What a board actually needs in the first 30 days of a liquidity crisis

The first board meeting after the company discovers it is short of cash is usually a bad one, and not for the reason directors expect. The problem is rarely that management has no plan. It is that the board has no way to tell whether the plan is real.

The number that matters is the one nobody trusts

Every company in this position produces a cash forecast within a week. Almost none of them are believed, including by the people who built them. They are assembled from the accounts receivable aging, an optimistic view of collections, and a payables schedule that assumes vendors will keep shipping. The board reads it, asks a question about a line item, and the meeting turns into a debate about assumptions.

What the board needs in the first thirty days is a 13-week cash forecast that has been built from bank balances forward, reconciled to the actual cash every Friday, and revised in writing every Monday. Not a forecast. A forecast with a track record. After three weeks of Friday actuals, the board can see how wrong it was, in which direction, and decide how much to trust week eight.

Levers, ranked by speed, not by size

The second thing a board needs is a list of the things management could do to change the number, ranked by how fast each one produces cash. This is where the first month is usually lost. Management arrives with the largest ideas, which are the slowest: a plant closure, a division sale, a renegotiated supply agreement. The board approves them. Nothing happens to the cash for ninety days.

The ranked list puts collections, payment terms, inventory, discretionary spend and the payroll calendar at the top, with the week each one starts to matter. It puts the large structural moves at the bottom, clearly labelled as second-quarter items. It gives each lever an owner and a date. And it is short. A board that receives forty initiatives has received none.

The lenders, before they call you

Most management teams wait to speak to the lenders until they have a plan. Most lenders find out from the covenant calculation that they should have been called a month earlier. The order is wrong. The first call to the lender is not a plan. It is a statement that the company sees a problem, is measuring it weekly, and will bring the plan on a named date. Lenders forgive bad numbers. They do not forgive surprises.

The board should ask, in the first meeting, who has spoken to the lenders and what was said. If the answer is nobody, that is the first action item.

One person, accountable for both

The last thing the board needs is a single name attached to the cash forecast and the lever list. Not a committee, not a steering group, not the CFO and the CEO jointly. One person who will be asked, every week, whether the number was right and whether the levers moved. In a small public company this is often not the sitting CFO, who is also closing the quarter, managing the auditor and answering the exchange. It is sometimes an interim appointment. It is always a named individual.

What the board should stop asking for

Strategy. A refreshed budget. A new five-year model. A bank presentation. All of these will be needed, and none of them in the first thirty days. A board that spends the first month on them will arrive at day thirty with a beautiful document and the same cash balance.

The first thirty days have one purpose: to replace what the board fears with what the board knows. A cash forecast with a track record, a ranked list with dates, a lender that has been called, and a name. That is what a board actually needs.