lev-os Conducting Liquidity And Viability Analysis
When To Use
- Building or reviewing a 13-week cash flow (TWCF) model for a distressed company
- Evaluating whether a business can fund operations through a restructuring timeline
- Assessing liquidity runway to determine filing urgency or need for DIP financing
- Identifying critical vendors whose non-payment would trigger operational shutdown
- Supporting going-concern opinions, lender negotiations, or board-level solvency decisions
Inputs To Gather
- Bank statements and cash ledger — trailing 13 weeks minimum; 26 weeks preferred for seasonality
- A/R aging schedule — with collection history and concentration by customer
- A/P aging schedule — including past-due balances and vendor payment terms
- Revolver/ABL borrowing base certificate — current availability, reserves, and eligibility criteria
- Debt service schedule — principal, interest, fees, and covenant compliance dates
- Payroll registers — by pay period, including taxes, benefits, and contractor payments
- Capital expenditure commitments — contractual and discretionary, with deferral feasibility
- Intercompany funding flows — if multi-entity, map cash pooling and restricted subsidiaries
- Material contracts list — leases, supply agreements, and any minimum purchase obligations
Workflow
Establish the cash baseline
- Reconcile opening cash across all accounts (operating, restricted, escrow)
- Identify trapped cash in foreign subsidiaries or restricted accounts
- Confirm revolver availability net of reserves, letters of credit, and borrowing base limits
Build the 13-week cash flow model
- Use a direct-method (receipts and disbursements) format — not indirect/accrual
- Week 1–2: populate from known scheduled payments and confirmed receivables
- Weeks 3–6: use rolling historical conversion rates for A/R and A/P
- Weeks 7–13: apply trend-based or management-forecast assumptions with clear labels
- Segregate operating cash flow from restructuring-related professional fees and costs
- Model revolver draws/repayments dynamically based on weekly net cash position
Stress-test and scenario the model
- Base case: management forecast with historical adjustment
- Downside case: 10–20% revenue haircut, accelerated payables, delayed collections
- Liquidity crisis case: loss of top customer or key supplier, revolver freeze
- Identify the week where each scenario breaches minimum cash or triggers covenant default
Perform critical vendor analysis
- Classify vendors into tiers: (1) sole-source/operational necessity, (2) important but substitutable, (3) discretionary
- For Tier 1 vendors, assess: lead time for alternatives, contractual cure periods, lien exposure
- Estimate the cost of vendor defection (production stoppage, lost revenue, substitute pricing)
- Flag vendors with cross-default or setoff rights against receivables
Assess going-concern viability
- Calculate liquidity runway in weeks under each scenario
- Determine if the company can fund: (a) ordinary operations, (b) restructuring costs, (c) adequate protection payments simultaneously
- Evaluate whether a consensual out-of-court process is feasible or if a filing is required to access DIP financing, the automatic stay, or Section 363 sale process [VERIFY — jurisdiction-specific filing considerations and local rules]
- Identify specific triggers that would move the timeline forward (e.g., vendor acceleration, lender sweep, covenant breach date)
Document assumptions and sensitivities
- Create an assumptions page listing every conversion rate, growth factor, and timing assumption
- Flag which assumptions have the highest cash impact if wrong (tornado chart or sensitivity table)
- Note all data gaps and their estimated materiality
Output
- 13-Week Cash Flow Model — weekly receipts and disbursements with beginning/ending cash, revolver balance, and minimum liquidity line
- Scenario Summary Table — side-by-side comparison of base, downside, and crisis cases showing the week liquidity is exhausted
- Critical Vendor Matrix — tiered vendor list with sole-source flags, estimated switching cost, and recommended payment priority
- Liquidity Runway Assessment — narrative memo stating weeks of runway under each scenario, key triggers, and recommended next steps (e.g., engage DIP lenders, prepare first-day motions, negotiate forbearance)
- Assumptions and Sensitivity Log — tabular list of all model inputs with source, confidence level, and cash impact range
Quality Checks
- Confirm the TWCF beginning cash ties to the most recent bank statement — zero tolerance for unexplained variances
- Verify that total 13-week disbursements are cross-checked against trailing actuals (±10% variance requires explanation)
- Ensure revolver mechanics reflect actual credit agreement terms (borrowing base formula, reserves, dominion triggers) [VERIFY — confirm against executed credit agreement]
- Validate that critical vendor tier assignments have been reviewed against supply chain and operations teams — not solely from financial data
- Check that the downside scenario assumptions are genuinely adverse, not a marginal trim of the base case
- Confirm professional fee estimates reflect actual engagement letters and anticipated restructuring scope
- Flag any week where minimum operating cash falls below a two-week payroll coverage threshold