and building the business back up. Prioritize expenses that have a direct impact on profitability and contemplate which costs could be more easily contracted back again if needed. For example, production labor directly impacts the ability to ship product, which generates cash flow, and it can often be managed as a variable expense. Conversely, a new capital investment may not have its intended ROI and is not recoverable if cash becomes tight again.

When demand starts to return, rehiring direct labor will be the top priority, followed by back-office and indirect employees. In an environment of extreme demand uncertainty, the company may consider using temp labor as a means of easily scaling labor with demand. Be wary of the impact on cost and quality, though, as temp labor is often correlated with inefficiency.

In addition to a detailed build-back plan, companies should monitor labor productivity by implementing metrics (e.g., earned vs. worked hours). Some companies have found that a reduction in workforce has not resulted in a proportional decrease in productivity, suggesting a permanent savings opportunity. Although Keystone expects a leaner world post-COVID, businesses need to be cognizant of unsustainable productivity levels, employee burnout, and under-investing in the necessities of the business.

Emerging Stronger...


Balancing growth and liquidity is challenging in any environment. Focus on adopting a more flexible cost structure that will allow operations to more easily expand and contract in reaction to the market. Maintain a close grasp on what costs are required to support the company’s likely revenue scenarios, and keep in mind that some costs cut in response to COVID-19 may represent excess costs in normal-course business.


Client Example...


Over the course of 30+ years, a home improvement company perfected a sales model that involved sending company Sales Representatives and Measure Technicians to the customer’s home. With strict COVID-related governmental restrictions in-place across much of the company’s footprint, it became infeasible to meet face-to-face with customers. Even in regions where it was permitted, many customers felt uncomfortable having a stranger in their home. How will the company adapt its proven sales strategy that has been in-place for over three decades?


Since the impacts of the virus were first felt in March of 2020, both employees and customers have been quick to adopt to a new normal, oftentimes accelerating trends that were already in motion. Formerly face-to-face meetings are now conducted by video, the shift to online shopping is accelerating, and working from home is commonplace. What is less clear is which of these adaptations will continue post-COVID.

A decrease in sales has been unavoidable in most industries. In many instances, this is a short-term challenge until we return to pre-COVID lifestyles. For those businesses, it will be important to find ways to drive immediate demand and to find ways to weather the storm. For others, however, this may be a long-term change to the business, requiring a larger strategic shift.

Think critically about the strategic plan for the business:

  • Have our customers’ needs changed?

  • How do these changes impact our value proposition / why we win?

  • Are there opportunities to improve our market position?

  • Can we better utilize technology to improve customer interactions?

  • Do we need to alter our go-to-market strategy?

  • Will our current operational strategy and organizational structure adequately support the future of the business?

  • How might our timeline for a planned acquisition, recapitalization, or exit need to be adjusted?

This process might look much like an annual strategic planning meeting. Ensure there is representation from all aspects of the business to capture a broad perspective and create an atmosphere where honest reflection and creativity is encouraged. Be realistic about what can be done in the short-term, as well as what must be done in the long-term.

Each industry’s recovery from COVID-19 will be unique, and no one will be able to perfectly predict how long it will take or what its impacts will be. However, by taking the time to reimagine how best to meet the needs of the customer, the company may be able to better-position itself for both the short and long term.

Emerging Stronger...


For many companies, decreasing revenue has resulted in idle capacity across the business. Use this downtime to invest in long-term upgrades such as employee training, machine maintenance, production line changes, and new reporting packages. Additionally, while some customer preferences will temporarily change during COVID, others may prefer the new way of doing business. Brainstorm how to effectively service both customer segments going forward.


The Keystone Group is a results-oriented management consulting firm. Our small, experienced teams work with mid-market manufacturing and distribution clients to develop strategy, improve operations, restructure finances, and integrate acquisitions. Since our founding in 1991, Keystone has been fostering long-term client relationships based on the tangible results we produce using our expertise and unique work style. Through active client involvement, our Partner-led teams deliver both recommendations and implementation of these recommendations to our clients.

For client inquiries, please contact Barry Dunne at

Article written by Lizzy Ettleson and Alex Steilen, with insight from several members of the Keystone Leadership Team.

Recovering from COVID-19 September 2020


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