Performing a financial stress test is something the NSCA says should be a top priority for all AV companies. But what does that mean, exactly?
As part of their Business Continuity Portal, the National Systems Contractors Association (NSCA) has detailed the steps and considerations necessary to perform a financial analysis indicator known as a stress test, which is all about maintaining liquidity and confidence in one’s business.
Basically, AV companies should consider these basic questions:
- Can we get equipment (as some suppliers may have closed)?
- Can we get paid?
- Can we get to the site?
- Can we defer payments or extend credit to preserve cash?
Further, questions surrounding gross and net profit need to be carefully considered as integration firms look ahead of the next three months. Of the work that can be done, what is the anticipated gross profit of those projects? Were they already high-margin jobs or do you see margin erosion?
Accounts receivable is another critical area. The NSCA says each day’s sales outstanding report will become a leading indicator for financial stress tests this quarter.
They also caution AV companies to avoid any brash decisions surrounding stock:
You will have deep discounts offered like never before to buy materials for inventory, and you will have pressure to keep buying levels up for incentive and spiff programs. I am personally contacting manufacturers that have these programs and encouraging them to extend them rather than enforce buying levels. Be smart about this. Before doing something as a favor to others, remember that your No. goal is to keep your business afloat. — NSCA
Find more resources for AV companies during COVID-19 in their Business Continuity Portal.