Commercial Stress Test as a guide for corporate finance in Corona Age

It’s going fast. Companies crave “business as usual” and gasp for oxygen. For the latter, they don’t only look at the government, but especially at the banks. But can banks treat all their “patients” and does that make sense? It almost seems like the IC department of an overloaded hospital where one has to consider who to give oxygen to and who not.

But how do you correctly determine priorities? Just as with a Commercial Due Diligence, one should now quickly look at the customers and the products or services of the company looking for additional financial resources. The emergency department could already do a quick screening on a number of parameters. During such a Commercial Stress Test, one should definitely think about these 5 topics.

1. Importance of the products or services for the customers

How important are the products or services for the company’s customers? Are the products or services easily and without risk exchangeable for a competitor’s alternative? Suppliers of “routine products” have a greater risk that their place with the customer will be taken or has already been taken by a competitor than in the case of a strategic product.

2. Quality of the customers

Of course, when evaluating companies, it is important to look at historical customer loyalty (and churn) as well as these days the quality of the customers, their payment behavior and their profile. It is already predictable that companies with customers in the entertainment, travel, fashion and hospitality industries, among others, will have a very difficult time in the short term.

3. Geography of suppliers and customers

Nowadays you should also look at geography on the suppliers’ side as well as on the customers’ side. In the global world, companies buy and sell everywhere; there are no borders. In the short term, however, there is no guarantee that all suppliers will be able to deliver, which means that the company will not be able to deliver even when it is restarted, nor that countries will immediately open up their borders again.

Even if that’s the case, there is a patriotic reflex today. In Europe the French were already the champion with “produit de France” but today we also see the call of retail CEOs to buy locally. What effect will this patriotic reflex have on the markets?

4. Digitization

In addition, one could also look at the extent to which digitization has penetrated this period in the sector in which the company is active. One would have to see whether the company is ready to play along in the changed world or has concrete plans for it. If one thing is certain, it is that digitization will have accelerated. We are not only talking about “working from home” but also about discovering online as a new buy/sell channel, online education/training or live streaming of events.

5. Restart plan for the post Covid-19 period

Is there a plan with short term action points to be able to serve existing customers again as soon as possible? Ideally, there should also be a (medium) long term plan to get back on track with the future in an often changed market context; is this a risk or an opportunity. The old plans will often no longer be relevant and should at least be tested.

As part of the assessment of the restart plan, one should also check whether the company has clear contingency plans for all critical processes; e.g. the supply chain, order to cash and invoicing.

Commercial assessment for a correct estimation of the risks

We are in an exceptional period where a routine approach to financing questions is risky.

Taking a critical look at these commercial aspects requires some time and knowledge, but undoubtedly pays off quickly. If you can’t insure yourself against a miscalculation of a financing dossier, a commercial assessment, certainly of the larger dossiers, is the best alternative to make a correct risk assessment.

In the end, it is likely that the same thing will happen to companies as unfortunately happens to people; a natural selection will take place. The strongest will automatically survive; the weakest will need help and possibly not every company will be able to be helped and choices will have to be made as to who will be given oxygen for how long. Not easy to make the right choice… Hopefully this framework will help to save promising companies and thus jobs; that is also a social responsibility that we have together.


Written by Jan De Lancker – Founder BrainTower

BrainTower was one of the pioneers in the field of Commercial Due Diligence. This service was developed on the basis of insights gained by Vincent Lanckmans and Jan De Lancker, among others, when they were involved in a number of corporate acquisitions and saw that the commercial topics were insufficiently considered, with the subsequent consequences. Based on this practical experience BrainTower developed its own methodology.

Since the first CDD in 2003 BrainTower has been involved in transactions in FMCG, retail, OTC, consumer electronics, telco, services, media & entertainment and construction.

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