Understanding cash flow during uncertain times

As the economy continues to slow down amid COVID-19, local governments need to understand their current cash position and working capital needs. This requires you to undertake a cash flow analysis to answer key planning questions, such as:

• What is our current cash position in all funds?
• What is our best estimate of revenues over the next six to 12 months?
• What is our best estimate of operating expenses at current service level over the next six to 12 months?
• What capital improvements are anticipated over the next six to 12 months?

A cash flow analysis will highlight areas of potential cash flow shortages in advance so you can develop a plan to bridge funding gaps and manage your financial resources. Once you get a handle on your cash position, the next step is to inventory your options:

• What opportunities exist to increase revenues (e.g., available state and federal grants)
• Can we issue tax and revenue anticipation notes to realize anticipated current-year revenues in the near term?
• Can we delay or cancel any cash funded capital improvements?
• For those capital improvements that cannot be delayed, can we finance them with debt to make cash flow available for operations?
• What are our opportunities to reduce operating expenses?
• Reduction in personnel costs (for example: reduction in seasonal employment levels)
• Negotiation with suppliers for more favorable terms
• Evaluation of operations to identify efficiencies including duplication of effort, non-value-added activities, or other inefficiencies?
• Elimination of expenditures and or programs?
• Opportunities to share costs through collaboration with other entities?
• Are there opportunities to refund existing debt to reduce debt service costs?

Although it may be too soon to understand the full extent of the financial impact of COVID-19, it is certain there will be an impact. It is important to get in front of this potential financial challenge and develop a plan.

If you have questions about developing a cash flow analysis or need assistance, please contact our team.